The world is experiencing various new financial crimes at this point but money laundering is the oldest one. Money laundering is the disguise of original illegal sources of money. The money earned through illegitimate means like drug dealing, corruption, human trafficking, and arms sale is laundered. Money laundering is done to use illegal funds freely in the financial system. The criminal proceedings are very tough to use because the banks or other financial institutions always demand the source of it.
Money laundering is here since the 50s, first, it was used by drug dealers to transfer their money to other countries. They use physical cash and use aerophones to transport it offshore. As time passed the ways of money laundering also evolved. As digital payments and mobile banking is gaining swift, criminals are looking to use them for hiding their illegal money.
Stage of Money Laundering
Money laundering is done by organized criminal groups or syndicates. More than one entity and sometimes a person within a financial institution is involved in it. There are different approaches to launder money, but the below three stages are common in every approach:
Placement
The stage where illegal funds are exposed to the financial system and moved away from their original source is called placement. It is also the toughest stage among all because the entrance to the system is very risky. In placement, money launderers are more likely to be caught.
Many front business or shell companies are used for placing money into the system. Criminals chose those businesses that have weak verification and in which records can be manipulated easily. These businesses have very complex financial databases, thus very difficult for law enforcement authorities to point to any deception. Casinos, restaurants, car washes, independent ATMs, and laundering shops are mostly used as front businesses.
In these businesses, the income and outcome are altered, showing expenses less and profit more than the actual. For example, a restaurant owner can modify the customers’ billings and claim that they pay this huge amount. In this case, the police can’t interrogate and examine each customer. If it does, the investigation time takes more time and resources. Therefore, it is not usually done to, also it creates an unfriendly business environment for startups. The state can lose foreign investments if its authors start examining every business.
Large funds are broken into small amounts and then are deposited into bank accounts using multiple money mules. Criminals use money mules that assist in placing funds in legitimate businesses.
International ghost shipments are also used as a medium of placing money. Ghost shipments mean nothing is shipped, but the payments have been paid. Through this, they create a source of money for dirty money.
Layering
In this stage, the funds placed in the financial system are circulated to break the link between the illegal source. This is done by making several transactions, splitting, and then collecting them. The funds are moved further away from their sources thus making it very difficult to trace. The legitimate funds are mixed with the illegitimate funds in layering. Immovable assets sale-purchase are mostly used for layering funds.
Integration
It is also known as the reversal of the placement, the money placed in the system is extracted in this stage. UBO receives back his money through integration. At this stage, the money is no more illegal but is legitimized through the above two stages. Now criminals have all the supporting documents of their resources, therefore, making it harder to prosecute.
