What is Money Laundering
Money laundering is a complex method of converting a large amount of illegally gained
profit into lawfully acceptable form. The term ‘money laundering’ is derived from the idea
of cleaning, i.e., laundering ‘dirty money’ into white money, for its integration into the
financial system.
Money Laundering is considered a serious punishable offense involving all sorts of
people, from corporate to street offenders. The proceeds of crime sources include
felonious activities like narcotics trafficking, bribery, corruption, terrorist financing, human
trafficking, etc.
What are the 3 Stages of Money Laundering
Let us discuss what are the 3 stages of money laundering. Since money laundering is a
premeditated crime, it comprises i. placement, ii. layering, and iii. integration steps to
make dirty money seem legitimate and bring it to the economy.
Placement
For money launderers, placement is the most vulnerable stage wherein the dirty money
is surreptitiously introduced into the economy as monetary instruments or as direct
deposits into the bank accounts. In the case of bank account deposits, smaller deposits
below threshold levels are made to subvert reporting.
Since the money origin is illegitimate, placement involves the maximum risk. All
jurisdictions worldwide have instituted stringent cash deposit measures to conform to
Cash/Currency Transaction Reporting (CTR) filing obligations.
There are several ways of placing illicit money into the financial system, like loan
repayment, gambling, fake invoicing, foreign exchange, and blending funds.
Concurrently, money launderers exploit cash-intensive businesses that promote easy
money movement, for instance, car washing, check cashing services, gaming, etc.
Opening foreign shell organizations or trusts and transferring cash below custom
thresholds overseas to conceal the beneficial ownership is an intricate placement scheme
that is difficult for the AML authorities to get hold of.
Layering
Once the money is placed into the bank in the first stage, the layering process disguises
the illegitimate money source by maneuvering transactions and accounts. The purpose
is to make it cumbersome for the authorities to follow the audit trail involving a series of
domestic and off-shore transactions made using the different channels of payments.
Purchasing and selling expensive, luxurious goods – like land, jewelry, painting, etc. – is
an example of layering in money laundering and is, in fact, the most favorable method for
financial criminals to make use of their illicit funds.
One of the complex layering methods implies a series of irrational international
transactions especially covering the jurisdictions that allow shell organizations and private
banking. Abrupt holding company takeovers and real estate investments could also be
set as pertinent examples here.
To move large amounts of proceeds of crime, money launderers hire professional
bookkeepers to assist in fund transfers across international jurisdictions. Online
remittance and crypto payments have aggravated the situation, especially with the ease
of buying and selling cryptocurrency criminals misuse the exchanges to layer the ill-gotten
funds and cover up their source.
Integration
Integration defines the final money laundering stage, wherein the illegally obtained money
is returned to the legal financial system after completing the placement and layering
stages. The criminal proceeds get washed off and integrated into banks and financial
institutions as clean money.
Common integration tactics take in selling off expensive and luxurious items bought
during the layering stage. Other instances are cash outflows from shell organizations,
including fake payroll pay-outs, loan disbursement to shell company directors,
shareholder dividends, etc.
Examples of Money Laundering
Drug trafficking is one of the most serious money laundering threats worldwide today. The
narcotics industry is completely illegitimate and cash-intensive. Other examples of money
laundering are human trafficking, arms trafficking, smuggling, bribery, corruption, etc.
Terrorist financing is a widely prevalent nuisance, and online payments and
cryptocurrencies have intensified the situation. Many terrorist organizations today misuse
digital finance to transfer terrorist funds across borders.
Other examples of money laundering comprise white-collar crimes such as corporate
embezzlement and investment rip-offs, including insurance and mutual fund scams.
It must be noted that Trade-Based Money Laundering (TBML) is one of the most
excruciating crimes, which is extremely difficult to trace and establish in front of the law.
Today, Trade-Based Money Laundering (TBML) covers almost $2 trillion worth of global
trade. Common TBML methods that money launderers exploit is over-under and multiple
invoicing, over-under and inferior shipment, fake or phantom shipment, and shell
company trading.
IDMERIT AML Solutions for Businesses
It is a general notion that anti-money laundering policies are meant for the banking and
financial sector. But, in fact, all regulated non-financial industries like remittance,
accounts, legal, insurance, investment, fintech, etc., now fall under the scope of AML-
CFT obligations.
At the same time, regulations in high-risk sectors like cryptocurrencies, third-party
payment processing, forex, casinos, gambling, etc., call for enhanced diligence methods
to combat money laundering and terrorist financing threats arising from the ease of
international transfers offered to individuals and merchants.
Combatting money laundering is a global effort; IDMERIT extends tailormade AML
Solutions that operate in tandem with national and international AML-CFT
guidelines. Contact IDMERIT IDMaml consultant and book a demo to understand
more about AML requirements for your business.
