What is Money Laundering?
Money laundering is the process of disguising the origins of funds obtained through criminal activity — making illegally obtained money appear to be legitimately earned. The FATF estimates that 2–5% of global GDP ($800B–$2T) is laundered each year.
The three stages of money laundering
- Placement: introducing criminal proceeds into the financial system — cash deposits, smurfing (breaking large amounts into smaller deposits), currency exchange
- Layering: creating distance from the criminal origin through multiple transactions — wire transfers, shell companies, real estate, cryptocurrency conversion
- Integration: re-introducing the laundered funds into the legitimate economy as apparently clean assets
Legal frameworks
AML obligations under the Bank Secrecy Act (US), AMLD (EU), and LCB-FT (France) require financial institutions to implement KYC controls, transaction monitoring systems, and Suspicious Activity Report (SAR) procedures. For corporates, FCPA and Sapin II impose internal accounting controls that also address money laundering risk.
Implications for finance and audit teams
Finance teams in non-financial companies may be implicated in money laundering through fictitious vendor schemes, round-tripping transactions, or payments to intermediaries in high-risk jurisdictions. The compliance solution tests internal controls designed to detect these patterns.
Money Laundering and Supervizor
Supervizor flags transaction patterns consistent with money laundering indicators — unusual payment volumes to shell-company-like vendors, round-amount disbursements, transactions with high-risk jurisdictions, and rapid fund cycling — across 100% of the transaction population continuously.
Related Supervizor pages
→ Compliance — AML and anti-fraud control testing
→ AI & Controls — suspicious transaction detection