How Money Laundering Works

As discussed in a previous blog on “What is money laundering (http://shaileshdash.com/2016/01/12/what-is-money-laundering/)”, money laundering involves the transfer of illegal money into legitimate channels to conceal its illegal origin (and often destination).

 

Money Laundering is the attempt to disguise or conceal the identity, location, nature, source, original ownership and destination of the illegally obtained money.

 

Illegally obtained funds refer to money obtained through different criminal activities such as corruption, drug smuggling, human trafficking, etc.

 

 

A Three-Stage Process

 

The processes used to launder money are as extensive as the human imagination. While proceeds may be laundered outside of the financial sector, hundreds of billions of dollars are filtered through financial institutions annually.

 

The products and services of the financial services industry, by their very nature, are vulnerable to abuse. They offer many unique ways of managing, possessing and controlling money and property that prove very attractive to money launderers.

 

Money laundering is known to consist of three separate stages:

 

Placement – introducing cash or other proceeds into the financial system. Varied means may be used for this step, depending on the proceeds themselves.

 

Layering – complex financial transactions are used to conceal the actual source and ownership.

 

Integration – reintroducing proceeds as legitimate assets, all traces of its origin now completely washed away due to complicated layering and misdirection executed in the second step

 

These stages can overlap and in some cases, for example, financial crimes, the proceeds do not need to be “placed” as they are already in the financial system.

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