Stages of Money Laundering

Posted in Anti-Money Laundering (AML) on April 24, 2024
Stages Of Money Laundering

There are 3 stages of money laundering to be aware of. The process typically involves a series of complex transactions aimed at concealing the true source of the funds. Money laundering can take place in three stages: placement, layering, and integration.

Each day our world appears to become faster and more and more complex. Each day, the methods used by money launderers become more sophisticated and the financial transactions more complex, especially for the use of cryptocurrencies for money laundering purposes.

There is no specific or single methodology of money laundering. As in many other subject areas, a theoretical model was built to cover as many money laundering methodologies as possible conceptually. In the case of money laundering, this model was derived from money laundering methodologies uncovered by law enforcement and government authorities.

In practice, and despite the variety of methods employed, the laundering process is accomplished in three basic stages of this model. These steps can be taken simultaneously in the course of a single transaction, but they can also appear in well-separable forms one by one. These three stages are placement, integration, and layering. The same concepts that apply to money laundering using cash apply to money laundering using cryptocurrencies.

Stages Of Money Laundering

The stages of money laundering include the processes by which illegal funds are integrated into the financial system. This money goes through many transactions and is incorporated into the economy, and criminals bypass rules and systems. Criminals hide, wash, and launder money to generate more money. 

Money laundering works to point out the source of funds legally. For example, the money collected from crimes such as drugs, bribery, and human trafficking is hidden by various transactions to be introduced into the economy and then re-included in the financial system by laundering. As a result, when it seems legitimate, this money is reused for other illegal activities to generate more illegal funds, and the process repeats constantly.

Stages of Money Laundering

Money launderers engage in the following activities to launder funds:

  • Placement is the first stage, where illegal funds are placed in the financial system, either directly or indirectly. During the placement stage, illicit funds are placed into the legitimate financial system. The illicit funds may be present in two different forms. First, illicit funds can already exist in the form of currency, for example, if the criminal sells drugs and narcotics online and gets paid in cryptocurrencies immediately. Secondly, illicit cash can also exist in digital currency, which is then used to purchase other digital assets such as cryptocurrencies. Either way, the placement stage establishes that a criminal has funds and money. 
  • Layering is the second stage, where a series of accounts transfer funds or assets from one account to another. Very complex layers of transactions are created to disguise the trail and origin of funds. The second stage of the money laundering stage is the layering or hiding stage. In this stage, the criminal facilitates transactions to disguise the illegal origin of the funds. Having said this, money laundering, by its nature, is hard on the fact that transactions made may be pseudonymous. However, criminals often use additional means of anonymizing to disguise the funds’ illegal origin further, breaking the links between different transactions. 
Stages Of Money Laundering
  • Integration is the third stage, where the illegal funds are utilized to purchase different assets or invested in a legitimate enterprise to convert the black money into white. Suppose the criminal feels confident enough that it is impossible to trace back the dirty currency to the criminal’s activity. In that case, he seeks to use the funds for legitimate purposes, such as buying luxury cars, real estate, or jewelry. However, despite the fact that the currency is no longer directly tied to a crime, criminals and money launderers still need a way to explain how they came into possession. 

Final Thoughts

In conclusion, money laundering is a complex process that involves a series of stages aimed at concealing the true source of funds obtained through illegal means. The placement, layering, and integration stages involve various complex transactions that make it difficult for authorities to trace the funds back to their illegal source. Understanding the stages of money laundering is important for law enforcement agencies to prevent and combat this illegal activity.