Money laundering, as it’s generally understood today, is the practice of engaging in financial transactions in order to conceal or disguise the origin or source, or possibly the nature, location, ownership, and/or control, of money that has been obtained outside the parameters of legality.
This includes transactions designed to avoid cash-reporting requirements (also known as structuring and smurfing) and income-tax reporting requirements (also known as false accounting and tax evasion).
Money can be "laundered," according to a strict definition, as simply as spending ill-gotten cash for food and supplies or as elaborately as putting it through complex business networks of shell companies and trusts based in tax havens.
In today’s paranoid financial environment where cash is "assumed" to come from illegal sources and, thus, is often confiscated without cause by authorities, transactions as minor as changing up small bills into hundreds, or changing down hundreds into small bills, can be considered money laundering.
In the United Kingdom, money laundering has even been taken out of the realm of currency (and its equivalents, such as checks and electronic transfers) and now also involves property and goods.
The term "money laundering" is sometimes cited as having originated from Mafia ownership of laundromats. Gangsters -- in this instance, Al Capone during Prohibition -- earning huge sums of cash from bootleg liquor (as well as gambling, prostitution, extortion, and other crimes) needed to show a legitimate source of the money. One method they used to legitimize all the cash was to buy outwardly legitimate businesses and mix the legal and illegal earnings together. Laundromats were strictly cash businesses that filled the bill -- thus the term money laundering. This notion, however, has been largely debunked as apocryphal.
Instead, according to Jeffrey Robinson in his book The Laundrymen, the first reference to the term appeared in conjunction with the Watergate scandal during the Nixon administration. Nixon's Committee to Re-elect the President moved dirty campaign contributions to Mexico, then brought the money back through a company in Miami. The British newspaper The Guardian apparently coined the term, referring to the process as "laundering."
It’s certainly an apt description for making dirty money clean.
However, Al Capone’s conviction and imprisonment for something as obvious and avoidable as tax evasion is said to have inspired Meyer Lansky, the financial brains behind the big organized-crime families that arose out of Prohibition, to invent various ways to hide or launder money. One method Lansky devised, for example, was the loan-back, whereby money deposited in numbered Swiss bank accounts could be disguised as legitimate "loans" provided by cooperative foreign banks.
It wasn’t until the 1980s, however, that the "crime" of money laundering started to attract significant global interest. Governments' increasing familiarity with the huge amounts of capital generated by drug traffickers launched concerted efforts to "follow the money" and pass legislation to deprive the drug cartels of their illicit profits.
Today, the same is true for terrorists and their money. The fear of terrorism money impacts every transaction, small and large, that goes through the financial system of banks and credit cards, along with many in casinos, which are all tracked and monitored by the Financial Crimes Enforcement Network (also known as FINCEN), created by the U.S. Treasury Department in 1990.
Speaking of casinos, money laundering largely centers around smurfing/structuring wagers in order to avoid cash-reporting paperwork ($3,000 if a transaction is suspicious and $10,000 for all other transactions) mandated by the Bank Secrecy Act.
