Welcome to Technical Post # 5: The Three Stages of Money Laundering
OK, many of us have seen movies or TV shows where counterfeiters throw money into large dryers with poker chips or dice or some other items to make the bills appear to have been out in circulation when in fact they’ve just been printed. Well, this has nothing to do with money laundering so the three stages of money laundering are NOT:
- Gentle cycle – No bleach
- Tumble Dry on Low Heat
- No Starch
And do not confuse stages with steps or transactions. Successful laundering, especially in large dollar amounts, is much more than 1-2-3 done. While some transactions can be very simple, others are complex and take much time and effort in order to avoid detection – and that is the ultimate goal – to avoid detection. It doesn’t do the criminal any good to move and change money if it can be easily traced (and then seized). And it is a game in which the tools and tactics are constantly changing and evolving.
If you go back to our first technical post: “What is Money Laundering?” you’ll remember that the Financial Action Task Force (FATF) has a three-part working definition. Each part basically defined one of the stages:
PLACEMENT – introducing the illicit funds into the financial cycle. Even if the funds already were in a bank or brokerage account (as in cases of embezzlement or frauds), it is that first step as illicit funds that we will view as placement. However, the most common example of placement is the drug dealer who needs to get large quantities of smaller currency bills into the banking system.
LAYERING – the moving and transferring of the funds in order to disguise the origins and true ownership of the money. This phase can be the most important and the most difficult – it truly separates the pros from the amateurs. Here the money can change accounts, form, ownership, country, etc. It can go into and out of trusts and shell companies, it can buy or sell real estate or hard goods, it can move through different jurisdictions – anything to confuse or eliminate a paper trail. And finally, there is
INTEGRATION – this is when the criminal takes economic advantage of the illicit funds and they appear to have come from legitimate sources. Maybe the drug dealer buys a mansion, or a high end car, or a yacht, or even planes to move drugs and other money (in the case of the planes, they will likely be bought through a front or shell leasing company, who will rent it to a front or shell freight company, so that when a plane is ultimately impounded by law enforcement somewhere, it cannot be traced back to the dealer).
So there they are, the three stages of money laundering: Placement, Layering, Integration.
Thank you for your attention today.