- Published on
Money Laundering – Scholarly Definitions (Questions & Answers with Examples)
Q1. Is there a single universally accepted definition of money laundering?
Answer
No. There is no single universally accepted definition of money laundering. Different scholars describe the concept from different perspectives. However, they all agree that money laundering involves dealing with the proceeds of crime in a manner that conceals or disguises their illegal origin so that the money appears legitimate.
Analogy
Imagine someone steals a bicycle and paints it a different colour, changes the registration number, and sells it. Although the bicycle remains stolen, the criminal has attempted to hide its true origin.
Real-Life Example
A fraudster obtains RM500,000 through an online investment scam. Instead of depositing the money directly into his personal bank account, he channels it through a company he owns and records it as “business income.” The objective is to make the money appear legitimate.
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 focuses on conversion. Criminals transform illegally obtained money into another form of property or asset, making it more difficult for authorities to trace it back to the original offence.
Key Point
The emphasis is on changing the form of the criminal proceeds so that they appear disconnected from the crime.
Analogy
Imagine changing stolen cash into gold bars. Although the value remains the same, the form has changed, making the original source less obvious.
Real-Life Example 1
A drug trafficker earns RM2 million from drug trafficking.
He purchases a commercial building.
Five years later, he sells the building.
He now claims:
“The RM3 million came from selling my commercial property.”
Instead of appearing as drug proceeds, the money now appears to originate from a legitimate property transaction.
Real-Life Example 2
A fraudster uses RM500,000 of criminal proceeds to purchase shares in a listed company. Several years later, the shares are sold and the proceeds appear to be legitimate investment gains.
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 Marina Lee Foong Tow 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 essential elements:
- Concealing the criminal origin of the money, and
- Providing a legitimate explanation or cover for possessing the money.
Key Point
The criminal is not merely spending illegal money. Instead, the criminal creates a believable explanation that the money was lawfully earned.
Analogy
Imagine replacing the label on a bottle marked “Poison” with a new label reading “Mineral Water.” The contents remain the same, but the label creates the appearance of legitimacy.
Real-Life Example 1 – Fake Consultancy Income
A corruption suspect receives RM1 million in bribes.
He owns a consulting company.
The RM1 million is recorded in the company’s accounts as:
“Consultancy Fees Received”
No consultancy services were ever provided.
The money now appears to be genuine business income.
Why is this money laundering?
Because the criminal has concealed the true origin of the money and created a legitimate cover by falsely describing it as consultancy income.
Real-Life Example 2 – False Business Revenue
A restaurant genuinely earns RM50,000 per month.
The owner secretly adds RM150,000 of illegal gambling proceeds into the daily sales records.
The financial statements now show:
Restaurant Revenue
RM200,000
The illegal money appears to be ordinary restaurant income.
Reference
² Marina Lee Foong Tow et al., “Money Laundering and Banking Practices” (2002) 2 Singapore Management Review 2.
Q4. How do Levi and Reuter describe money laundering?
Answer
According to Michael Levi and Peter Reuter, money laundering consists of:
**“The techniques for hiding proceeds of crime including transporting cash out of the country, purchasing businesses through which funds can be channelled, buying easily transportable valuables, transfer pricing, and using underground banks.”**³
Unlike the previous definitions, this definition focuses on the methods or techniques criminals use to hide criminal proceeds.
Technique 1 – Transporting Cash Overseas
Example
A criminal earns RM5 million through drug trafficking.
Instead of depositing the cash into a Malaysian bank, he transports the money to another country and deposits it there.
Why?
The overseas transfer may make it more difficult for investigators to trace the money and obtain banking records.
Technique 2 – Purchasing Businesses
Example
A criminal buys a car wash.
The car wash genuinely earns RM30,000 each month.
The criminal secretly adds RM100,000 of illegal cash into the business’s daily receipts.
The accounts now show:
Monthly Revenue
RM130,000
Why?
The legitimate business provides a convenient explanation for the large cash deposits.
Technique 3 – Buying Easily Transportable Valuables
Example
A criminal purchases diamonds and luxury watches using criminal proceeds.
Several months later, the valuables are sold.
The criminal now explains that the money came from selling personal assets.
Why?
High-value items are easy to transport, store, and convert back into money.
Technique 4 – Transfer Pricing
Example
Company A in Malaysia intentionally overpays Company B overseas for goods worth RM500,000 by paying RM2 million.
The additional RM1.5 million represents criminal proceeds transferred overseas under the appearance of an ordinary commercial transaction.
Why?
The money appears to be a genuine payment for international trade.
Technique 5 – Underground Banking
Example
A criminal gives RM1 million cash to an underground money broker in Malaysia.
Without using the formal banking system, another broker pays the equivalent amount to the criminal’s associate in another country.
Why?
The transfer occurs outside the regulated banking system, making it more difficult for authorities to trace the movement of funds.
Reference
³ Michael Levi & Peter Reuter, “Money Laundering” (2006) 34 Crime & Justice 289.
Q5. What do these scholarly definitions have in common?
Answer
Although each scholar emphasises different aspects of money laundering, they all share the following common principles:
Scholar
Focus
Example
Reuter & Truman
Conversion of criminal proceeds into assets that cannot easily be traced.
Purchasing property or investments using criminal proceeds.
Lee Foong Tow et al.
Concealing the origin of criminal proceeds and creating a legitimate explanation.
Recording illegal money as consultancy fees or business income.
Levi & Reuter
Techniques commonly used to hide criminal proceeds.
Overseas transfers, shell businesses, luxury goods, transfer pricing, underground banking.
Simple Analogy
Imagine dirty water.
- Reuter & Truman explain how the dirty water is poured into a different container (conversion).
- Lee explains how criminals put a label saying “Clean Water” on the container (legitimate cover).
- Levi & Reuter explain the different routes used to transport the container so nobody knows where it came from (laundering techniques).
Together, these definitions provide a comprehensive understanding of money laundering by explaining what it is (concealing and legitimising criminal proceeds), why criminals do it (to disguise the illegal origin), and how it is commonly carried out (through various laundering techniques).
References
- Guy Stessens, Money Laundering: A New International Law Enforcement Model (London: Cambridge University Press, 2000) 85.
- Peter Reuter & Edwin Truman, Chasing Dirty Money: The Fight Against Money Laundering (College Park: University of Maryland Press, 2004) 1.
- Marina Lee Foong Tow et al., “Money Laundering and Banking Practices” (2002) 2 Singapore Management Review 2.
- Michael Levi & Peter Reuter, “Money Laundering” (2006) 34 Crime & Justice 289.
