ELI5: What is money laundering?

Money laundering is like washing dirty money to make it look clean.

Imagine you found a big bag of cash, but it came from doing something bad, like selling candy without a license or borrowing from your sibling without telling them. You can't just go to the store and buy a giant candy bar with it, because people will ask where you got all that money. That's where money laundering comes in.

It's a process of hiding where the money really came from, so it looks like it came from a legitimate source. It's important in economics because it distorts markets and can fund illegal activities.

Here's how it works, in simple steps:

• Placement: First, you put the "dirty" money into the financial system. Think of it like sneaking the dirty money into a bank account.

• Layering: Next, you move the money around to make it harder to track. This is like mixing the dirty money with lots of other, clean money. You might do this by:

• Integration: Finally, the money comes back to you looking "clean." Now, you can buy that giant candy bar (or a house, or a car) without anyone suspecting anything. It looks like you earned the money fairly.