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Money laundering is the process of making large amounts of money generated by a criminal activity, such as drug trafficking or terrorist funding, appear to have come from a legitimate source. The money from the criminal activity is considered dirty, and the process "launders" it to make it look clean.
Money laundering refers to a financial transaction scheme that aims to conceal the identity, source, and destination of illicitly-obtained money. The money laundering process can be broken down into three stages. First, the illegal activity that garners the money places it in the launderer’s hands. Second, the launderer passes the money through a complex scheme of transactions to obscure who initially received the money from the criminal enterprise. Third, the scheme returns the money to the launderer in an obscure and indirect way.
To combat this criminal activity, Congress passed the Bank Secrecy Act of 1970, which requires banks to report any financial transactions of $10,000.01 or more. Congress followed up this Act sixteen years later with the Money Laundering Control Act of 1986, which rendered money laundering a federal crime. In 2001, Congress passed the USA Patriot Act, which expanded the scope of reporting responsibilities and included more types of financial institutions in an effort to combat the financing of terrorist activities.
In a pair of 2008 decisions, the U.S. Supreme Court clarified the federal statute criminalizing money laundering. Cuellar v. United States determined that to prove money laundering, prosecutors must show that concealment of money must be for the purpose of concealing ownership, source, or control rather than for some other purpose. In United States v. Santos, the Court held that the word “proceeds” in the federal laundering statute referred only to criminal profits and excluded criminal receipts. Thus, the Court reversed a pair of convictions based on money laundering involving the pay out of winnings in an illegal gambling ring.