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launder

2 informal Conceal the origins of (money obtained illegally), typically by transfers involving foreign banks or legitimate businesses.

(from here)

Suppose, I have illegally obtained money (I don't). So, basically, everything I can do with it, other than spending, would be laundering, is that correct (putting them into a bank account, investing in a business, etc.)?

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Laundering physical money

Let's say a career criminal committed a couple crimes and is now in possession of a large heap of money in form of coins and paper currency. They want to use that money to buy themselves a nice house. But showing up with a huge bag of money at a bank or real estate agency would look very suspicious. It is very likely that they will get reported and then investigated by law enforcement. What do they do? They need some explanation where that money comes from.

A good way to turn that dirty money into apparently clean money is by running a legitimate cash-based business. The criminal then goes to the bank each week and deposits a chunk of their ill-gotten cash claiming it's income from their business. Common choices are restaurants, casinos or the name-giver laundromats which were famously used by crime boss Al Capone to launder his illegal income. But they can use any business for this purpose which takes payment in cash and doesn't leave easy to analyze evidence how much business they really performed.

Now the criminal has all that ill-gotten money on a regular bank account and can use it to buy what they want without raising any further suspicion.

Laundering electronic money

Another category of money laundering which got very relevant in the age of online banking is to launder illegally obtained money which can be found on bank accounts. For example by hacking online banking accounts or running scams. If the criminal would just send that money to their personal account, then the investigators would just need to subpoena their bank and their real identity would be revealed. So they need some way to move that money which is hard to trace. Common methods are:

  • Transfering money to accounts in foreign countries in order to tie up investigators with the bureaucracy of international investigations.
  • Transferring money in ways which are hard to trace, like cryptocurrency, gift cards, private money transfer services or private people they recruited to forward money through their personal accounts.
  • Buying, transfering and selling virtual assets in online games.
  • Buying physical items from online stores using false identities and selling them again under their real identity.

Fortunately none of these methods of money laundering are completely untraceable. They make the work of law enforcement more difficult, but not completely impossible. The criminals usually hope to frustrate law enforcement to the point that they give up and prioritize "larger fish".

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  • This is somewhat off-topic for this site, but if you could add a link to some citation for the notion that the term arises from the use of literal laundromats, I'd really appreciate it. – Roger Feb 26 at 15:41
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No

If you make a million dollars selling drugs say, you have a million dollars in cash. If you put that much cash in your bank account, your bank will report the transaction and law enforcement will be interested in where the cash came from. They probably aren’t going to ask you directly but they will look at you. Drug dealers don’t like law enforcement looking at them.

Money laundering is a catch all term for turning “dirty” money into “clean” money that won’t attract the attention of law enforcement. Hopefully. There are lots of techniques.

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  • How exactly do you do it? What's the difference between "dirty" and "clean" money? – Sergey Zolotarev Feb 25 at 7:36
  • Did you read the link? It explains several ways. – Dale M Feb 25 at 8:15
  • @SergeyZolotarev "How exactly do you do it?" We aren't in the white collar crime training business. "What's the difference between "dirty" and "clean" money?" Dirty money is money from an illegal source or from a source not allowed to be used for the purpose in question (e.g. undisclosed money from a foreign government given to a political campaign in violation of campaign finance laws). – ohwilleke Feb 26 at 21:09

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