by Bruce Zagaris and Scott Ehlers

About the author: Bruce Zagaris, an attorney, is founder and editor of the International Enforcement Law Reporter. Scott Ehlers is the director of research with the Campaign for New Drug Policies.

The trade in illicit drugs is estimated to be worth $400 billion a year, or 8% of all international trade. In order to invest the profits of their illicit activities and avoid having their assets seized by the government, drug traffickers must transform the monetary proceeds from their criminal activity into revenue from apparently legal sources. This is known as money laundering.

Though there are many ways to launder drug money, the process generally involves three basic stages. The first stage, placement, entails depositing the drug proceeds into domestic and foreign financial institutions. The second stage, layering, involves creating layers between the...