Money laundering is a federal white collar crime. It involves moving money in an attempt to disguise its origins.
Money laundering is typically tied to other crimes. For example, drug cartels launder their money, so authorities do not know it came from drug activity.
The process
A common way to launder money is to go through a business. A criminal will set up a cover business that is legitimate. It operates as any other business in the community. But through the backdoor is coming dirty money. The criminal runs it through the business to legitimize the funds.
Another method is to move money through various bank accounts. The typical route is to move it to an offshore account in a location that has relaxed banking regulations. The process also can allow for switching currencies, which is another way to launder money.
The basic idea is to create a complex path that is difficult for investigators to follow. The more switches and movements money has, the harder it is to track it back to where it came from. The whole idea of money laundering is to make it hard for authorities to prove it came from illegal activities.
The purpose
Money laundering is common with crimes that involved a large amount of money. If someone is under suspicion of criminal activity, having a sudden influx of money will raise a red flag to authorities. So, using money laundering can prevent that from happening while still allowing access to the funds.
Laundering money is a crime because it is an attempt to cover up illegal activity. Sometimes authorities can catch criminal enterprises because they are able to uncover money laundering operations, so it may not always have the effect desired.