What Is Money Laundering and Why It Still Matters Today

Key Takeaways:

• Money laundering is the process of hiding the origin of illegally obtained funds so they appear legitimate. It allows criminals to convert “dirty money” from crimes such as fraud, corruption, or drug trafficking into assets that seem clean and lawful.
• The three main stages are placement, layering, and integration. This means putting illegal money into the system, moving it around to hide its origin, and then using it as if it were clean.
• Money laundering matters because it enables criminals to keep and use the proceeds of their crimes, undermining justice and accountability. It also damages economies and financial institutions by distorting markets, encouraging corruption, and eroding public trust.

 

Money laundering is not new, but the playbook keeps changing. In 2023, an estimated $22.2 billion in cryptocurrency passed through illicit wallet addresses. Even though that figure was lower than the prior year, it highlights how digital channels have become central to modern laundering techniques. Before crypto, criminals relied on real estate, luxury goods, shell companies, and cash-heavy businesses to obscure proceeds. Today, both traditional and digital pathways serve the same purpose: hide the source of funds and present them as legitimate.

Recognizing the pattern behind different methods is essential. The techniques evolve but the economic and social damage does not. As more financial activity moves online, detecting and disrupting laundering requires new tools and stronger coordination among regulators, financial institutions, and technology providers.

A Brief History of Money Laundering

The need to conceal illegally earned money has existed for as long as laws have tried to stop criminal activity. While the phrase “money laundering” only became widely used in the twentieth century, the act of hiding illicit profits has been practiced for centuries.

Modern awareness of money laundering grew during the U.S. Prohibition era of the 1920s and 1930s, when organized crime groups made vast profits from illegal alcohol sales and other activities. To make their money appear legitimate, they invested in cash-heavy businesses such as laundromats. This connection is believed to be the origin of the term “money laundering.”

As the practice expanded, governments began to respond with stronger laws and oversight. In the United States, major milestones included the Bank Secrecy Act of 1970, the Money Laundering Control Act of 1986, and the creation of the Financial Crimes Enforcement Network (FinCEN) in 1990. After the 9/11 attacks, the USA PATRIOT Act tightened financial monitoring, and the Anti-Money Laundering Act of 2021 updated regulations to address emerging digital threats.

On a global scale, the Financial Action Task Force (FATF) plays a key role in shaping anti–money laundering policy. It sets international standards, evaluates national systems, and issues grey or blacklists for countries that fail to comply. These efforts encourage stronger cooperation and greater transparency across borders.

The Three Stages of Money Laundering

Before detection or prevention can begin, it helps to understand how illicit funds move through each stage. Each step serves a distinct purpose and builds on the previous one. The three stages of money laundering are placement, layering, and integration.

1. Placement

The process begins with placement, when illegal funds first enter the financial system. Criminals may deposit cash into banks, use it to buy cars or jewelry, or route it through cash-based businesses such as casinos or restaurants.

As financial activity shifts online, placement now includes digital methods. Cash can be converted into cryptocurrency, transferred through peer-to-peer platforms, or used to buy virtual assets. This stage focuses on getting the money into circulation without attracting attention.

Before moving to the next phase, the funds must appear ordinary enough to blend in. Once that happens, they can move through layers of transactions designed to disguise their trail.

2. Layering

Layering introduces complexity. The goal is to distance the funds from their criminal origin by moving them through multiple transactions and entities. This might involve international wire transfers, asset trades, shell companies, or cryptocurrency exchanges.

Each added step makes it harder for investigators to follow the trail. Digital finance has widened the opportunities for layering, allowing criminals to move money quickly and globally while hiding behind pseudonymous accounts.

After enough layers are in place, the funds appear detached from their source and ready to be reintroduced as legitimate wealth.

3. Integration

Integration marks the final stage, when the laundered money reenters the economy as seemingly lawful funds. It may appear as income, business profits, real estate purchases, or luxury spending.

At this point, detecting the original source becomes extremely difficult. The money looks legitimate on paper, and traditional checks often fail to reveal its history. Continuous monitoring, detailed record keeping, and advanced compliance tools are essential to detect suspicious activity before it becomes embedded in the legal economy.

How Money Laundering Funds Other Crimes

Understanding the stages of money laundering helps explain why this process is so dangerous. Once illicit money is cleaned and reintroduced into the economy, it can be used to finance other criminal operations and keep them running. Money laundering doesn’t just hide profits—it sustains illegal networks around the world.

Here’s how it fuels other crimes and why it matters:

1. Human Trafficking and Exploitation

Money laundering helps traffickers keep their profits out of sight. In 2023, U.S. authorities broke up a major human smuggling ring operating through Texas. The group moved hundreds of people across borders and funneled their earnings through fake companies and cash-based businesses. Four people were indicted for conspiracy to launder money. Cases like this show how traffickers depend on laundering to hide profits from exploitation and avoid detection.

2. Terrorism Financing

Laundered money often ends up funding terrorism. The International Monetary Fund (IMF) has found that both crimes exploit the same weaknesses in financial systems—opaque transactions, anonymous transfers, and shell accounts. These tools make it easier to move money across borders and fund extremist activities without being noticed. Cutting off these hidden flows is one of the most effective ways to weaken terrorist networks.

3. Corruption and Political Bribery

Money laundering also protects those who abuse their power. In 2024, Nadine Menendez—wife of former U.S. Senator Bob Menendez—was convicted of accepting more than one million dollars in bribes, including gold bars and cash, in exchange for political favors. The couple used classic laundering techniques to conceal the payments. This case shows how laundering allows corrupt officials to hide illicit income and maintain influence while avoiding accountability.

4. Cybercrime and Online Fraud

Modern cybercriminals rely on laundering to make stolen funds usable. A cybercrime syndicate in Australia laundered over 2.5 million dollars stolen through phishing and online scams. The group moved the money through overseas contacts who purchased high-end goods, resold them, and then converted the proceeds into cryptocurrency. This process turned stolen digital profits into cash that appeared legitimate.

How Technology Is Changing the Way Criminals Launder Money

As criminal networks grow more advanced, their methods of hiding money are changing too. The same technology that makes finance faster and more convenient is also giving criminals new ways to move and disguise illicit funds. What once relied on cash smuggling or offshore accounts now takes place through mobile apps, cryptocurrencies, and decentralized platforms.

According to the United Nations Office on Drugs and Crime (UNODC), money laundering is estimated to account for 2 to 5 percent of global GDP every year—up to two trillion dollars. That scale shows how digital systems can be exploited when regulation can’t keep pace.

These are the main ways technology is changing how money is laundered:

1. Fintech and Digital Payments

Financial technology has made it easier for people to transfer money across borders, pay instantly, and access banking services online. But that same convenience also creates new vulnerabilities. In 2022, global digital payments exceeded eight trillion dollars, far outpacing the rollout of strong anti–money laundering safeguards.

Criminals exploit this gap by routing money through smaller fintech platforms that may lack strict compliance programs or real-time monitoring. Without these protections, suspicious transactions can move through the system before regulators have a chance to catch them.

2. Cryptocurrency, DeFi, and NFTs

Digital assets have become one of the fastest-growing tools for laundering money. Cryptocurrencies such as Bitcoin and Ethereum enable quick, borderless transactions, and when mixed through privacy-focused tools or coins like Monero and Zcash, those transfers are extremely difficult to trace. Decentralized finance (DeFi) platforms make this even easier by removing intermediaries such as banks, leaving fewer checkpoints for verification.

Even non-fungible tokens (NFTs) are being misused. Offenders buy and sell the same digital items across different accounts to inflate prices and disguise the source of funds. The Financial Action Task Force (FATF) has warned that these tools are increasingly being used to move and conceal illicit money around the world.

3. Online Gambling and Gaming

Online gambling and gaming platforms are another area where money laundering has taken hold. Players can use illegal funds to place bets, buy virtual items, or top up gaming credits, then cash out as if the money was earned legitimately. Because these platforms process thousands of small transactions every minute, it’s easy for suspicious activity to blend in. Criminals often move money across multiple accounts and currencies, making it even harder to spot.

4. Shell Companies and Hidden Ownership

Some of the most effective laundering methods are still the simplest. Shell companies—businesses that exist only on paper—are often used to hide who really owns or controls money. These entities let criminals open bank accounts, move funds across borders, and buy property while keeping their names off official records. The Panama Papers leak exposed just how widespread this problem is, showing how shell companies continue to help people hide wealth and move money out of sight.

7. Synthetic Identities and AI-Generated Deepfakes

Technology has also made it easier to fake who you are. Criminals now create synthetic identities by combining real and fake personal details to open accounts or secure loans that look legitimate. In one U.S. case, synthetic identities were used to steal more than three million dollars, which was then laundered through several banks.

AI tools have made this even more convincing. Deepfakes and digitally generated documents can imitate real people, helping criminals trick verification systems. The U.S. Financial Crimes Enforcement Network (FinCEN) has already warned that AI-generated content is being used in both fraud and money laundering schemes.

The Consequences of Money Laundering

The more ways criminals can launder money, the wider the damage becomes. Every illicit transaction that enters the financial system weakens trust, distorts markets, and puts legitimate institutions at risk. Its reach extends from global banks and national governments to everyday citizens and communities.

1. Financial Institutions and Trust

Banks are often the first to feel the impact. When they fail to detect or report illicit transactions, the damage can be severe. The Danske Bank scandal is one of the most notable examples, with more than €200 billion in suspicious funds moving through its Estonian branch. The case led to a $2 billion fine and years of lost confidence among customers and investors.

Events like these shake public trust across the entire financial sector. When people doubt the integrity of banks, they withdraw funds, regulators tighten scrutiny, and market confidence falters. The reputational harm can linger long after the legal cases are closed.

2. Governments and Economies

Governments face similar consequences when money laundering goes unchecked. In 2023, Lebanon was added to the Financial Action Task Force’s (FATF) grey list, a designation that deepened its economic crisis and discouraged foreign investment. The move also made it harder for Lebanese citizens abroad to send remittances home—further constraining national revenue.

Over time, illicit financial flows erode economic fairness by letting criminal money compete with legitimate capital. This undermines taxation systems, discourages entrepreneurship, and weakens governments’ ability to fund public programs.

3. Markets and Prices

Laundered money often flows into legitimate sectors, where it distorts prices and demand. Real estate is one of the most affected. In British Columbia, Canada, researchers found that laundering contributed to home price increases of up to 7.5 percent. In Australia, officials estimate that up to $12 billion in property transactions may involve illicit funds each year.

These inflows inflate housing markets and make ownership harder for average buyers. By driving up costs and concentrating wealth, money laundering contributes to inequality and deepens public frustration with the financial system.

4. Financial Access and Inclusion

Efforts to curb laundering can unintentionally restrict access to financial services. Many institutions practice “de-risking,” where accounts are closed or services limited in areas considered high-risk. This approach, common in regions of Africa, Latin America, and Southeast Asia, can leave small businesses and individuals excluded from the formal banking system.

When people are pushed out of regulated finance, they often rely on informal or cash-based networks that are harder to track. This not only limits financial inclusion but also creates new blind spots that criminals can exploit.

5. Global Stability and Security

Money laundering fuels more than financial crime—it sustains organized crime and terrorism. Groups like drug cartels, cybercrime networks, and terrorist organizations depend on laundering to fund operations, buy weapons, and move resources internationally. Hezbollah, for instance, has been linked to complex laundering systems that disguise funds as legitimate trade.

Without these channels, many criminal enterprises would lose their ability to operate across borders. Reducing the flow of illicit money is one of the most direct ways to weaken these networks and promote long-term security.

How Regulators and Platforms Are Responding to Money Laundering

The growing impact of money laundering has pushed governments, regulators, and financial platforms to strengthen their defenses. After years of scandals and rising digital risks, the global response now focuses on transparency, collaboration, and technology. The goal is to close the gaps that allow illicit money to move undetected while maintaining accessible and trusted financial systems.

1. Global Policy Updates and Oversight

The Financial Action Task Force (FATF) continues to define global standards for anti-money laundering (AML) efforts. Its current priorities include refining risk-based frameworks, improving data sharing between nations, and modernizing oversight for digital assets.

In Europe, the creation of the Anti-Money Laundering Authority (AMLA) aims to unify enforcement across member states and ensure consistent application of AML laws. In the United States, the Financial Crimes Enforcement Network (FinCEN) has introduced updated rules requiring financial institutions to align their programs with national AML priorities. These updates emphasize proactive risk assessments, improved reporting accuracy, and stronger internal controls.

2. Strengthening KYC and Cross-Border Transparency

Know Your Customer (KYC) requirements remain central to identifying and monitoring financial activity. Regulators are also tightening enforcement of the Travel Rule, which requires institutions to include sender and receiver details in cross-border transfers. This rule helps trace the flow of funds across borders and prevents criminals from hiding behind complex ownership structures or anonymous accounts.

Beyond compliance, these standards encourage financial institutions to adopt a more collaborative approach—sharing insights across jurisdictions to identify suspicious activity faster and with greater precision.

3. Leveraging AI and Data Analytics

Technology is now one of the strongest tools in the fight against financial crime. Artificial intelligence (AI) and machine learning (ML) are being used to analyze vast volumes of transaction data, identify unusual behavior, and flag potential laundering attempts in real time.

The U.S. Treasury’s 2024 National Strategy highlights AI as a key part of modern compliance programs, helping institutions detect emerging patterns that manual systems might overlook. By combining automated analysis with human oversight, banks and regulators can react faster to suspicious activity, improving both efficiency and accuracy.

Conclusion: Why Money Laundering Still Demands Attention

Money laundering remains a major threat to global stability and public trust. It fuels criminal enterprises, weakens economies, and erodes confidence in financial institutions. As finance continues to move online, understanding and addressing these risks has never been more important.

The next challenge lies in how quickly regulators, governments, and businesses can respond. Criminals are adapting faster, using new technologies and platforms to conceal illicit funds in increasingly sophisticated ways. Staying ahead will require stronger cooperation, greater transparency, and smarter tools designed to detect and disrupt laundering before it spreads.

In our next article, we’ll examine how prevention is evolving and what steps are being taken to protect the integrity of global financial systems.