Money laundering is a huge cause for concern, especially because of how frequently it occurs. In fact, in 1989 there was a task force established in Paris to try to stop this from occurring internationally. Money laundering is the process by which an individual or group will try and divert attention from money they earned through illegal activities. Regardless of how the money was acquired, if an individual is trying to hide the source of that money, whether to evade taxes or for another reason, it is viewed by the IRS as money laundering. To the IRS, money laundering simply means tax evasion because regardless of the source of the income, illegal or not, any income is taxable. It is for this reason that the IRS conducts criminal investigations to try and identify those participating in money laundering.
However, most money laundering occurs as a result of illegal activities. This activity could be anything. It could be drug trafficking, prostitution, organized crime, or any other illegal act. When this large amount of money is acquired, it needs to be dealt with in a manner that won't attract attention. For example, if you had a bank account and you simply deposited $100,000 you just stole from a bank with no means to justify it (without saying you stole it from a bank, of course) it would attract attention from the authorities, inevitably leading to you getting in trouble. Money laundering often occurs when individuals place their money in off shore accounts where it cannot be detected by the authorities in their home country. When criminals do this, it is so they can eventually bring the money back into their home country so that it appears to be legal. They often do this using loan proceeds.
This has become such a huge concern because of the effect it can have on the financial institutions in developed and developing countries alike. Often times, money launderers go to developing nations who cannot afford to be picky about the money that is invested in their banks. However, they then become dependent on that money and if the money launderer then pulls the money out unexpectedly, it could cause instability. It also means, if money laundering in developing nations or within particular sectors of the economy is left unchecked, organized crime may be able to infiltrate these areas and be able to influence decision making due to the amount of money they may be investing. By allowing money laundering to continue, it is also allowing crime to continue. As it becomes easier for criminals to launder the money they have earned, it encourages them to continue their activities with little to no consequence. It also undermines every financial institution and system in a country. For example, If money laundering were allowed to continue in the U.S, it would completely erode the foundations of the banking and financial systems, especially those held up by the pillars of federal income tax.