Money Laundering

What is Money Laundering?

Money laundering is the illegal process of hiding the origins of money obtained illegally by passing it through a complex system of banking transfers or other transactions. This is often carried out by Money Mules or owners of e.g. bank accounts who are more or less unconsciously involved in Social Engineering.

More info in our latest blog article: Understanding ‘Money Mules’ – an interview with IDnow fraud specialists

Often this Governments all over the world have stepped up their efforts to fight money laundering, with AML actions that require financial institutions to put systems in place to detect and report all suspicious activity.

Money laundering involves disguising the origins of illegally obtained proceeds so that they appear to be legitimate – “laundering” them from dirty to clean, in other words. It is often associated with activities such as arms sales and smuggling, or corporate crime such as insider trading, bribery, or embezzlement. There is also a strong link with terrorist financing.

Money laundering remains a widespread problem globally. The overall level of activity is hard to measure – but according to the United Nations, it accounts for 2% to 5% of global GDP (around US$800 billion to US$2 trillion). In the UK, the National Crime Agency records over £100 billion of laundered money affecting the UK economy annually.

The three stages of money laundering

Money-laundering is the process of acquiring money illegally and turning it into clean, legal tender. This typically has three main stages. In reality, these stages may overlap or be repeated.

  1. Placement. This refers to placing the illegally obtained "dirty "money into the financial system. Funds are moved from their source into a legitimate financial system.
  2. Layering. The second stage involves creating a complex network of transactions and records for the movement of money. This often involves offshore techniques. Doing this will obscure the sources and the audit trail and make it more difficult for authorities to detect.
  3. Integration. Finally, the money is absorbed or integrated into the economy. This now legal tender is reunited with its original owner in what appears to be a legal holding.

What is the process of money laundering?

Money laundering can be extremely complex, involving multiple individuals and transactions. Based around the three stages of placement, layering and integration, the process can involve the following:

  • Placement involves many different methods to introduce money into a legitimate financial system. These include blending with legitimate funds from legal sources, invoice fraud (typically involving over-invoicing or phantom services), breaking funds into smaller amounts with multiple accounts or transactions, and physical carriage of cash across borders.
  • Layering techniques to disguise any trail include conversion between money and stocks or other financial instruments, moving money between countries, and investments in shell companies.
  • The final integration stage often involves investing the money into areas such as property, jewelry, or high-priced commodities. False invoicing may be used to over-value goods.

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