Money laundering is when criminals make illegal funds appear as legitimate money, investments, or financial assets. The proceeds come from crimes such as drug trafficking, terrorism, and fraud. Laws and regulations combating money laundering differ by country. However, increasing alignment on rules is a goal of many jurisdictions and the FATF.
There are three stages to laundering money:
- Placement: Introducing “dirty” money into the financial system, such as with a cash-based business.
- Layering: Moving illegal funds around to make the tracking of them difficult. Using crypto is one way to hide the origin of “dirty” money.
- Integration: Using legal investments and other financial channels to reintroduce the “dirty” money into the economy.