The actual process of laundering money is more complex than this definition makes it sound. In fact, there are 3 stages of money laundering, and each of these contains its own complexities. With this in mind, let’s take a look at each stage in greater detail.
Money laundering can be a complex crime. To help you learn more about how the crime works, we’ve put together this guide. We’ve answered popular questions like “What are the 3 stages of money laundering?”, “What are examples of money laundering?”, and “How can you prevent money laundering?”
Usually, a criminal enterprise or an individual involved in financial crime will end up with a large amount of cash that needs to be hidden from authorities.
To do this, a criminal will willfully conceal money obtained from illegal activities, “wash” it within the financial system, and get it back in a “clean” way. This process is known as money laundering.
Essentially, money laundering has one purpose: to turn the proceeds of crime into cash or property that looks legitimate and can be used without suspicion.
However, the actual process of laundering money is more complex than this definition makes it sound. In fact, there are 3 stages of money laundering, and each of these contains its own complexities. With this in mind, let’s take a look at each stage in greater detail.
Each stage of the money laundering process is unique and presents its own challenges. To help you learn more, here’s a breakdown of the 3 stages of money laundering, and an overview of exactly what each stage involves.
In the placement stage of money laundering, “dirty” money is placed into a legitimate financial system, such as an offshore account or a financial instrument.
In the process of moving the cash from its source, the money is “washed” and disguised to look like a legitimate source of income.
At this stage of the process, criminals are vulnerable because they’re moving a large bulk of money and placing it directly into the financial system.
Layering is the second part of the money laundering process. At this stage, multiple small transactions are made in different markets and across borders. The goal here is to distance the funds from their origins as far as possible.
The aim of this process is to obscure the audit trail through the strategic layering of financial transactions and fraudulent bookkeeping. If this is done well enough, the original source of the funds can be concealed and it will be near-impossible to prove who owns the illegal funds. By spreading the funds across borders, it also makes it more difficult for anti-money laundering officials to spot foul play.
The final stage of the money laundering process is the integration stage. At this stage, the “dirty” money is returned to the criminal, seemingly from legitimate sources.
Once the “dirty” money has been placed and layered, the funds will be integrated back into the legitimate financial system as “legal” tender. This process must be carried out extremely carefully and the money must come from legitimate sources.
The 3 stages of money laundering are highly complex. In reality, each of these stages often overlaps. In addition, each stage can also involve multiple individuals.
There are a number of different ways that laundered money can be placed into legitimate financial systems. For example, criminals can use:
Layering involves turning “dirty” money into large sums of “clean” and untraceable funds.
Layering is incredibly complex, but it generally involves the following tactics:
During this stage, criminals will make as many transactions as possible in order to create extra “layers”.
The final stage of the money laundering process involves getting the money out of the financial system so that it can be used. However, it’s important to the criminals that they do not attract the attention of law enforcement or tax authorities. Due to this, criminals are often content to pay payroll and other taxes to make the “washing” more legitimate. Techniques used include:
Once the integration stage has been achieved, a criminal will enjoy their legal wealth, believing that the laundered money won’t be traced back to them.
Money laundering is a serious crime and criminals could try to target your business. As a result, it’s vital that your business adheres to anti-money laundering (AML) guidelines and reports all instances of suspected money laundering.
If your company is at risk of financial crime, then you’re required to implement an anti-money laundering compliance program. The main goal of this is to detect, respond, and avoid money laundering and fraud-related risks. You can achieve this by:
If you’re looking to become AML compliant, then a great starting point is online identity verification. Our AML & KYC compliance solution provides end-to-end anti-money laundering compliance and can help you fight financial crime.
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Interested in learning more about how we can help your business fight financial crime and ensure that you know your customers? Book a consultation with our team today. We’ll provide you with a personalized demo, so you can see the benefits for yourself.