Money laundering

Money laundering is the process of illegally concealing the origin of money obtained from illicit activities such as drug trafficking, sex work, terrorism, corruption, and embezzlement, and converting the funds into a seemingly legitimate source, usually through a front organization. Money laundering is ipso facto illegal; the acts generating the money almost always are themselves criminal in some way. As financial crime has become more complex and financial intelligence is more important in combating international crime and terrorism, money laundering has become a prominent political, economic, and legal debate. Most countries implement some anti-money-laundering measures.
In the past, the term "money laundering" was applied only to financial transactions related to organized crime. Today its definition is often expanded by government and international regulators such as the US Office of the Comptroller of the Currency to mean "any financial transaction which generates an asset or a value as the result of an illegal act," which may involve actions such as tax evasion or false accounting. In the UK, it does not need to involve money, but any economic good. Courts involve money laundering committed by private individuals, drug dealers, businesses, corrupt officials, members of criminal organizations such as the Mafia, and even states.
In United States law, money laundering is the practice of engaging in financial transactions to conceal the identity, source, or destination of illegally gained money. In United Kingdom law, the common law definition is wider. The act is defined as "the process by which the proceeds of crime are converted into assets which appear to have a legitimate origin, so that they can be retained permanently or recycled into further criminal enterprises".

History

While existing laws were used to fight money laundering during the period of Prohibition in the United States during the 1930s, dedicated Anti-Money Laundering legislation was only implemented in the 1980s. Organized crime received a major boost from Prohibition and a large source of new funds that were obtained from illegal sales of alcohol. The successful prosecution of Al Capone on tax evasion brought in a new emphasis by the state and law enforcement agencies to track and confiscate money, but existing laws against tax evasion could not be used once gangsters started paying their taxes.
In the 1980s, the war on drugs led governments again to turn to money laundering rules in an attempt to track and seize the proceeds of drug crimes in order to catch the organizers and individuals running drug empires. It also had the benefit, from a law enforcement point of view, of turning rules of evidence "upside down". Law enforcers normally have to prove an individual is guilty to seize their property, but with civil forfeiture laws, money can be confiscated and it is up to the individual to prove that the source of funds is legitimate to get the money back. This makes it much easier for law enforcement agencies and provides for much lower burdens of proof.
However, this process has been abused by some law enforcement agencies to take and keep money without strong evidence of related criminal activity, to be used to supplement their own budgets. Civil asset forfeiture has been harshly criticized by civil liberties advocates for its greatly reduced standards for conviction, reverse onus, financial conflicts of interests arising when the law enforcement agencies who decide whether or not to seize assets stand to keep those assets for themselves, and violation of separation of powers and due process.
The 11 September attacks in 2001, which led to the Patriot Act in the U.S. and similar legislation worldwide, led to a new emphasis on money laundering laws to combat terrorism financing. The Group of Seven nations used the Financial Action Task Force on Money Laundering to put pressure on governments around the world to increase surveillance and monitoring of financial transactions and share this information between countries. Starting in 2002, governments around the world upgraded money laundering laws and surveillance and monitoring systems of financial transactions. Anti-money laundering regulations have become a much larger burden for financial institutions and enforcement has stepped up significantly.
During 2011–2015 a number of major banks faced ever-increasing fines for breaches of money laundering regulations. This included HSBC, which was fined $1.9 billion in December 2012, and BNP Paribas, which was fined $8.9 billion in July 2014 by the U.S. government. Many countries introduced or strengthened border controls on the amount of cash that can be carried and introduced central transaction reporting systems where all financial institutions have to report all financial transactions electronically. For example, in 2006, Australia set up the AUSTRAC system and required the reporting of all financial transactions.
With the surge in digital asset in the late 2010s, there has been a noticeable rise in money laundering and fraud tied to cryptocurrency. In 2021 alone, cybercriminals managed to secure US$14 billion in cryptocurrency through various illicit activities. It has been suggested that the expansion of the cryptocurrency trading created new avenues for "secrecy-seeking capital" from the 2010s onward, when money laundering and tax evasion through tax haven jurisdictions became more difficult, following various international policy initiatives for example within the OECD and the European Union.
Chinese organized criminal groups have become the principal money launderers for drug cartels in Mexico, Italy, and elsewhere. In the U.S., Chinese money laundering networks drove over US$312 billion in illicit money from 2021 to 2024, according to the Financial Crimes Enforcement Network.
The East and Southeast Asia regions have become areas of major concern for money laundering. The United Nations Office on Drugs and Crime noted in a 2019 transnational organized crime assessment that threats arising from organized crime in Southeast Asia were becoming more deeply integrated within the region itself, as well as with neighboring and connected regions. As the region's illicit economies expanded and evolved, including the growth of the synthetic drug industry, casinos and economic zones in the region's border areas became important hubs for money laundering. Sites such as the Golden Triangle Special Economic Zone in Laos have been identified as hotspots for money laundering and various other types of transnational crime.
Other high risk sectors for money laundering include commercial banks, securities companies, currency exchange shops, money transfer service providers, insurance companies, real estate agencies, and the trade in valuable materials such as art, antiquities and wildlife products. As these industries have grown, the presence and sophistication of money laundering operations has too, creating a backdoor for organized crime to launder illicit funds into the global financial system.
Casino junkets operating from Macao emerged as a major facilitator of money laundering, as has the more recently established online gambling industry. The rise of the cyber-enabled fraud industry across Southeast Asia, especially in Cambodia, Myanmar, Laos, and the Philippines, has given rise to new platforms providing guarantees and facilitating the laundering of funds through app-based channels. One such case is that of Huione, a Cambodia-based operation that blockchain analysis firms have identified as one of the leading actors in this space. Blockchain analytics firm Elliptic described Huione as the "largest illicit online marketplace to have ever operated". Global law enforcement has begun to respond to the threats posed by such platforms, and in May 2025 the U.S. Department of the Treasury's Financial Crimes Enforcement Network issued a finding and notice of proposed rulemaking pursuant to Section 311 of the USA PATRIOT Act that identified Huione Group as a financial institution of primary money laundering concern, seeking to sever its access to the U.S. financial system. Reuters identified Cambodian businessman Hun To, cousin of Prime Minister Hun Manet, as one of the directors of Huione Pay.

Features

Definition

Money laundering is the conversion or transfer of property; the concealment or disguising of the nature of the proceeds; the acquisition, possession or use of property, knowing that these are derived from criminal acts; the participating in or assisting the movement of funds to make the proceeds appear legitimate.
Money obtained from certain crimes, such as extortion, insider trading, drug trafficking, human trafficking, and illegal gambling is "dirty" and needs to be "cleaned" to appear to have been derived from legal activities, so that banks and other financial institutions will deal with it without suspicion. Money can be laundered by many methods that vary in complexity and sophistication.
Money laundering typically involves three steps: The first involves introducing cash into the financial system by some means ; the second involves carrying out complex financial transactions to camouflage the illegal source of the cash ; and finally, acquiring wealth generated from the transactions of the illicit funds. Some of these steps may be omitted, depending on the circumstances. For example, non-cash proceeds that are already in the financial system would not need to be placed.
According to the United States Treasury Department:

Methods

List of methods

Money laundering can take several forms, although most methodologies can be categorized into one of a few types. These include "bank methods, smurfing , currency exchanges, and double-invoicing".

Structuring: Often known as smurfing, is a method of placement whereby cash is broken into smaller deposits of money, used to defeat suspicion of money laundering and to avoid anti-money laundering reporting requirements. A sub-component of this is to use smaller amounts of cash to purchase bearer instruments, such as money orders, and then ultimately deposit those, again in small amounts.
Bulk cash smuggling: This involves physically smuggling cash to another jurisdiction and depositing it in a financial institution, such as an offshore bank, that offers greater bank secrecy or less rigorous money laundering enforcement.
Cash-intensive businesses: In this method, a business that is typically expected to receive a large proportion of its revenue as cash uses its accounts to deposit criminally derived cash. This method of money laundering often causes organized crime and corporate crime to overlap. Such enterprises often operate openly and in doing so generate cash revenue from incidental legitimate business in addition to the illicit cash. In such cases, the business will usually claim all cash received as legitimate earnings. Service businesses are best suited to this method, as such enterprises have little or no variable costs and/or a large ratio between revenue and variable costs, which makes it difficult to detect discrepancies between revenues and costs. Examples are parking structures, strip clubs, tanning salons, car washes, arcades, bars, restaurants, casinos, barber shops, DVD stores, movie theaters, and beach resorts.
Trade-based laundering: This method is one of the newest and most complex forms of money laundering. This involves under- or over-valuing invoices to disguise the movement of money. For example, the art market has been accused of being an ideal vehicle for money laundering due to several unique aspects of art such as the subjective value of artworks as well as the secrecy of auction houses about the identity of the buyer and seller. According to the National Crime Agency, one strategy that is favored by high-net-worth individuals is specialist storage facilities. Art kept in these spaces has been used by individuals to evade sanctions and launder the proceeds of crime.
Shell companies and trusts: Trusts and shell companies disguise the true owners of money. Trusts and corporate vehicles, depending on the jurisdiction, need not disclose their true owner. Sometimes referred to by the slang term rathole, though that term usually refers to a person acting as the fictitious owner rather than the business entity.
Round-tripping: Here, money is deposited in a controlled foreign corporation offshore, preferably in a tax haven where minimal records are kept, and then shipped back as a foreign direct investment, exempt from taxation. A variant of this is to transfer money to a law firm or similar organization as funds on account of fees, then to cancel the retainer and, when the money is remitted, represent the sums received from the lawyers as a legacy under a will or proceeds of litigation.
Bank capture: In this case, money launderers or criminals buy a controlling interest in a bank, preferably in a jurisdiction with weak money laundering controls, and then move money through the bank without scrutiny.
Invoice Fraud: An example is when a criminal contacts a company saying that the supplier payment details have changed. They then provide alternative, fraudulent details in order for you to pay them money.
Casinos: In this method, an individual walks into a casino and buys chips with illicit cash. The individual will then play for a relatively short time. When the person cashes in the chips, they will expect to take payment in a check, or at least get a receipt so they can claim the proceeds as gambling winnings.
Other gambling: Money is spent on gambling, preferably on high odds games. One way to minimize risk with this method is to bet on every possible outcome of some event that has many possible outcomes, so no outcome have short odds, and the bettor will lose only the vigorish and will have one or more winning bets that can be shown as the source of money. The losing bets will remain hidden.
Black salaries: A company may have unregistered employees without written contracts and pay them cash salaries. Dirty money might be used to pay them.
Tax amnesties: For example, those that legalize unreported assets and cash in tax havens.
Transaction Laundering: When a merchant unknowingly processes illicit credit card transactions for another business. It is a growing problem and recognised as distinct from traditional money laundering in using the payments ecosystem to hide that the transaction even occurred. Also known as "undisclosed aggregation" or "factoring".
Online job marketplaces such as Freelancer.com and Fiverr, which accept funds from clients and hold them in escrow to pay freelancers. A money launderer can post a token job on one of these sites, and send the money for the site to hold in escrow. The launderer can then sign on as a freelancer, accept and complete the job, and be paid the funds.
Through Sports: Investigation teams have identified sport profits as a common way to launder money. In Latin America, in particular, drug traffickers are frequently found to own Soccer Clubs, and to launder money through their intermediate, by buying and selling players, selling tickets and merchandise.