The 3 stages of money laundering: An in-depth guide 

The pace at which money laundering activities are growing concerns global financial peace and the companies and businesses that are being used as a helping hand for such fraudulent activities. UNODC states that between 2 % and 5%  or 0.7 billion dollars are laundered every year.

To prevent the severity of money laundering in such a huge amount, money laundering must be dealt with iron hands, and any individual or entity involved in such crime has to face imprisonment and heavy penalties. Four hundred ninety-five million dollar fine on Danske Bank for noncompliance to money laundering regulations is one such example. 

Money laundering can easily be recognized if financial institutions strictly follow the AML rules and regulations set by different international regulatory bodies. Because the money laundering life cycle itself isn’t straightforward, criminals must seek different loopholes to transfer the money successfully.

This writing will cover the three stages of money laundering and provide an example of how to inject illegally obtained money into the global legal and financial system.  

What is Money Laundering?

The act of exchanging money or other assets not obtained legally with money or assets to clean their money. Laundering is a mechanism where criminals inject and exchange cash or assets in legal financial system; criminals also try to move money from one place to another to hide its illegitimate origin. This is why businesses worldwide are instructed to protect against such crimes and not expose themselves to such activities.

Despite using the latest technology, international money laundering funds are still unable to figure out the exact amount of laundered money. One reason is the complexity they face while gathering data from different sources.

What’s new About Stages of Money Laundering

As money laundering isn’t straight money laundering, funds are still unavailable. Preventing ML isn’t easy, either. Therefore, organizations, especially those involved in finalizations, must be more proactive in recognizing the different stages of money laundering. 

1.      Stage 1 (Placement)  

During this phase, criminals try to find channels through which they can send money to foreign accounts or offshore companies. The purpose of placement is quite simple: to wash their cash and disguise the funds as clean money.

Example of Placement: The standard way that money launders are used at this stage of money laundering is by using the wrong invoice. Either they produce over-invoices or under-invoices, and they use the tactics of phantom shipping. Under phantom shipping, nothing is sent to the receiver. This tactic is used to showcase the reason for transferring money to other banks.

           2. Step 2 of Money Laundering: Layering

After successfully placing their money into the financial system, the next phase starts with multiple financial transactions in different bank accounts. The offshore transanothern technique is also used here. The difficulty they can face at this stage is auditing their transaction, so to avoid any hurdles in this phase, they open multiple bank accounts and do a couple of transactions in many accounts under the reporting threshold to avoid any sort of auditing regarding their transaction. The ultimate goal of making too many transactions is to hide the source of money.

Example of Layering: The best example of layering is the investment in the stock market, selling and purchasing a lot of shares under the reporting threshold and from different bank accounts, which makes it quite complicated to find the origin of such money. This is done by exploiting the loopholes in countries week in AML compliance. 

3.      Step 3 of Money Laundering: Integration  

Integration money laundering means the money has officially been entered into the legal financial system due to the successful, advantageous process. The money has almost been laundered if the criminal passes the first two stages. Now, the criminal can use the money as they like. Still, there are some protocols criminals must go through, such as transactions in legitimate systems and actual transactions. Afterward, it becomes hard for the regulatory body to distinguish between legal and illegal money.  

Example of Integration: Criminals invest their dirty money into areas that have high prices, like gold, real estate, transactions, and so on.

How can businesses prevent Money laundering? 

The first and foremost thing that needs to be implemented by any business is to have an adequate AML agent in their organization. Screening against PEPs, Adverse Media, and other sanctioned laws and reporting and training structures within businesses are also important factors in preventing ML. If an organization integrates an AML screening tool that can screen against all available lists.