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The 3 Stages of Money Laundering: Understanding the Process from Placement to Integration

Money laundering damages the integrity of the financial system by ensuring the money looks legit and is earned through legal endeavors. By doing that, they can freely use the money they want without breaking the law.

Among all three stages, we will go into each of the steps and illustrate how money is transferred to the final destination. By doing this, the money launderer intends to show that the money looks real such that it looks like it emanates from anything or anybody but the criminals themselves.

In this article, we will describe each stage and show how money is transferred to its final destination. The object of money laundering is to make those funds look legitimate and clean as if they were gained anywhere and by anyone but the criminals themselves. 

Stage 1: Placement

“The first step of the 3 stages of money laundering procedure is placement.” 

In this phase, criminals will look for ways to wash their dirty money through bank accounts. Among the most popular techniques used in laundering money are:

  • The smuggling of cash beyond the boundaries of a country.
  • Depositing or exchanging small pools of money.

How is Placement Done?

From all three stages of money laundering process, the placement of money laundering is the second step. Criminals may enter the financial system by ensuring that they make deposits slightly below some reporting thresholds to avoid automatic reporting. An individual may decide to deposit their money in branches of one particular bank or open several accounts in different banks. Scammers can use fake invoices or receipts to justify where these more significant amounts of money are coming from. The objective will be to get the dirty money into circulation without causing alarm about how the source funds have been acquired.

Stage 2: Layering

The money is already in the financial system while the criminal still has a target of severing the money from its criminal source. Different money laundering layering methods are applied to conceal the tracks and make it more challenging to locate the source. The traditional means are checks, money orders, and a maximum number of bank currents. Criminals may do this by running the money through transmission steps several times, which helps to add smaller layers of transactions rather than large, immediate ones.

Common Layering Techniques

Some other financial methods used to disguise the source of funds include casino assets, online, i.e., cyber gambling, and purchasing investment instruments. Establishing smaller sums and splitting them into more frequent transactions is also a common strategy used to stay below the reporting requirements. 

Stage 3: Integration

The total sum has already been significantly differentiated and sent through several transactions at this stage. To achieve laundering, the criminal will strive to go back the money to the legal flow as seemingly legal business earnings or individual personal income. The earned money would usually be channeled from funds in real estate, luxury goods, and buying front companies. Completion of the money laundering life cycle is the aim of the integration phase in which money earned lawlessly in one way, or another is made indistinguishable from money obtained legally.

By the end of the Integration in money laundering, the criminal blends dirty money back with clean money. From the government and financial institutions’ standpoint, the money now appears to be from usual and legal sources. At the last stage, the asset exhibits no signals of its origin as the proceeds of organized crimes such as drug trafficking, corruption, or tax evasion. 

Why Criminals Launder Money?

Criminals go into the placement, laying, and integrational stages of money laundering for the most fundamental reason – to stay undetected and use the proceeds from their crimes. Researchers share that criminal gains even pass $1. The global economy is an estimated $890 billion a year from illegal drug-seeking activities. 

Potential Penalties for Laundering

Money laundering is one of the most severe criminal acts, carrying hefty punishment under AML laws. In the US, in 2020, over 500 people were convicted of money laundering. Their average period of imprisonment was 5 years and a bit more. 

According to international antimoney-laundering standards, the assets, to the extent of one million dollars, are directly administered by the standards at the moment when they’re found to be the outcome of unlawful circumstances. Annually, banks turn in over 2 million reports to agencies suspected of being involved in money laundering, with an estimated amount of close to $5 billion.

How Can You Help Prevent It?

It is seen that 5% more suspicious acts reported by financial institutions resulted in more than $100 million being seized from criminals. The efficiency will increase significantly if everyone plays a part in restraining criminals’ financial cleaning processes, and thus, the integrity and transparency of the economic system will be well guarded.

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