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Money laundering: the story on HearLore | HearLore
— Ch. 1 · Defining Dirty Money —
Money laundering.
~6 min read · Ch. 1 of 6
The phrase dirty money describes funds generated from criminal acts like drug trafficking, sex work, terrorism, corruption, and embezzlement. These illicit proceeds must be converted into a seemingly legitimate source to avoid suspicion from banks and financial institutions. The process of money laundering involves concealing the origin of these funds through front organizations or complex transactions. In United States law, this practice is defined as engaging in financial transactions to hide the identity, source, or destination of illegally gained money. Courts have prosecuted private individuals, drug dealers, businesses, corrupt officials, members of criminal organizations such as the Mafia, and even states for these offenses. The definition has expanded over time to include any financial transaction that generates an asset or value resulting from an illegal act. This expansion covers actions like tax evasion or false accounting under regulations set by bodies like the US Office of the Comptroller of the Currency. In the UK, the common law definition is wider and does not require money to be involved, covering any economic good.
Historical Evolution Of Crime
During the 1930s, existing laws were used to fight money laundering related to organized crime during Prohibition in the United States. Organized crime received a major boost from Prohibition and obtained large amounts of new funds from illegal sales of alcohol. The successful prosecution of Al Capone on tax evasion brought a new emphasis by state and law enforcement agencies to track and confiscate money. However, existing laws against tax evasion could not be used once gangsters started paying their taxes. Dedicated Anti-Money Laundering legislation was only implemented in the 1980s when the war on drugs led governments to turn to money laundering rules again. Law enforcers normally have to prove an individual is guilty to seize their property, but civil forfeiture laws allow money to be confiscated while it is up to the individual to prove the source of funds is legitimate. This process has been abused by some law enforcement agencies to take and keep money without strong evidence of related criminal activity. Civil asset forfeiture has been harshly criticized for its greatly reduced standards for conviction and violation of due process. The 11th of September attacks in 2001 led to the Patriot Act in the U.S. and similar legislation worldwide. The Group of Seven nations used the Financial Action Task Force on Money Laundering to pressure governments around the world to increase surveillance and monitoring of financial transactions.
What is the definition of money laundering in United States law?
In United States law, money laundering is defined as engaging in financial transactions to hide the identity, source, or destination of illegally gained money. This practice involves concealing the origin of funds through front organizations or complex transactions to avoid suspicion from banks and financial institutions.
When was dedicated Anti-Money Laundering legislation implemented in the United States?
Dedicated Anti-Money Laundering legislation was only implemented in the 1980s when the war on drugs led governments to turn to money laundering rules again. Existing laws were previously used during Prohibition in the 1930s to fight organized crime related to illegal alcohol sales.
How many steps does money laundering typically involve according to standard definitions?
Money laundering typically involves three steps: placement, layering, and integration. The first step introduces cash into the financial system, the second carries out complex transactions to camouflage the source, and the final phase acquires wealth generated from those transactions.
Which bank paid a record fine for money laundering in December 2012?
HSBC paid a record $1.9 billion fine in December 2012 for money-laundering hundreds of millions of dollars for drug traffickers, terrorists, and sanctioned governments such as Iran. BNP Paribas received an even larger fine of $8.9 billion in July 2014 for violating sanctions against Cuba, Iran, and Sudan.
What is the largest illicit online marketplace identified by blockchain analytics firm Elliptic?
Blockchain analytics firm Elliptic described Huione as the largest illicit online marketplace to have ever operated. Global law enforcement began to respond to threats posed by such platforms when the U.S. Department of the Treasury's Financial Crimes Enforcement Network issued a finding in May 2025 identifying Huione Group as a financial institution of primary money laundering concern.
Money laundering typically involves three steps: placement, layering, and integration. The first step involves introducing cash into the financial system by some means known as placement. The second step carries out complex financial transactions to camouflage the illegal source of the cash, a process called layering. Finally, acquiring wealth generated from the transactions of the illicit funds completes the integration phase. Some of these steps may be omitted depending on the circumstances. For example, non-cash proceeds that are already in the financial system would not need to be placed. Structuring, also known as smurfing, breaks cash into smaller deposits to defeat suspicion and avoid reporting requirements. Bulk cash smuggling involves physically moving cash to another jurisdiction and depositing it in an offshore bank offering greater secrecy. Cash-intensive businesses like parking structures, strip clubs, tanning salons, car washes, arcades, bars, restaurants, casinos, barber shops, DVD stores, movie theaters, and beach resorts use their accounts to deposit criminally derived cash. These enterprises often operate openly and generate cash revenue from incidental legitimate business in addition to the illicit cash.
Modern Digital Frontiers
With the surge in digital assets in the late 2010s, there has been a noticeable rise in money laundering and fraud tied to cryptocurrency. In 2021 alone, cybercriminals managed to secure US$14 billion in cryptocurrency through various illicit activities. Privacy coins like ZCash and Monero provide unlinkable anonymity via proofs and obfuscation of information. Non-Fungible Tokens or NFTs are commonly used to perform Wash Trading by creating several different wallets for one individual. Blockchain analytics firm Elliptic described Huione as the largest illicit online marketplace to have ever operated. Global law enforcement began to respond to threats posed by such platforms when the U.S. Department of the Treasury's Financial Crimes Enforcement Network issued a finding in May 2025 identifying Huione Group as a financial institution of primary money laundering concern. Online gaming platforms like Second Life and World of Warcraft allow users to convert money into virtual goods that can later be converted back into money. Cybersecurity firm Sixgill discovered in 2018 that stolen credit card details may be used to purchase Fortnite's in-game currency called V-Bucks. The use of the mixer Tornado Cash in the laundering of funds stolen by the DPRK-associated Lazarus Group led the Office of Foreign Assets Control to sanction it.
Global Banking Scandals
During 2011, 2015 a number of major banks faced ever-increasing fines for breaches of money laundering regulations. HSBC paid a record $1.9 billion fine in December 2012 for money-laundering hundreds of millions of dollars for drug traffickers, terrorists, and sanctioned governments such as Iran. BNP Paribas was fined $8.9 billion in July 2014 by the U.S. government for violating sanctions against Cuba, Iran, and Sudan. This fine represented the largest ever for violating U.S. sanctions. Danske Bank and Swedbank were involved in a scandal where $30 billion to $230 billion US dollars were laundered through its Estonian branch. This was revealed on the 19th of September 2018. Investigations by Denmark, Estonia, the U.K., and the U.S. were joined by France in February 2019. Deutsche Bank was accused in a vast money laundering scheme dubbed the Global Laundromat involving secret Russian accounts transferred from European Union banks between 2010 and 2014. Newspaper sources estimated the total value of laundered currency to be as high as $80bn. Westpac agreed to an AUD $1.3 billion penalty on the 24th of September 2020 over breaches of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006.
Regulatory Frameworks Worldwide
Most countries implement some anti-money-laundering measures to combat international crime and terrorism. In India, the Prevention of Money Laundering Act, 2002, the Bharatiya Nyaya Sanhita, 2023, the Information Technology Act, 2000, and the Foreign Exchange Management Act, 1999 make money-laundering a punishable offence. Australia introduced the Anti-Money Laundering and Counter-Terrorism Financing Act to regulate financial transactions and enhance transparency. Canada enacted the Proceeds of Crime (Money Laundering) Act in October 2000 which established the Financial Transactions and Reports Analysis Centre of Canada. The United Kingdom implemented the Proceeds of Crime Act to establish money laundering offenses and facilitate asset recovery. The United States enacted the Corporate Transparency Act requiring companies to disclose their beneficial owners to the Financial Crimes Enforcement Network. Singapore established the Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act to confiscate proceeds from serious crimes. Switzerland strengthened its anti-money laundering framework through the Swiss Anti-Money Laundering Act which mandates due diligence and reporting requirements for financial institutions. Starting in 2002, governments around the world upgraded money laundering laws and surveillance systems of financial transactions.