Money Laundering – Definitions

Q1. How do scholars define money laundering?

Answer

There is no single universally accepted definition of money laundering. However,  legal scholars and commentators generally agree that it is a process by which criminals conceal or disguise the illegal origin of proceeds obtained from criminal activities so that the money appears to have come from legitimate sources.

Analogy

Imagine stealing a painting and then obtaining a fake certificate claiming it was inherited from your grandfather. The painting is still stolen, but the false certificate is intended to make it appear legitimate.

Real-Life Example

A fraudster obtains RM1 million through an investment scam. Instead of keeping the money in cash, he channels it through a company he owns and records it as “consultancy income.” Although the money originated from fraud, it now appears to be legitimate business revenue.

Reference

Peter Reuter & Edwin Truman, Chasing Dirty Money: The Fight Against Money Laundering (University of Maryland Press, 2004) 1.

Q2. How do Reuter and Truman define money laundering?

Answer

According to Peter Reuter and Edwin Truman:

**“Money laundering is the conversion of criminal incomes into assets that cannot be traced back to the underlying crimes.”**¹

This definition emphasises that criminals attempt to transform illegal money into assets whose criminal origin becomes difficult to identify.

Analogy

Think of melting stolen gold jewellery into gold bars. The gold is the same, but its original form and ownership become much harder to identify.

Real-Life Example

A drug trafficker uses illegal cash to purchase a commercial building through a company. Several years later, the building is sold legitimately. The proceeds now appear to come from the sale of real estate rather than drug trafficking.

Reference

¹ Peter Reuter & Edwin Truman, Chasing Dirty Money: The Fight Against Money Laundering (College Park: University of Maryland Press, 2004) p. 1.

Q3. How does Lee define money laundering?

Answer

According to Marina Lee Foong Tow et al.:

**“Money laundering is a process by which criminals attempt to conceal the origin of the proceeds and to provide a legitimate cover for their money by various means.”**²

This definition highlights two important objectives:

• Concealing the criminal origin of the money; and
• Creating a legitimate explanation for possessing or using the money.

Analogy

Imagine placing counterfeit money inside a genuine wallet filled with real cash. At first glance, everything appears legitimate, even though part of the contents is unlawful.

Real-Life Example

A criminal establishes a consulting company and issues fake invoices for services that were never provided. The criminal proceeds are deposited into the company’s bank account as “consultancy fees,” creating the appearance of lawful business income.

Reference

² Marina Lee Foong Tow et al., “Money Laundering and Banking Practices” (2002) 2 Singapore Management Review 2.

Q4. What techniques are commonly used in money laundering?

Answer

Another commentator describes money laundering as involving techniques for hiding the proceeds of crime, including:

• Transporting cash out of the country;
• Purchasing businesses through which funds can be channelled;
• Buying easily transportable valuables;
• Manipulating prices in international trade (transfer pricing); and
• Using underground banking systems.

These methods are intended to make it more difficult for authorities to trace the criminal origin of the money.

Analogy

Imagine trying to hide a drop of red ink by pouring it into several buckets of water. With each transfer, the original source becomes harder to identify.

Real-Life Examples

Transporting cash overseas

• A criminal physically carries large amounts of cash to another country and deposits it into a foreign bank account.

Purchasing businesses

• Illegal money is invested in a restaurant, which reports inflated daily sales to justify the cash deposits.

Buying valuables

• Criminal proceeds are used to buy diamonds or luxury watches, which are later sold to obtain money that appears to come from legitimate sales.

Transfer pricing

• A company deliberately overpays an affiliated company overseas for goods, allowing criminal proceeds to be transferred under the guise of international trade.

Underground banking

• A criminal gives cash to an underground money broker in one country, while an associate receives equivalent funds from the broker’s network in another country without using the formal banking system.

Reference

Michael Levi & Peter Reuter, “Money Laundering” (2006) 34 Crime & Justice 289.

Q5. What are the common elements found in these definitions?

Answer

Although scholars use different wording, their definitions share several common themes:

1. Money laundering involves proceeds derived from criminal activity.
2. The objective is to conceal or disguise the illegal origin of the money.
3. Criminals attempt to make the money appear legitimate.
4. Various financial transactions or assets are used to distance the money from the original crime.

Analogy

Think of repainting a stolen car, changing its registration number, and selling it. The car remains stolen, but the criminal has tried to disguise its true identity.

Real-Life Example

A corruption suspect receives illegal payments through shell companies, invests the money in commercial properties, and later sells the properties. The sale proceeds appear to originate from legitimate property transactions, even though the original funds came from corruption.

Key Takeaways

Reuter & Truman (2004)

Conversion of criminal income into assets that cannot be traced back to the crime.

Converting and distancing criminal proceeds.

Lee Foong Tow et al. (2002)

Concealing the origin of criminal proceeds and providing a legitimate cover.

Concealment and legitimacy.

Levi & Reuter (2006)

Techniques used to hide proceeds of crime through various financial methods.

Methods and techniques of laundering.

References

1. Guy Stessens, Money Laundering: A New International Law Enforcement Model (London: Cambridge University Press, 2000) p. 85.
2. Peter Reuter & Edwin Truman, Chasing Dirty Money: The Fight Against Money Laundering (College Park: University of Maryland Press, 2004) p. 1.
3. Marina Lee Foong Tow et al., “Money Laundering and Banking Practices” (2002) 2 Singapore Management Review 2.
4. Michael Levi & Peter Reuter, “Money Laundering” (2006) 34 Crime & Justice 289.