Money laundering is a complex process that transforms illegal gains into outwardly legitimate assets. Understanding its stages is essential for identifying and preventing financial crime. The process typically unfolds in three key phases: placement, layering, and integration. Each stage has distinct techniques designed to disguise illicit funds’ origin and ownership, making them harder to trace. Analyzing these stages from start to finish reveals how criminal organizations work to legitimize illegal proceeds and helps uncover strategies to detect and disrupt these operations. This overview burrows into each phase and highlights methods used and red flags to watch for in the fight against money laundering.
What is the Money Laundering Life Cycle?
Money laundering circulates around the illegalities that are executed to fund and profit from activities such as human trafficking, drug trafficking, smuggling, arms trading, terror funding, embezzlement, etc. Potential imposters conduct these groups of activities to move their funds and conceal them to show them as legitimate or earned money. Phases of money laundering are divided into three diverse stages because the whole execution procedure is done through proper planning. The scale of money laundering is difficult to examine, but still, it is considered a broad quoted figure from the UNODC. Which evaluates that terror funding protocols cost around 2-5% of the world’s total GDP, which is nearly about $2 trillion.
Comprehend the Three Diverse Stages of Money Laundering
These typical three steps of the money laundering process are conducted to release illegitimate money into the authentic financial ecosystem. A detailed overview of the stages of money laundering is given below for better comprehension:
Placement
The placement stage happens in the money laundering process when the illegally earned funds are placed in the financial ecosystem. It is usually executed by splitting up huge amounts of funds into fewer numbers. So that they can easily get deposited into the bank accounts. It can also be done by buying money instruments such as physical checks and fund orders that are gathered and placed into financial accounts at other places.
Most of the placement tactics are executed through different approaches, which are given below:
- Mixing criminal money with business revenue: This involves combining illegal money with the earnings of a business, especially ones that don’t have many changing expenses. This approach makes it harder to notice the added funds.
- Fake billing: This method includes creating bogus invoices to make dirty money seem like it’s coming from real transactions or services.
- Splitting money into small parts: By breaking up large sums into smaller amounts, under the threshold that would raise red flags, money can be gradually deposited into accounts. These smaller sums are then used for regular expenses.
- Concealing ownership through intermediaries: Setting up trusts or offshore companies makes it challenging to trace who truly controls or benefits from the funds.
- Transferring small sums abroad: By carrying amounts that don’t require declaration at customs, funds can be taken overseas, deposited into foreign accounts, and later sent back.
Layering
The layering of funds happens when the money launderers proceed their money through a series of steps within a financial chain with the objective of making it hard to track down their authentic source. Most of the layering protocols utilized by imposters during the stages of money laundering are given below:
- Chain-hopping – This includes the conversion of one cryptocurrency into another and changing from one blockchain to the other.
- Tumbling – Tumbling is the mixing of diverse financial conductions within different exchanges that makes the transactions solid enough to track back to a particular exchange, account, or owner.
- Cycling – It assists in making deposits of the fiat currency from one financial account, buying and selling cryptocurrency, and then placing the proceeds into some other banking account.
Integration
Integration is the bottom one among the stages of money laundering which is conducted by imposters to merge illegally earned money into an authentic financial ecosystem. To utilize these funds to make purchases of goods and services without captivating attention from the regulatory bodies or the higher authorities. Then, further down, imposters invest those funds in real estate, luxury assets, and business ventures.
The Bottom Line:
The identification of the execution of terror funding or money laundering is difficult to access. For that purpose, the comprehension of the stages of money laundering has become more important than ever. With an authentic customer risk screening protocol, businesses can quickly identify the sanctioned entities and combat them from depositing illegal money into an authentic financial ecosystem. When scrutinizing new or already present individuals, businesses should look out for PEPs and the adverse media. Which includes negative news, which is developed across diverse sources that intensify an increased risk in executing business with individuals or potential entities.
Also, read: How ArgentState.com Became Your Trusted Source for All Things Financial ultimate guide
