Money Laundering

Money laundering is the criminal practice of processing ill-gotten gains, or “dirty” money, through a series of transactions in order to “clean” them so that they appear to be the proceeds of legal activities. Once the funds appear to be the proceeds of legal activities, they may be used without detection of the criminal source.

Money laundering does not typically involve currency at every stage of the laundering process. Criminals manage to find many ways to clean dirty money. The process is often complex, involving many transactions. Regardless of the methods, the process can be boiled down into three distinct steps.

The three steps of laundering money are: Placement, Layering and Integration. These three steps may be performed individually or simultaneously.

Placement

Placement is the first stage of the money laundering process and is the stage during which money is most vulnerable to detection and seizure. Placement may occur by itself or concurrently with the subsequent two stages: layering, and integration.

Goal: To introduce the unlawful proceeds, aka “dirty money”, into the financial system or the retail economy without attracting the attention of financial institutions or law enforcement.

Techniques: Placement techniques often include structuring currency deposits into amounts to evade reporting requirements or commingling the deposits of both legal and illegal enterprises.

Examples:

  • Dividing large amounts of currency into less conspicuous smaller sums that are deposited directly into a bank account.
  • Depositing a refund check from a canceled vacation package or insurance policy; or, cashing such an item and then purchasing monetary instruments or wiring the funds.
  • Purchasing a series of monetary instruments that are then collected and deposited into accounts at other financial institutions.

Layering

Layering is the second stage of the money laundering process. It is the process by which the proceeds of illegal activities, i.e. the “dirty money”, is separated from its origins. It may be performed independently or in conjunction with the other two stages: Placement, and Integration.

Goal: Separate illegally obtained money from its source. Protect criminals involved in the criminal activities that generated the money by making it difficult to follow the money trail back to the source crimes and participants. Enable subsequent use of the money by the criminals for lawful purposes by removing all ties to the underlying criminal activities.

Techniques: Move funds around the financial system through a series of transactions. Create confusion and complicate the audit trail by making numerous transactions; these transactions may reasonably appear to have a legitimate purpose or may appear to have no reasonable, lawful purpose.

Examples:

  • Exchanging monetary instruments for larger or smaller amounts.
  • Cashing monetary instruments from one or more sources and wiring the funds to one or more recipients.
  • Transferring funds back and forth between one or more financial instutions through a series of transactions involving cash, checks, money orders, cashiers checks and wire transfers.

Integration

Integration is the third step of the money laundering process. It may be performed individually or in conjunction with the Placement and Layering stages.

Goal: The goal of this stage is to move the illicit money into a seemingly legitimate form. This is where the criminals actually benefit from their criminal activities in the above ground economy. They can now use the illegal funds for whatever legal purposes they desire – after all, the funds now appear to be “clean” and derived from a legitimate, lawful source.

Techniques: Once the funds are in the financial system and have been insulated through the layering stage, additional transactions can be used to create the appearance of legality. Such transactions further shield the criminal from a recorded connection to the funds by providing a plausible explanation for the source of the funds.

Examples:

  • Purchase and resale of businesses or interests in businesses.
  • Purchase and resale of real estate, investment securities, foreign trusts.
  • Sham loans or false import/export documents.
  • Purchase of automobiles or other assets. Investigators and forensic accountants try to connect the dots and follow the transactions’ “paper trail” generated by financial transactions in order to identify and apprehend criminals. Criminals try to avoid leaving this “paper trail” by avoiding reporting and recordkeeping requirements.Money Services Businesses and other financial institutions help the government to protect our nation and communities from criminals and from terrorists by managing compliance, identifying and reporting transactions as required, and by being alert to potentially suspicious activities which should then be reported using the Suspicious Activity Report.