Wed. Jul 24th, 2024
Money LaunderingAML concept. Magnifier glass with text on the white background in sunlight.

Stages of Money laundering, a process of cleaning or laundering the proceeds of crime to avoid detection, is not just a serious issue but a grave one with far-reaching consequences. It’s a menace that fuels various types of fraud, including arms sales, bribery, insider trading, fraud schemes, embezzlement, human trafficking, narcotics, and contraband smuggling, posing a significant and immediate threat to our society. 

Assessing the scale of stages of money laundering is a perpetual challenge as it continues to evolve with the advent of new technologies. In 2023, the U.S. Internet Crime Complaint Center (IC3) received approximately 250 complaints indicating ransomware attacks in healthcare organizations, a stark reminder of the ever-increasing threat. 

AML Stages of Money Laundering

Money laundering is not of a single type; it has three stages that are measured according to the threat or danger they create within the system. These stages of money laundering help identify crime levels of fraud and punish them according to the crime they committed in laundering. Let’s dive into the three stages of money laundering:

Placement

When illegally obtained funds are introduced into a system, the first stage of money laundering placement takes place. In this money introduction, the pattern fraudsters follow is that they do not deposit a lump sum amount of money; they use it to divide the amount into more miniature figures or purchase monetary instruments such as stocks, bonds, or cryptocurrencies from that amount to remain safe from being caught by the system. 

Fraudsters must keep these illegal entities authentic and safe from being caught by suspicious activity checking systems. This is a common strategy in AML compliance services. The methods included in this stage are:

  • Making false invoices
  • Money used to pay expenses is deposited into banks in small amounts, a technique commonly known as ‘smurfing.’
  • Offshore companies and trusts are another method used in the ‘placement’ stage. 
  • These entities set up favorable tax laws and regulations.
  • To hide the actual ownership of fraud, they are utilized to hide money laundering.
  • Taking abroad an amount of money to avoid customs concerns 
  • Depositing money to foreign bank accounts and lodging it
  • Taking cash legitimately from a crime scene which is illicit cash

These placement techniques vary accordingly, but they aim to move dirty or black money to a safer place to use in different financial activities. 

Layering

Money is moved and shifted from one place to another through different financial transactions to hide the source of funds transfer in the economic system. The layering process in stages of money laundering involves the adoption of ways by fraudsters that make it difficult for the authorities to identify the illegality within that transaction. 

For instance, payment for goods and services and loan approvals in different countries are standard methods used in layering. Such money may be transferred to countries without cooperation with AML stages regulations, and anti money laundering aspects are considered when transferring any money. Examples of layering are not just methods but a testament to the adaptability of money laundering stages techniques:

  • Real Estate Investment
  • Reselling high-value Goods
  • Transferring funds between countries

Cryptocurrencies also involves layering techniques in stages of money laundering, which are as follows:

  • uncheckedChain Hopping: Moving one blockchain to another by converting it to another and transitioning it
  • uncheckedCycling: First, buying and selling of cryptocurrencies and depositing into one bank and then selling that to some other bank
  • uncheckedTumbling or Mixing: Making illegal transactions hard to trace by someone, causing its owner to be trapped in the blending of transactions.

Integration or Extraction

The third stage in all three stages of money laundering begins after the completion of the first two stages of money laundering, which is called extraction or integration. In this stage, money launderers find ways to help them get their money without being caught suspiciously by any anti-money laundering system. 

Returning cash to them is the most critical and most suspicious step; if they get caught in this stage, they will be seen by authorities and face severe legal consequences. These can range from hefty fines to imprisonment. If in stages of money laundering, fraud cannot be detected at this stage, then the purpose of fraudsters will be successful, and they can successfully use it in crime. 

  • uncheckedThis helps them remain safe from law enforcement agencies and financial sector threats. 
  • uncheckedThis involves purchasing business ventures as investments, including property and land, considered high-value items. Other high-value items often used in stages of money laundering include luxury cars, artwork, and jewelry. 
  • uncheckedCommon in integration are paying so-called loans to shareholders and directors, non-existent employee payments, and paying dividends to shareholders by companies. 

If documentation is available in the money transaction process, it becomes easier to identify the preceding in the integration stage. 

Final Verdict

While it’s true that some individuals involved in the stages of money laundering are professionals, it’s important to note that not all professionals are involved in money laundering. Those who often perpetrate organized crimes make it their core business, posing a significant and immediate threat to society. These three stages of money laundering are helpful in identifying fraudulent activities but also help in making sure that these activities will not cause harm to the system and can be controlled at the beginning.

By Noah

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