What are the 3 stages of Money laundering? This is one of the questions you need to thoroughly answer as a business in your fight against crime. Basically, each of these stages is intended to combat crime at different steps of the way.
In this article, we discussed how to recognise money laundering activities, each of the stages and their signs, as well as the appropriate AML regulations put in place to fight them. Let’s dive right in!
What is Money Laundering?
Money laundering simply refers to the process of converting proceeds from criminal sources into legitimate assets or cash. For example, a stolen fund might be used to purchase real estate property on a legal market. This property can then be sold and the legitimate money received be put in a bank account. The purpose of this activity is to “wash” the money, making it look clean and legitimate although it was obtained from a criminal source.
For money to be laundered (made to look legitimate), it must go through three stages. The whole point of establishing Anti Money Laundering checks is to put them in these places to prevent money laundering at every step of the way.
What are the 3 Stages of Money Laundering?
To be able to properly establish an effective anti-money laundering program, it is important that you understand the three stages of money laundering. They include:
Placement is the first of the 3 stages of money laundering. Basically, money laundering begins by moving the proceeds (money or assets) from a criminal source into a legitimate source of income. The destination location could be a bank account, legal asset or any other financial instrument.
At this point, the anti-money laundering process should involve focusing on and sniffing out any illegitimate sources of the funds. More often than not, criminals are vulnerable at the placement stage because they’re usually moving a large sum of money from a shady source directly into the legal financial system.
Some of the tricky processes they use include:
- Moving small amounts of money over a long period of time
- Opening foreign or offshore accounts
- Creating offshore companies
- Creating false invoices to make the fund source appear legitimate
Read more - What is Placement in Money Laundering?
After the placement stage is completed, the money laundering activity moves to layering. The next stage involves breaking down the large funds into smaller transactions to stay below the amount threshold of anti-money laundering regulations. This is done in order not to set off any alarms and attract the authorities.
Also, layering takes place beyond legal borders, making it difficult for anti-money laundering officials to detect foul activities and intervene.
Some of the tactics uses include:
- Purchasing foreign money orders
- Purchasing and selling luxury assets in other countries
- Trading in foreign currencies
Integration is the final stage of money laundering after placement and layering has being completed. Basically, it is the process of reintegrating the funds back into the financial system, usually financial accounts. During integration, the criminal also adheres to the rule of breaking the huge some down into a series of smaller transactions.
For example, if the funds were used to purchase art items, the items can be sold individually and at different times, therefore, creating a trail of legitimate transactions and sources of funds.
Some of the activities they use in executing the integration stage include:
- Paying out loans to directors of a shell company (usually dummy companies)
- Creating a payroll of fake employees and paying them over a time period
- Paying dividends to shareholders of criminal controlled companies
At What Stage is Money Laundering Easy to Detect?
The money laundering stage that is easiest to detect is the placement stage. This is because, at this point, the criminals are most vulnerable because it involves receiving and moving large sums from criminal sources into the financial system. The high inflow of money makes it easier to detect by anti-money laundering agents.
Read also - What are the Types of Money Laundering?
Global Anti-Money Laundering (AML) Regulations
The Financial Action Task Force (FATF) is the global body in charge of Anti Money Laundering (AML) regulations. It is an inter-governmental body that sets the standards for countries to develop and update their laws to combat money laundering and terrorism financing across the globe. FATF consist of 39 members, the European Commission, the Gulf Cooperation Council, and 37 member jurisdictions that are responsible for global AML frameworks and guidance.
In the US, the Bank Secrecy Acr (BSA) and the USA Patriot Act form the foundation of Anti Money laundering and Counter terrorist financing. They both mandate financial institutions to screen customers against government databases, conduct appropriate due diligence and report suspicious activities.
For Europe, AML Is guided by several legislative directives, the most recent of which is the Sixth Anti Money Laundering Directive (6AMLD) passed on the 2nd of December, 2018.
Anti-Money Laundering Regulation in Nigeria
Anti Money laundering regulation in Nigeria is guided by the AML act 2013 and its amendments. Activities of financial institutions, casinos and businesses in other risk-associated industries are outlined in the act.
Check out this comprehensive review of the act here, outlining 8 important points in the money laundering (Prohibition) Act, 2011 that you should know.
Protect your Business with Automated Anti-Money Laundering Checks
Adhering to AML regulations is very important and floundering it can lead to hefty fines and imprisonment of principal officials in the institution. Before establishing a business-client relationship, you need to perform an AML screening. Basically, this involves running the name of the business or individual across global AML databases for a match.
Conducting a high volume of transactions for businesses on a daily basis means institutions cannot afford to manually perform AML screenings. This wastes time, labour and isn't cost-efficient. As a result, many have turned to artificial intelligence and data-driven technology to automate this process.
YV OS is Youverify’s flagship product that allows businesses to perform digital AML screening in seconds. This way you can onboard customers and run them through AML databases for compliance in real-time.