Money Laundering is the process whereby criminals convert the proceeds of crime (such as money, property, shares, etc.) into assets that appear to have a legitimate origin.
It involves a three phased process called placement, layering and integration:
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At the placement stage the criminal finds a way to place proceeds of crime into the financial system e.g. deposit into bank, buy insurance policy, buy shares, buy a house, make an investment, buy unit trust, etc.
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During layering stage the criminal creates as much distance as possible between his/her proceeds of crime by performing a series of transactions with or transfers with the aim of obscuring the illegal origin and audit trail thereof. E.g. buying and selling shares or unit trusts, buying and selling immovable property, cashing out large insurance policies, investing and cashing out investments, transferring money from one bank account to the next through various countries, etc.
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At integration stage enough distance has been created between the criminal and the illegal origin of money or property and the laundered funds during the stage, are placed back into the economy under a veil of legitimacy. The criminal can freely and openly enjoy his/her proceeds of crime.