With the increase in digital approaches to finance and business, people are shifting towards the modern era. But this doesn’t mean there is no risk of money laundering and other fraudulent activity. Instead, the chances are getting higher with money laundering increasing each year. Fraudsters come up with new tactics that damage online business networks and promote crime and corruption. However, the 3 stages of money laundering are still the same today, and bad actors devise new methods based on these stages. What are those stages and how can businesses make themselves immune to money laundering attempts? This article will answer just that, ensuring your business gets the most of its decisions right in the digital space.
Understanding Money Laundering: What is it?
Before diving right into the stages of money laundering, let’s first understand briefly what money laundering is and how fraudsters perform their illicit actions in modern times.
Money laundering is the movement of finances illicitly from one source to another just to hide it from the authorities. With the advent of technology, the money laundering issue is picking up pace as attackers now breach organizational networks to carry out their illicit means. According to UNODC, over 3% of global GDP is laundered each year, summing up to the amount of $2 trillion!
Fraudsters use forged/stolen identities to launder money from enterprises and destabilize their networks. This is why compliance with Know Your Customer (KYC) and Anti Money Laundering regulations is necessary to stay away from falling under the stages of money laundering.
Top 3 Stages of Money Laundering Fraudsters Use
While there are several routes fraudsters take when stealing finances and breaching networks, these are the 3 stages of money laundering that businesses must know.
Placement
The first part of the stages in money laundering is the placement of illicit finances into the organizational system directly or through some other person/channel. This is the most used method among money laundering attempts that divides large amounts into small chunks of sums. Fraudsters then dump these small sums from the authorities by depositing them into multiple bank accounts or a single account, depending on their requirement. This method is known as the smurfing technique.
Speaking of smurfing, this technique is mostly used by fraudsters in money service businesses. Other than smurfing there are many other methods in step one of the 3 stages of money laundering. Some of them are false invoicing, purchase of foreign currency, gambling, and betting on sports events.
Layering
The second phase in the 3 stages of money laundering is the layering process which separates the illegal money from its source and creates new transaction layers. These layers are created to confuse the business auditor who keeps a check and balance on the financial operations. Layering in money laundering 3 stages hides the origins of the obtained finances and is considered to be the most complex to counter as there are a large number of transactions involved including both, incoming and outgoing.
Layering provides attackers with a clear avenue to move finances through purchases and sales across different regions. They can invest these finances in different countries and most often, these funds are moved to places with loose AML practices.
Fraudsters perform layering in several forms including investments in real estate, reselling of valuable goods and products, transfer of funds between real entities and business networks, and chain-hopping (currency exchange). All these layering examples are popular across the business industry and among the 3 stages of money laundering.
Integration
Moving on to the third phase in 3 stages of money laundering known as the integration of funds. This process comes right after layering and helps fraudsters integrate all the gathered funds into their personal accounts. In simpler terms, they clean the illicit money after layering and are now eligible to showcase the finances in the real world as “clean.” In this stage, the fraudsters withdraw their funds from the layering phase and can use them freely. The main purpose of this phase in the 3 stages of money laundering is to integrate the money without alarming any law enforcement agency.
Final Thoughts
In conclusion, aml compliance is a major concern across business industries. The 3 stages of money laundering are discussed in this blog. From placement, layering, and integration, the goal is to make the money appear clean and use it for other illicit activities such as drug trafficking and terrorism financing. To prevent these crimes from business networks, firms need to follow the anti-money laundering stages that counter these operations. All these stages in money laundering are being used globally and impact those businesses the most that do not comply with global AML laws.
