Legal Definitions - Money Laundering

Money laundering is a process of hiding the identity, source, and destination of illegally obtained money. It involves three stages:

1. The criminal activity that generates the money puts it in the hands of the launderer.
2. The launderer passes the money through a complex scheme of transactions to make it difficult to trace the initial recipient of the dirty money.
3. The scheme returns the money to the launderer in an obscure and indirect way.

Common types of money laundering include tax evasion and false accounting practices. Criminals often use shell companies, holding companies, and offshore accounts to launder money.

A shell company is a company that has no significant assets and does not perform any significant operations. To launder money, the shell company pretends to perform a service that would require customers to pay with cash. The launderer then deposits the money with the shell company, which creates fake invoices and receipts to account for the cash. The shell company can then make withdrawals and either return the money to the initial criminal or pass the money on to further shell companies before returning it to further cloud who first deposited the money.

Offshore accounts offer greater privacy, less regulation, and reduced taxation. Criminals can keep their money abroad, fail to report the account's existence, and receive interest without paying personal income taxes on it in the U.S.

The U.S. government has passed several laws to combat money laundering, including the Bank Secrecy Act of 1970, the Money Laundering Control Act of 1986, and the USA Patriot Act of 2001. These laws require banks and other financial institutions to report any financial transactions of $10,000.01 or more and expand the scope of reporting responsibilities to combat the financing of terrorist activities.

The U.S. Supreme Court has clarified the federal statute criminalizing money laundering in several cases. In Cuellar v. United States, the Court determined that prosecutors must show that concealment of money must be for the purpose of concealing ownership, source, or control rather than for some other purpose. In United States v. Santos, the Court held that the word "proceeds" in the federal laundering statute referred only to criminal profits and excluded criminal receipts.