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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. The process of acquiring money illegally and turning it into clean, legal tender has typically three main stages.

  1. Placement
  2. Layering
  3. Integration

In reality, these stages may overlap or be repeated. They include the following:

Money Laundering 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

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.

What is placement in money laundering?

Placement refers to placing the illegally obtained "dirty "money into the financial system. Funds are moved from their source into a legitimate financial system.

What is layering in money laundering?

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.

What is integration in money laundering?

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.

How does money laundering work?

Money laundering can be extremely complex, involving multiple individuals and transactions. There are a variety of ways to launder money, but all typically involve moving the money through a series of complex financial transactions in order to make it appear to come from a legitimate source. Money launderers often use techniques such as shell companies, offshore accounts, and money transfer services to conceal the money's true origins. This process makes it difficult to trace the money back to its criminal origins.

Once the money has been successfully laundered, it can be used for a variety of purposes, including funding criminal enterprises, terrorist activities, and personal expenditures.

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.

What are some examples of money laundering?

Money laundering can be achieved through a number of methods, including smurfing, cuckoo smurfing, chip dumping in online poker, front companies, and money transfer schemes.

Smurfing is a common money laundering technique in which large sums of money are divided into smaller amounts and deposited into multiple bank accounts. This makes it more difficult to trace the money back to its criminal origins.

Additionally, front companies are often used to launder money by setting up bogus businesses and funneling money through them.

A third example is through money transfer schemes which involve using wire transfers or other means to move money around the world, making it difficult to track.

These are just a few examples of how money laundering can be accomplished. There are many variants of money laundering, and new methods are being developed all the time. With ever-evolving technology, it is becoming increasingly difficult to detect and prevent money laundering on a global scale.

Big sports events such as the FIFA World Cup can be attractive targets for money launderers, who may use online gaming platforms to hide or transfer funds obtained through criminal activities. The large amounts of transactions during these times make it more difficult for operators to detect suspicious behavior, making them vulnerable to exploitation by criminals looking to launder their money. It is essential that operators have adequate anti-money laundering systems in place and implement rigorous checks on all customer accounts.

How do you prevent money laundering?

Money laundering is a serious crime that can have devastating effects on both individuals and businesses. However, there are a number of ways to prevent money laundering, through anti-money laundering laws, which were first set through the creation of the Financial Action Task Force.

Preventative measures can include Know Your Customer (KYC) policies, compliance programs, and Suspicious Activity Reports (SARs).

KYC policies require businesses to verify the identity of their customers and keep track of their financial activity. Compliance programs help businesses to identify and report suspicious activity, and SARs are filed with law enforcement when a business suspects that money laundering is taking place.

In addition, money laundering can also be combatted by freezing and confiscating assets, as well as by prosecuting those who engage in it.

By following these preventative measures, businesses can help to combat money laundering.

ID Fraud Report 2022—Identities in a digital-first world

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