Money laundering defined: what is it?

• A. Transferring money between accounts to avoid taxes.
• B. Process of making illegally gained funds appear to have been generated from a legitimate source.
• C. Donating to charities to reduce taxable income.
• D. Recording all transactions in a ledger.

Answer: (B)

Money laundering is about hiding the origin of funds that were gained illegally by moving them through various transactions so they appear to come from legitimate sources. Think of it as a three-stage process: placing illicit cash into the financial system, layering it with complex transactions to obscure where it came from, and then integrating it back into the economy as seemingly clean money. This idea—making illegally gained money look legitimate—is the core of the definition.

The best description among the options captures that exact aim: transforming illegally obtained funds so they appear legitimate. The other choices describe things that are not money laundering—tax-related strategies, charitable giving for tax purposes, or simple, proper accounting—none of which inherently involve disguising the illegal origin of funds.