What does layering refer to in financial terms?

Layering in financial terms refers specifically to the process of separating illegal funds from their original source, typically in the context of money laundering. This method involves conducting a series of complex transactions to obscure the origins of the illicit funds. The goal is to make it difficult for authorities to trace the source of the money, allowing it to blend in with legitimate financial transactions.

In the broader context of financial practices, layering can be an important concept within the framework of compliance and regulatory measures to prevent criminal activities in the financial system. This differentiates it from other processes, such as bond issuance or investment diversification, which focus on legitimate financial strategies rather than illicit activities.