What does 'layering' refer to in the context of money laundering?

Layering, in the context of money laundering, specifically refers to the process of moving illicit funds around in a way that obscures their origins. This involves complex financial transactions that make it difficult for authorities to trace the money back to its illegal source. By transferring funds between different accounts, jurisdictions, or financial instruments, the launderer creates a convoluted trail that serves to break any investigative links to the original, unlawful activity.

This method is crucial because it effectively disguises the trail of the money, complicating law enforcement’s ability to attribute the funds to criminal actions. This tactic is a key component of the money laundering cycle, wherein the primary goal is to conceal the source of illegally obtained money to integrate it into the legitimate financial system without raising suspicions.

The focus on obscuring the origins distinguishes layering from other processes, such as investing illegally obtained funds into legitimate businesses or documenting transactions transparently, which might relate to different aspects of financial regulation and compliance.