The Three Distinctive Steps OR Stages of Money Laundering?

Money laundering is defined as a process, where funds are generated from illegal activity and converted into legal and clean money. Various countries and industries around the globe have felt a serious financial impact from a rise in money laundering activities.

Money launderers are a bunch of clever folks that are on a constant look-out for loopholes within the financial system. They explore little details, which is why a swift and accurate anti-money laundering mechanism is required to stop them. Banks and other financial institutions have incorporated KYC and AML screening that helps in keeping out bad actors with AML verification.

According to tookitaki, “banks have paid approximately 321 billion USD in fines and penalties since 2008 for failing to comply with the regulations that were used for money laundering and terror financing”.

Money launderers move their illegal money in a few stages while making several transactions, conducted through the financial system. Here’s a breakdown of three stages of the money laundering cycle.

Placement of Money

The placement stage is the initial step to move illegal cash through the financial system. Generally, it relieves criminals from holding a large amount of cash, and they could easily place their money into a legitimate financial system. Although, there is a high possibility that money launderers can be caught at this stage. 

During this stage, the money launderers enter the financial system as customers, vendors, or investors. Some common methods used to proceed with the crime are mentioned below.

  • Smuggling Currency: It consists of the physical movement of monetary goods or currency across the border.
  • Blending Funds: Criminals use a shell company with a legitimate cash flow to combine their dirty cash with a legitimate one to hide its origin.
  • Currency Exchanges: Taking advantage of a foreign exchange market to launder money by purchasing foreign money with illegal funds. 
  • Asset Purchases: One of the most used methods to clean dirty money is to purchase assets, usually large properties. It becomes hard to track down the source of income, once an asset has been purchased.
  • A money mule within a bank: Some criminals have people working inside the banks that help with their criminal activities by accepting the deposits.

Layering

Layering is the second tier of money laundering. It poses a significant challenge to the criminals and often involves moving the funds through an international border. The purpose of this stage is to break the link with an original crime. It is done through the layering of financial transactions that separates the illegal money from its source.

Integration

Finally, among the stages of money laundering is integration, where the money is returned to the criminals from what apparently seems to be a legitimate source. The illegitimate proceeds are fully integrated into the system that can be used by criminals for any purpose.

Here are a few ways that criminals show their money is coming from a legitimate source.

  • Shell Company: Criminals create a shell company that is used for laundering their illegitimate money by granting loans to themselves.
  • Banks as Accomplice: When banks are involved in such criminal activities, it is usually difficult for authorities to investigate. Banks are operating legally under international laws and regulations.
  • Import/Export Invoices: Money launderers usually create fake invoices received from exports that would justify their bills.

To narrow it down, the different stages of money laundering are primarily used by criminals to cheat their way through the system. Although in money laundering efforts, it’s common among money launderers to have mules inside the banks that help criminals to channel their illegal money through the financial system. This doesn’t mean that banks are cooperating with criminals to launder the money.

However, by integrating AI-powered solutions, banks and other financial institutions can run anti-money laundering checks on each customer through AML and KYC screening. It ensures compliance measures are taken at each level to stop any money laundering activities.

Meta Description:

Money Laundering takes place in three stages that include placement, layering, and integration to make their source of income look legitimate to authorities.   

0 0 vote
Article Rating
Subscribe
Notify of
guest
0 Comments
Inline Feedbacks
View all comments
Call Us
0
Would love your thoughts, please comment.x
()
x