The United Nation’s Office on Drugs and Crime (UNODC) states that anywhere between two to five percent of the global GDP is generated through money laundering. This equals approximately two trillion U.S. dollars. Money laundering is a criminal activity that involves hiding or disguising the source, nature, location or ownership of money that was illegally obtained. Below introduces the three basic stages of money laundering that should be taught in every anti-money laundering compliance training program.
This refers to the disguised or misrepresented cash moving from the source to the placement. Then, it is often placed into circulation through legitimate financial institutions. Common placement methods include currency exchanges, where lax foreign exchange market policies offer loopholes, and currency smuggling, when cash is physically moved out of a country. Bank complicity occurs when a financial institution is owned or controlled by corrupt individuals who cooperate with criminals. Securities brokers may structure large deposits to conceal the original sources.
Layering makes it difficult for law enforcement agencies to detect and uncover laundering trails and activities. For example, bank employees may convert cash into monetary instruments like money orders and bank drafts. Material assets that are bought with illicit funds can be locally or globally resold. Asset purchases transform illegal cash into legitimate monetary forms that are difficult to trace and seize. Fund blending often occurs through front companies and financial institutions.
Once illicit cash reaches the integration stage, detection and identification are primarily possible through informants. Front companies are often incorporated in foreign countries with weak controls and corporate secrecy laws, so criminals can lend themselves their own dirty money through legitimate transactions. Many criminal organizations use shell companies to buy property in order to integrate their laundered money back into the local economy. Using fake import and export invoices involves the overvaluation of entry documentation to later justify any deposited funds.
Understanding how criminals launder money will help identify illegal activities and prevent illicit transactions. Our anti-money laundering compliance training courses will help ensure proper reporting and record keeping to prevent money laundering.