How does money laundering work?

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In simple words, Money laundering is the process of changing the colour of the money from black to white. There are three stages of money laundering. 

When there are proceeds of the crime available with a person (proceeds of corruption, proceeds of terrorist funding or narcotics proceedings) he is tempted to enter into money laundering transactions

1. Placement - When the proceeds of crimes are introduced in the bank
2. Layering - Nature of transactions is disguised
3. Integration - Finally the money is sent out to the account of ultimate beneficiary