Suppose a person borrows money from a relative or friend, say, 10 million USD, without documentary evidence — the transaction is purely based on trust and cultural norms.

If the borrower invests the money in real estate and after 5 years returns the borrowed amount to the lender, can this be treated as money laundering?

5 Answers 5


According to the United States Treasury Department:

Money laundering is the process of making illegally-gained proceeds (i.e. "dirty money") appear legal (i.e. "clean"). Typically, it involves three steps: placement, layering and integration. First, the illegitimate funds are furtively introduced into the legitimate financial system. Then, the money is moved around to create confusion, sometimes by wiring or transferring through numerous accounts. Finally, it is integrated into the financial system through additional transactions until the "dirty money" appears "clean."

I have no idea if the $10m are proceeds of crime so we apply the duck test - "If it looks like a duck, quacks like a duck and swims like a duck; its probably a duck"

  1. A person has gifted another person $10m - there is nothing illegal about giving someone a gift, however, this is a pretty substantial gift. I am calling it a gift because there is no enforceable contract that requires repayment.
  2. There is an expectation that the receiver will invest this money for a period of time, hey, if I had $10m I'd probably invest it too.
  3. And then return it to the giver; with or without the earnings (you do not say). Again there is nothing wrong with reciprocating a gift; reciprocity is a cornerstone of most societies, however, this is a pretty detailed understanding of what reciprocity means.
  4. Quack, quack, quack - its money laundering.

Many jurisdictions in the world have "unexplained wealth" laws which basically require a person to explain their unexplained wealth or have it confiscated. If it isn't money laundering it is certainly at risk of this.

  • It's certainly at risk of money laundering ... I like your answer ; seems there is that thin line of suspicion! @Dale
    – mykey
    Sep 10, 2015 at 10:43
  • 3
    In the U.S. it is illegal to give someone a gift worth more than a certain limit (presently $14k in a calendar year) unless a gift tax is paid.
    – feetwet
    Sep 10, 2015 at 21:23
  • You call it a gift because there is no contract of repayment, but there is the expectation of repayment. And would you not call it a loan anyway to avoid the gift tax that feetwet mentions?
    – komodosp
    Oct 23, 2019 at 11:56
  • "4. Quack, quack, quack" - that only passes one of your three duck tests...
    – komodosp
    Oct 23, 2019 at 11:57
  • The OP says it is borrowed, therefore it is not a gift. And you give no explanation for how it's money laundering. Sep 12, 2020 at 5:53

As has been alluded to money laundering is a generic term for the process by which criminals make the proceeds of crime appear to be legitimately obtained.

Various jurisdictions have controls in place to identify suspicious transactions, however these are generally the responsibility of financial institutions to monitor and report - for example, many countries require financial institutions to report transactions over a certain threshold value.

However, a critical element of money laundering is that the funds have been obtained as a result of crime. If the money is obtained legally, then no money laundering can occur.

While the United States Treasury have provided certain descriptions of money laundering, by categorising actions that usually occur in the process, you usually don't need to undertake any specific actions, nor does the money need to be of any specified value: someone could just as easily give you $10 to bet on a coin toss, and if that were the proceeds of crime, it would still constitute money laundering (though you'd be unlikely to be prosecuted for it).

So, in short, and in answer to your question: it's only money laundering if the money is a proceed of crime.

  • This answer is wrong. You can be engaged in money laundering of money in the U.S. that is not the proceeds of a crime, for example, for tax evasion purposes, even if the money is legally obtained.
    – ohwilleke
    Jan 9 at 9:42

can this be treated as [being] money laundering?

People can treat it however they want. The facts you present do not constitute money laundering, but they likely would give rise to the suspicion of laundering.


If the borrower invests the money in real estate and after 5 years returns the borrowed amount to the lender, can this be treated as money laundering?

We don't have enough facts to know in the question. But, on its face, a transaction with this structure is not money laundering. Loans don't, in general, have to be documented with promissory notes or IOUs to be valid.


we need to clarify on what you mean by "without documentary evidence — the transaction is purely based on trust and cultural norms."

so in this case, does "without documentary evidence" means A) the source of the fund is not clear, or B) without any legal i-owe-you contract / or without any collateral?

if its B), then it has nothing to do with anti-money laundering. In fact, "the transaction is purely based on trust and cultural norms" + "a borrower" + the fact that sounds like you are contemplating your source of loan ("from a friend or relative") does suggest that this "lack of documentary evidence" concern is just relating to this i-owe-you transaction.

but if its A), then there are 2 main possibilities. A1) while the ultimate source of fund is not well documented, but if the fund is already in a legit bank, and they just wire that fund to you to invest via this legit bank, then you can assume the bank has already done their AML when accepting the fund. Hence there is nothing you can/need to do, especially as an individual. This is because the money is already circulating in the legit system. Note that it is important, especially when your friends don't document their source of income well, that it should come from a legit bank, not a questionable bank that raises red flags when it comes to AML.

but A2) if the fund is currently in a questionable place. ie that 10m hiding under a pillow in cash, then yes it raises questions, big questions. So if they give you that bag load of cash, and tell you to put it in your bank and invest for them for 5 yrs, then yes you will be part of the (potential) money laundering. so please kindly decline.

note that A) might overlap with B), ie they are not mutually exclusive. ie maybe you are initially worried about B), but since B) is no longer an issue, you cannot just carry out your planned project by accepting a bag load of cash, ie A2).

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