What is money laundering?

Money laundering is fundamentally defined as the process of concealing the origins of illegally obtained money. This term encompasses the strategies used to make illicit funds appear legitimate by disguising their original source, which typically involves funds acquired through criminal activities such as drug trafficking, fraud, or corruption.

The process usually unfolds in three stages: placement, layering, and integration. During placement, the illicit funds are introduced into the financial system, which can be through various means such as deposits or investments. Layering involves a series of complex transactions that obscure the original source, and finally, integration incorporates these now seemingly clean funds back into the economy, making them indistinguishable from legitimate earnings.

Understanding this definition is critical, as it highlights the regulatory and legal implications surrounding financial transactions and the importance of vigilance in financial institutions to prevent and detect such activities.