Compliance Glossary

Money Laundering

The intention of money laundering is to make illegally obtained money appear to come from a legitimate source. 

What is Money Laundering?

Money laundering defined as the method in which illegally obtained money is altered to make the translation look legitimate. What constitutes money laundering? Money laundering occurs when the location, source, ownership, or control of funds are falsified. 

Why is Money Laundering Illegal?

Money laundering is illegal because it is a way for criminals to profit from crime and often involve more than one illegal activity. Both the act and origin of money laundering make it illegal. The first crime occurs when a criminal secures the funds and the second crime is trying to legitimize the proceeds by misusing financial institutions.

What are the Steps in Money Laundering?

There are three main stages in money laundering: 

  • The Placement Stage is when the initial move is made in a financial system. 
  • The Layering Stage is when criminals cut ties that could link the crime with the money. Layering financial transactions is an attempt to obscure a trail that the authorities could follow to find the origin of the money. This is done by moving funds around multiple accounts, splitting the money into smaller amounts, and transferring the payments to various people and places.
  • The Integration Stage is when the illegally obtained money is transferred back to the criminal. By now, the funds have traveled through a number of financial transactions, and the proceeds of the crime can be used for any purpose.

Can You Prevent Money Laundering?

Anti-money laundering (AML) regulations exist to prevent criminals from profiting off these crimes. These regulations require organizations to conduct internal audits ensuring they are not purposefully or accidentally contributing to the money laundering problem. 

The Financial Action Task Force (FATF) brought global recognition to the issue when it formed to set international standards on money laundering. The United Kingdom also established a precedent with a push to strengthen the defenses through a new watchdog body.

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