Money laundering is the process of making illegally obtained funds appear legal or legitimate. Examples of illegally obtained funds include:
proceeds from drug trafficking
human trafficking and other types of organized crime activities
bribery and corruption
fraud schemes
tax evasion
Money laundering involves disguising the true source of funds to make them seem like they came from legitimate sources. A key element that criminals use to launder money is to create complex transactions to hide the money's origin.
As an investment group, a crucial step to prevent money laundering is to consider:
Do I know the source of funds for each of my investors?
Have I received any documentation or proof to verify the source of funds?
Is the owner of the funds in a position to have obtained the funds legally?
If the answer to these questions is no, this is a red flag.