What Is Money Laundering?

You may hear the term every so often on the news, and maybe more often on television shows. But what is money laundering?

Photo by ilaria88.

Laundering is, in simple terms I learned from watching too much television -- and by observing Tony Soprano's many cash-intensive businesses -- the process through which dirty money gets "cleaned". Money obtained through illegal means goes through a process in which its sketchy roots become (theoretically) untraceable. Here's how Investopedia explains it:

Money laundering is the process of creating the appearance that large amounts of money obtained from serious crimes, such as drug trafficking or terrorist activity, originated from a legitimate source.

Here's a hypothetical. Let's say you have $5 million you obtained through criminal activity, like a large scale illegal drug transaction. You can't just go depositing that in your bank account! You'll have to report that money to the ATO and "serious crime" isn't exactly covered in your tax return. You have to clean that money and, according to the United Nations Office of Drugs and Crime, this involves three basic steps:

  • "Placement": The process of moving the funds from direct association with the crime;
  • "Layering": Disguising the trail to foil pursuit; and
  • "Integration": Making the money available to the criminal, once again, with its occupational and geographic origins hidden from view.

A few examples of how a criminal might actually go through this process include:

  • Real estate laundering: Someone buys property with money obtained illegally, then sells the property to make it look like their profits are legitimate.
  • Bulk cash smuggling: Smuggling cash into another country to deposit in offshore banks. These banks keep their clients secret.
  • Structuring: The cash is broken up into smaller sums to avoid having to report it.
  • Cash-intensive business: When launderers use businesses that deal with large amounts of cash to route their money so it looks legitimate.

Again, these are just a few examples, and this Quora thread breaks down a few more. If you're curious, the IRS also has a number of actual money laundering examples here.

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Comments

    I also understand gambling is also a way to launder money. Putting $100k through the pokies or betting on short price horses/sports etc might net you a return of $50-80k but you have the 'winnings' to prove it's 'legitimate'

      You don't even need to bet anything, just say you did imo :P

        Having the Tab ticket or some form of evidence is a key I'm told.

        I used to work in a pub that was a very very big pub Tab and pokies out the back. Over time I was trusted to know the 'goings on' of a number of the 'clients' because they got to know me and trusted me. Crazy how I would be none the wiser had I not seen it all first hand and the vast majority of the public would be oblivious to what some people/places are up to.

    When you use the Australian housing market to launder your drug money.

      What?! All those Chinese buyers of Ozzie homes aren't all simply hardworking?!

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