Money laundering is the process of taking money from illegal or “dirty” sources and making it look like it has come from legitimate or “clean” sources. This is designed to make it harder for law enforcement agencies to trace funds from unlawful activities and harder for courts to prove that money came from illegal activities.

Money laundering involves:

• Transferring funds derived from illegal activity
• Concealing the criminal source of the funds
• Spending illegally obtained funds

Money laundering is done by placing illegal funds into legitimate financial institutions and then transferring the money to other places and spending it on legitimate expenses. More sophisticated money-laundering schemes may use a series of intermediary organizations to move money around, such as multiple banks, shell corporations secretly owned by other companies, and legitimate businesses used to transfer money to other businesses.

Money laundering is commonly used by many different types of parties engaged in illegal activity. These include:

• Organized criminal groups
• Terrorist organizations
• Businesses engaging in illegal activity such as anti-trust violations or tax evasion
• Embezzlers
• Smugglers
• Political funding organizations seeking to skirt campaign finance laws
• Countries seeking to outmaneuver economic sanctions

Money laundering funds may ultimately be spent on either legitimate or illegitimate purchases. For example, the money may be used to purchase legal luxury items, as with a drug dealer who buys an expensive house, or it may be used to fund more illegal activity, as with narcotics money used to fund terrorism.