Money Laundering in Three Steps

Criminals with illegally obtained cash try to move it back into the legitimate economy by following three steps. The further into the process the money gets, the harder it is to detect. The best time to stop money laundering is at the PLACEMENT stage. That’s why your vigilance is essential.

Placement is the initial transformation of illicit cash into other assets. At this stage, the source of the cash is still obvious, so money launderers exploit weak AML controls, use deception, or use unknowing, complicit, or corrupt parties to place their cash. Examples include depositing cash in a bank, using cash to purchase assets from unknowing parties or by working with complicit or corrupt parties, paying credit card bills with cash, purchasing foreign currency at a currency exchange, and smuggling cash to weaker AML jurisdictions.

Layering is a sequence of transactions that disguises the source of money and the ultimate beneficial owner. Instruments that offer cross-border transfer, speed, and volume, and lack transparency or regulation, are ideal. The more layers created, the more countries and assets involved, the harder it becomes to follow the money trail. Examples include electronically transferring deposits, buying and selling assets, using shell corporations or offshore banks, and working through intermediaries.

Integration is the return of the money from seemingly legitimate sources to be used by the criminal. By this stage, all suspicious traces have been erased and the money can be used without raising concerns.

  •  Deposits that criminals can use to leverage loans to themselves.
  •  Using the cash to purchase assets that will yield income from their use or sale (e.g., property, boats, luxury cars, artwork, jewelry).

Aki has a prospective new client whose business generates large amounts of cash. He thinks the client may be attempting to launder money. Aki asks for your help to spot the red flags that might indicate money laundering.

  •  Investing in US assets via a company with a history of negative news.
  •  Distributing the cash into numerous US bank accounts using deposits below the $10,000 daily limit.
  •  Physically transporting the cash by courier to a neighboring jurisdiction with a lax AML regime.
  •  Wire transferring the money between US bank accounts.

It’s important that you can recognize red flags that indicate the placement stage of the money laundering process. Placement is the conversion of cash into something else of value (physical or non-physical asset). This could be achieved by purchasing an asset, or by depositing cash into a bank (usually in low amounts that don’t trigger AML controls). For a wire transfer to occur, the cash must already have made it past bank controls and been transformed from dirty cash to a less obviously dirty deposit. For this reason, money launderers will physically transport cash by courier to a neighboring jurisdiction with a lax AML regime, where they can place the money into the banking system.

Aki refuses to deal with the suspect client. He later learns that she approached a colleague of his, looking for advice on several transactions she
wanted to perform. Aki’s colleague refused to deal with the client as he suspected she was trying to layer the deposits to disguise their origin.

  •  Making wire transfers to other banks/accounts.
  •  Investing in commodities, stocks, shares, and other securities.
  •  Buying houses and selling them again, using the money deposited in local bank accounts.
  •  Buying artworks for cash.

It is important to remember that layering is all about hiding the origin of the money once it is in the system. The more complex the transaction and the higher the number of transactions, the more difficult it is to trace the origin. Layering is often achieved with wire transfers; investment in commodities, stocks, shares, and other securities; and the buying and selling of real estate. The cash purchase of luxury goods such as art is not layering – it is a first-stage placement transaction.

Aki’s prospective client went to another institution and finally succeeded in routing her money all over the world to obscure the origin of the funds. Her final step in laundering the money is to bring it home in an untraceable, apparently legal form – the integration step.

  •  Deposit the money into her own bank accounts
  •  Create “loans” from the offshore accounts to herself or front companies
  • Get falsified import/export papers to and from her own front companies
  •  Make wire transfers between her foreign bank accounts

Integration is the return of the assets back to the criminal after sufficient activity to disguise the illicit origin. The wire transfers between foreign accounts do not “bring it home,” whereas deposits, loans, and falsified import/export papers are all commonly used methods of integration.

  •  Understand the three stage money laundering process: Placement, Layering, and Integration.
  •  Recognize red flags that indicate money laundering activities at each stage.
  •  Understand what products and transactions are used at each stage by money launderers.

This content is an extract from theanti money laundering course.

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