What Is Money Laundering? A Definition and Example

A plain definition of money laundering, the three steps it usually follows, and a worked example of how a bank spots and reports it.

Published	14 October 2026

What money laundering is

Money laundering is the process of making money from crime look legal. That is how FinCEN defines it. Cash from a crime goes through steps so it comes out looking like ordinary income.

The crime that made the money is one thing. In the United States, the laundering has been a federal crime of its own since 1986.

Why it is called laundering

The name is a metaphor. Dirty money goes in. Clean money comes out. The washing hides where the money came from.

Why bother? Cash from crime is evidence. Spending it openly points back to the crime. A person who wants to use the money needs it to look like it came from somewhere legal.

The three steps

FinCEN says money laundering usually has three steps. They are placement, layering and integration.

Placement means moving crime cash into a bank or other financial business.

Layering is moving the money around. Each move makes the trail harder to follow.

Integration is the money coming back out. It comes out looking like money from a legal source. The money laundering process page walks through each step in more detail.

A worked example: the money mule

Here is what an example looks like from the bank's side of the counter.

An elderly customer has a new online friend. The friend talks her into receiving money and sending it on. She thinks she is helping with a business. She is a money mule.

FinCEN's alert defines a money mule as a person who transfers or moves illicit funds at the direction of or on behalf of another. FinCEN's advisory says elder scams are sometimes facilitated through money mules who transfer or move illicit funds at the direction of the scammers.

The bank sees the pattern. Money arrives and leaves at someone else's direction, which is the conduct FinCEN's alert describes.

Structuring is a separate offence with its own rule. § 1010.314 says no person may structure or assist in structuring a transaction with one or more domestic financial institutions. The bank's job is to spot the pattern, not to prove the crime.

How the law treats it

In the United States, the Money Laundering Control Act of 1986 established money laundering as a federal crime, FinCEN's page says.

The FATF Recommendations set the international standard. The Recommendations tell each country to criminalise laundering. The Vienna Convention and the Palermo Convention are the basis. They also say countries should apply the crime to all serious offences. The Recommendations say a money laundering offence covers the primary offence and ancillary offences too.

The anti money laundering law page covers the US statutes in more depth.

What institutions must do

Banks and other institutions do not charge anyone. They detect and report. The framework is what is AML anti money laundering in practice.

For money services businesses, § 1022.210 says an effective program is reasonably designed to prevent the business from being used for money laundering and terrorist financing.

In the mule example, the bank decides the activity is suspicious. What it must then file is set by the suspicious activity rules. The suspicious activity report banks page explains the filing and its rules.

FinCEN's page says money laundering can help crimes like drug trafficking and terrorism.