I think this does extend to fraud, grift, scams, and other illegal behavior. I have never seen "money laundering" extended to just "being bad at business."
On posts about companies spending so much money on AI (datacenter buildouts, tokkenmaxxing, etc.) comments wonder why they are doing this and replies say "money laundering", "definitely money laundering", etc. I'll post an example if I come across another one.
You guys do realize that part of money laundering is making it look like you're just bad at business, yeah? "Oops we accidentally overpaid some incompetent guys for this data center" is a smokescreen for "I am taking your data center money and giving it to my cousin"
From a strict "anti-money laundering" standpoint (how the bank thinks), money laundering is taking money that is suspected as being proceeds of criminal activity ("dirty" money) and making it indistinguishable from "clean" money. "Being bad at business" in a way that matches the definition of nepotism is not money laundering. There is a necessary component that the money is "dirty" and needs to be "cleaned", hence it is "laundered".