What does the term "layering" refer to in money laundering?

Layering is a critical stage in the money laundering process, which involves conducting a complex series of financial transactions designed to distort and obscure the source of illicit funds. This stage follows the initial generation of illegal funds and precedes their integration into the legitimate economy. During layering, criminals seek to make tracing the origins of the funds more difficult by moving money through various accounts, financial institutions, or geographical locations.

By conducting multiple transactions that may include converting cash to other forms of currency, transferring funds between accounts, or using financial products, the origin of the funds becomes increasingly confounding for law enforcement and financial institutions. This obscuring of the money's source is essential for money launderers, as it protects them from detection and prosecution.

Understanding layering is crucial in the context of anti-money laundering efforts, as recognizing these complex transactions can lead to identifying illicit activity and aid in the prevention of money laundering practices.