Money laundering is the process by which criminals attempt to legitimize or give an appearance of legitimacy to proceeds which were generated through various criminal or illicit acts.
The primary goal of certain types of criminal acts is to generate profit for the individual or the group that carries out the act. Proceeds and profits generated from illegal/illicit would not be used outright due to the risk of criminal enforcements actions, which include seizures of such proceeds by the authorities. To avoid detection by the authorities, the “dirty” proceeds are first channeled through a process termed money laundering in order to give the appearance that such proceeds came from legitimate sources.
Illegitimate/illicit proceeds can be generated from many types of criminal activities some of which include illegal arms sales, smuggling, drug trafficking, illegal gambling and human trafficking, among others. Other schemes such as embezzlement, insider trading, bribery and computer fraud schemes can also produce large profits. Finally tax evasion—which, in concept and in substance, is a separate class of offence, in that the proceeds laundered in order to evade tax burden may in fact have originated from legitimate sources, also requires a process of laundering to escape the scrutiny and interdiction of the taxing authority/jurisdiction.
Money laundering schemes can be perpetrated by an individual, a group or highly organized transnational criminal groups and professional money launderers.
Transnational money laundering is attractive to criminals seeking to launder the proceeds of their crimes because it enables them to route the illicit proceeds outside from the country where it was generated, away from the immediate reaches of the local authorities. It is easier to layer the transactions in a foreign jurisdiction far from where the predicate crime was committed. Upon sufficient layering of the illicit proceeds, it is also easier for the criminals to access the funds without raising flags. To conduct such business, Professional Money Launderers (PMLs) choose jurisdictions based on secrecy provisions, weak regulatory makeup and lacking in robust enforcement capabilities.
The commission of financial crimes, including the strategies and methods crafted to launder the proceeds, precede the activation of regulatory and enforcement mechanisms. To disguise the funds to be laundered, PMLs use complex schemes—such as by using proxy companies, commingling illicit proceeds with legitimate transactions and by executing fictitious contracts or trades backed by fraudulent paperwork. They may route the funds through multiple jurisdictions around the world to layer the transactions and to weaken the discoverable links to the predicate crimes making it harder to discern the illicit origins of the funds.
Professional Money Laundering Report, published by FATF on 26, July 2018, discusses in detail Professional Money Launderers, PML Organizations (PMLO) and PML Networks (PMLN)