What Is Money Laundering and Why It Still Matters Today

Key Takeaways:

• Money laundering is the process of making illegal money appear legitimate. It typically involves placing illicit funds into the financial system, layering them through complex transactions, and integrating them back as clean income.
• It enables serious crimes and harms society. Laundering supports human trafficking, terrorism, corruption, and cybercrime—while also distorting economies and eroding public trust in institutions.
• Digital tools are making it harder to detect. From crypto and DeFi to AI-generated documents, technology is expanding how criminals launder money and challenging regulators to keep up.

 

Money laundering is far from a new crime, but the way it’s carried out keeps changing. In 2023 alone, an estimated $22.2 billion in cryptocurrency was laundered through illicit wallet addresses. Even though that’s less than the previous year, it’s still a major amount and highlights the growing role of digital finance in concealing illegal funds.

But crypto is just the newest tool. Long before digital wallets and NFTs, criminals used real estate, luxury goods, shell companies, and cash-heavy businesses to clean their money. Whether it’s gold bars or blockchain transactions, the goal remains the same: to hide where the money came from and make it look legitimate.

Recognizing this pattern is important. The methods may be different, but the damage to economies, institutions, and individuals is the same. And as financial systems move online, identifying and stopping money laundering is becoming more difficult — and more urgent.

What Is Money Laundering?

Money laundering is the process of making illegally obtained money appear legal. Criminals use it to disguise the true source of their income so they can spend, invest, or transfer it without raising red flags.

While tactics vary, most laundering schemes follow three basic steps:

1. Placement

This is the first stage, where “dirty” money enters the financial system. It might be deposited into a bank, used to buy assets like cars or jewelry, or funneled through cash-heavy businesses such as restaurants or casinos.

2. Layering

To make the money harder to trace, criminals then move it through a series of complex transactions. This could involve international wire transfers, shell companies, cryptocurrency exchanges, or converting it into other assets. The goal is to create distance between the funds and their illegal origins.

3. Integration

Finally, the laundered money is reintroduced into the economy as seemingly legitimate income. It might be used to buy real estate, invest in businesses, or make luxury purchases—now under the appearance of clean, legal wealth.

A Brief History of Money Laundering

The need to hide illegally earned money has existed for as long as there have been laws to stop criminal behavior. While the term “money laundering” only became widely known in the 20th century, the act of disguising the source of illicit funds goes back centuries.

Modern awareness of money laundering grew during the U.S. Prohibition era in the 1920s and 1930s, when figures like Al Capone made large profits from illegal alcohol sales and other criminal activities. To make this money look legitimate, they invested in businesses that dealt mostly in cash—like laundromats—which is where the term “money laundering” is believed to have come from.

As the scale of money laundering grew, so did the global response. In the United States, major legislative 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 introduced stricter financial monitoring, and more recently, the Anti-Money Laundering Act of 2021 updated and expanded regulations to meet modern threats.

Globally, the Financial Action Task Force (FATF) plays a leading role by setting standards and evaluating countries’ efforts. Nations that fall short are added to grey or blacklists, pressuring them to improve their anti-money laundering systems.

How Money Laundering Fuels Other Crimes

Money laundering is far from a victimless crime. While it may not always cause immediate, visible harm, it plays a critical role in enabling serious criminal activity around the world. By allowing bad actors to hide the profits of their wrongdoing, money laundering becomes the financial engine behind human trafficking, terrorism, corruption, and cybercrime.

Here’s how:

1. Human Trafficking: In 2023, U.S. authorities broke up a major human smuggling ring operating through Texas. The group moved hundreds of undocumented individuals across borders and funneled the profits through fake businesses and cash-based transactions. Four people were indicted for conspiracy to launder money. This demonstrates how traffickers rely on laundering to mask profits from exploitation and avoid detection.
2. Terrorism Financing: According to the International Monetary Fund (IMF), terrorism and money laundering often exploit the same weaknesses in global financial systems. Opaque transactions, anonymous transfers, and shell accounts make it possible to move money across borders without scrutiny. These tactics allow terrorist organizations to fund attacks, buy weapons, and destabilize governments, often with devastating consequences for civilians.
   
3. Corruption: In April 2024, Nadine Menendez—wife of former U.S. Senator Bob Menendez—was convicted of accepting over $1 million in bribes, including gold bars and cash, in exchange for political favors. The couple attempted to cover their tracks using typical laundering methods, highlighting how money laundering helps corrupt officials conceal illegal payments and abuse their power with impunity.
   
4. Cybercrime: A cybercrime syndicate in Australia laundered over $2.5 million in funds stolen through online scams and phishing schemes. The group routed the money through overseas contacts who purchased high-end goods and resold them, later converting the earnings into digital currency. This case shows how modern cybercriminals depend on laundering schemes to clean digital profits and stay one step ahead of investigators.

How Technology Is Changing the Way Criminals Launder Money

Money laundering hasn’t disappeared with modern regulations—it has adapted. As digital finance grows, so do the methods criminals use to clean illicit funds. What used to rely on physical cash or storefronts now includes cutting-edge tools that make detection harder than ever. The United Nations Office on Drugs and Crime (UNODC) estimates that money laundering accounts for 2 to 5 percent of global GDP every year. That’s up to $2 trillion annually.

Here’s how digital platforms are making it easier to move and conceal illicit funds:

1. Fintech and Digital Payments

Financial technology has made transferring money faster and more accessible. However, that same convenience creates opportunities for criminals to move large sums across borders quickly. In 2022, global digital payments exceeded $8 trillion, outpacing the rollout of effective anti-money laundering (AML) safeguards. Criminals take advantage of this gap by funneling money through fintech platforms that may lack strict compliance procedures or real-time oversight.

2. Decentralized Finance (DeFi)

DeFi platforms remove intermediaries like banks, allowing peer-to-peer financial transactions without centralized control. While this promotes innovation, it also makes it harder to track and verify the source of funds. Reports have shown a nearly 2,000 percent increase in illicit activity on DeFi platforms, often involving privacy coins and crypto mixers that obscure transaction trails. This lack of transparency makes DeFi attractive for laundering money without triggering red flags.

3. NFTs and Digital Art

Non-fungible tokens (NFTs) have become popular assets—but also convenient vehicles for money laundering. One common tactic is wash trading, where a person buys and sells the same NFT using different accounts to simulate high value and disguise the true source of funds. The Financial Action Task Force (FATF) has flagged NFTs as an emerging risk due to their use in obscuring the flow of illicit money in both the digital and art markets.

4. Cryptocurrencies and Mixers

Cryptocurrencies offer speed and a level of anonymity that traditional financial systems do not. When combined with crypto mixers or privacy-focused coins like Monero and Zcash, tracing the origin of transactions becomes extremely difficult. This has made crypto a go-to tool for modern laundering schemes.

A major example is the Celsius Network case. In 2023, founder Alex Mashinsky was arrested and later sentenced for misleading customers and misusing funds. The scandal highlighted how crypto platforms can be exploited for financial misconduct, especially when regulation and transparency are lacking.

5. Online Gambling and Gaming

Gambling sites and gaming platforms allow users to convert virtual assets into real money, creating another pathway for laundering. Criminals can exploit these systems by placing bets or making in-game purchases with illicit funds, then cashing out as if the money were legally earned. The high volume of small, fast transactions makes these platforms hard to monitor.

6. Shell Companies

Shell companies often exist only on paper, with no real operations, making them ideal for hiding asset ownership and the source of money. They are frequently used to open bank accounts or move funds across borders under a legal façade. The Panama Papers leak revealed how extensive and effective these networks are in helping individuals and organizations conceal wealth and evade taxes.

7. Synthetic IDs

Synthetic identity fraud involves creating false identities by combining real and fabricated personal information. These fake profiles are used to open accounts, obtain loans, or secure credit that is later defaulted on. In one U.S. case, criminals used synthetic identities to steal over $3 million, which was then laundered through various banks. This type of fraud is difficult to detect because the synthetic identities can appear legitimate in financial systems.

8. Deepfakes and AI-Generated Documents

Criminals are now using AI to generate fake documents, images, and videos that mimic real people. These deepfakes can be used to bypass identity checks or deceive systems into approving fraudulent transactions. In response, the U.S. Financial Crimes Enforcement Network (FinCEN) issued alerts warning banks and financial platforms about the increasing use of AI-generated media in fraud and money laundering schemes.

How Money Laundering Undermines the Financial System

Money laundering may seem like a behind-the-scenes financial crime, but its consequences are far from invisible. It threatens the stability of entire economies, weakens public institutions, and fuels other forms of criminal activity. Here’s how it damages the financial system and impacts society at large:

1. Damage to Banks, Governments, and Public Trust

Banks: When banks are implicated in money laundering scandals, the fallout can be severe. Danske Bank, for example, became the center of one of Europe’s largest scandals after €200 billion in suspicious transactions moved through its Estonian branch. The bank later pleaded guilty to conspiracy to commit bank fraud and paid a $2 billion fine—an outcome that damaged its reputation and trust with customers and regulators alike.

Governments: Countries suffer both reputational and financial harm when seen as weak on money laundering enforcement. Lebanon was placed on the Financial Action Task Force’s (FATF) “grey list” in 2023, further complicating its economic crisis. The listing discouraged foreign investment and made it harder for citizens abroad to send money home.

Public Trust: Scandals involving banks or public officials erode confidence in the financial system. When people feel the system protects criminals more than citizens, it can trigger panic, reduce banking activity, and make both consumers and investors wary of legitimate financial institutions.

2. Distorting Prices and Markets

Inflation Pressures: When illicit money flows into legitimate sectors, it can distort supply and demand. Sudden inflows of cash can drive up prices, contributing to inflation and making everyday goods more expensive. These pressures often hit low- and middle-income households hardest.

Real Estate Price Inflation: Real estate is frequently used to launder money, which can drive up housing prices. In British Columbia, Canada, a study found that money laundering contributed to price increases of up to 7.5%. In Australia, the government has flagged real estate as a high-risk sector, with potential laundering activity estimated at $12.4 billion.

3. Slowing Financial Inclusion

To combat laundering, governments often implement strict anti-money laundering (AML) rules. But when applied without nuance, these rules can harm the very people they aim to protect. In parts of Latin America, Africa, and Southeast Asia, banks have “de-risked” by closing accounts or limiting services for individuals and small businesses seen as compliance risks.

This reduces access to banking for many and pushes people toward cash-based systems—ironically making laundering even harder to detect.

4. Enabling Terrorism and Organized Crime

Money laundering is the financial engine that powers both organized crime and terrorism. Criminal syndicates, such as drug cartels, and terrorist groups, like Hezbollah, depend on laundering to disguise the proceeds of illegal activities and fund their operations across borders. Without the ability to move and clean their money, their networks would struggle to survive.

How Regulators and Platforms Are Responding to Money Laundering

As money laundering methods become more advanced, regulators and platforms worldwide are working harder to keep up. Through updated policies and new technologies, the goal is to increase transparency, improve monitoring, and close the gaps that criminals use to hide their activities.

1. Global Policy Updates and Oversight

The Financial Action Task Force (FATF) continues to set the global standards for anti-money laundering (AML) efforts. Their recent actions focus on improving risk-based frameworks, making financial services more inclusive, and updating rules for monitoring virtual assets. In response, the European Union launched the Anti-Money Laundering Authority (AMLA) to help national regulators work together and enforce AML laws consistently across all member states. In the U.S., the Financial Crimes Enforcement Network (FinCEN) has introduced new rules, requiring financial institutions to align their AML programs with national priorities, including more proactive risk assessments and stronger internal controls.

2. Stronger KYC and Cross-Border Rules

Know Your Customer (KYC) is a key part of fighting money laundering. Regulators are also focusing on stricter enforcement of the Travel Rule, which requires financial institutions to share transaction details like the sender’s and receiver’s information for cross-border transfers. This helps make it easier to trace the movement of funds and identify suspicious activities in real time.

3. Using AI to Spot Financial Crimes

As criminals get more sophisticated, financial institutions are turning to AI and machine learning (ML) to improve their ability to detect money laundering. These technologies can analyze large amounts of transaction data and spot unusual patterns much faster than traditional methods. For example, the U.S. Treasury’s 2024 National Strategy highlights the use of AI to modernize compliance programs and address new financial crime challenges. AI-driven systems allow businesses to detect suspicious activities quickly, reducing the risk of money laundering and helping to keep financial systems safer.

Conclusion: Why Money Laundering Still Demands Attention

Money laundering is more than a financial crime. It is a persistent threat that quietly harms economies, supports organized crime, and weakens public trust. As criminals turn to tools like cryptocurrencies and digital platforms, the need for better awareness and stronger anti-money laundering efforts becomes more urgent.

Tougher regulations, smarter detection tools, and proactive institutions are essential to closing the gaps that allow illicit money to move through the system unnoticed.

In our next article, we will dive into real-world examples of money laundering and explain how regulators and companies are working to stop it. From identifying red flags to strengthening prevention methods, we will explore what is effective, what still needs work, and what the future of enforcement could look like.