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Money laundering - An Introduction for Fintech Companies
December 02, 2019

What is money laundering?

In general terms, money laundering is usually described as actions and other measures taken in order to conceal the origin of illegally obtained money. The objective with such actions and measures is usually to achieve that money, that has been obtained through criminal activity, appears legit, i.e. to have originated from legitimate sources. In other words, money laundering is a way to make so-called dirty money look legit.

The term money laundering is in the Swedish Measures Against Money Laundering and Terrorist Financing Act ( we will refer to it as the Anti-Money Laundering Act) defined as follows:

Actions in respect of money or other property arising from crime or criminal activities which

  1. can conceal any link between the property and crime or criminal activity,
  2. can facilitate for anyone to absorb property or its value,
  3. can facilitate anyone to evade legal sanctions, or
  4. results in that someone acquires, holds, claims the right to or use of the property.

In addition, actions that typically are intended to conceal that someone is intending to enrich him- or herself or someone else through future criminal action, shall be equated with money laundering.

Why is money laundered?

In general, money or other property obtained through criminal activity is difficult to use directly, without attracting the attention of law enforcement authorities. Therefore, criminals often set up and make use of financial companies and/or the financial system in order to make it harder to trace the origin of such money or property, with the overall objective to achieve that it appears to be legit. Once so-called dirty money has entered into the financial (and global) markets, it is extremely difficult for law enforcement authorities to trace the actual origin of the money.

Money that is laundered usually originates from various types of criminal activities, such as drug trafficking, human trafficking, tax crimes, robberies, fraud etc. Once the money has been laundered, it is often used for the funding of organized crime or terrorist activities.

How is money laundered?/ What is the process of laundering money?

The process of money laundering generally consists of three steps:

  1. placement;
  2. layering; and
  3. integration.

Placement is the first step in the process. This is basically when the dirty money is introduced into the financial system, e.g. with a legitimate financial institution. Money laundering, at its simplest, is when money is deposited into a bank account. However, this step is usually described as the riskiest one for the money launderer, because it is at this step most questions are asked about the origin of the money, etc.

Layering is the second, and most complex, step in the money laundering process. Layering can be described as the steps a money launderer takes to make it more difficult to trace the origin of money and property obtained through criminal activities. Hence, a money launderer can through a series of transactions, such as transfers, purchases, and sales, exchanges, etc., between different accounts, banks and countries, make it harder and harder for law enforcement authorities to trace the origin of the money.

Integration is the third and final step. When the second step, layering, is concluded, the illegal origin of the money has been concealed, to varying degrees. The money is now integrated into the legitimate financial system, giving the appearance of being legitimate, i.e. lawfully obtained, and can thus be used for legal purposes.

Where does it occur?

Criminal activity and money laundering are international occurrences and are often conducted across national borders. Since money laundering usually follows most profit-generating criminal activities, it can occur anywhere in the world. Criminals looking to launder money tend to target countries or sectors with weak or ineffective anti-money laundering regulations and programs etc., as this lowers the risk of them getting exposed and caught. However, since the objective is to get the illegally obtained money back to the persons who generated them, money launderers usually prefer to move money through stable financial systems.

About the author

This article is presented in cooperation with Eversheds Sutherland Sweden.