Understand the Three Stages of Money Laundering for AML Screening

Have you ever wondered how criminals launder illegally obtained funds and disguise the actual sources? It is important to understand the three stages of money laundering as it will help to tackle each step most carefully for prevention and business security from money laundering penalties and other complications. 

Criminals obtain large sums of money from various illegal means such as drug trafficking, smuggling, embezzlement, fraud cases, and bribery. They employ different complex money laundering schemes and techniques to make their amounts appear legitimate and hide their actual source. Law enforcement agencies have made it necessary for organizations to comply with AML regulations to prevent money laundering and identify criminals. Different services are available for AML screening and help businesses employ appropriate solutions to control money laundering and avoid legal penalties. 

Why is it Necessary to Understand the Three Steps of Money Laundering?

Understanding the three steps of money laundering is very important to identify schemes criminals utilized to make funds appear legitimate. Without a thorough understanding of all the steps included in the laundering process, it is not easy to handle it to enhance security from legal complications. Additionally, knowledge about the 3 stages of money laundering helps to uplift the monitoring and screening process as per the nature of the complexities of each step. 

Criminals often exploit businesses and finance sectors to launder their illegitimate funds. Therefore, it is necessary to understand the three stages involved in this process as it can help in implementing advanced anti-money laundering (AML)  compliance programs. Additionally, by understanding the money laundering process, firms can handle it with focus and secure the landscape from future effects, which can be in the form of heavy fines and reputational damage. 

Three Stages of Money Laundering 

Following are the three stages of money laundering process:

Placement 

The first step in the money laundering process is placement, which is the base of the complete procedure. The word placement itself refers to placing something somewhere, here, criminals separate funds from illegitimate resources to place them in well-reputed institutions such as financial Sectors. It is the stage of deposit to different financial sectors such as banks. It may involve smurfing, where criminals place funds through multiple small transactions to remain unidentified. 

Other than deposits of illegitimate funds, placement may involve purchasing financial instruments or acquiring high-value assets. It is the prior stage to perform the complete process of money laundering, but individually, it can’t achieve the objective. Identification of suspicions at this stage can work for on-time money laundering prevention. Criminals employ different strategies to place their funds, and if they perform it successfully, it initiates the foundation for the next step. 

Layering 

The layering process is performed to add an additional cover to funds for remaining unidentified. It makes the tracking process complex and highly difficult to identify the nature of amounts. This stage includes different schemes that aim to change the nature of the assets and may involve sending money around the globe through multiple transactions. It may include a number of international transactions to make it harder for the screening process. 

The layering stage adds a distance from the actual source in the laundering process as criminals move illegal funds between different accounts. There can be the following examples which criminals use in the layering process: ‘

Shell companies have no physical existence and are only paper-based, which makes them safe from tracking at their source. Therefore, criminals often transact money through shell companies and add layers to make the actual source hidden. 

Electronic bank transfers allow criminals to transfer funds to fictional wallets. 

International banking systems assist in layering the actual source of funds and offer a process to have a safe way for laundering. 

Integration 

After successfully layering the source of funds and creating a distance from it in the second stage, the final step of integration takes place. It is the final part where illegitimate funds are successfully blended with legal sources and become part of them. It involves different schemes to make illegally obtained funds a part of legal systems It involves the integration of funds in different areas, such as the following: 

Integrate funds into the real estate business.

Integration of large sums of money into trade-based businesses such as import-export. 

Utilizing funds in digital currency such as crypto. 

Final Words 

The money laundering process involves three major stages, which are complex and sophisticated. There is a need for complete understanding and knowledge about all the possible schemes and technologies that can be part of the three stages of money laundering as it will help businesses and financial sectors in the screening process. The complex nature of the money laundering stage brings various challenges for anti money laundering screening.