Money laundering is not a new term these days. Every person working in any field has good knowledge of money laundering. The reason for this is that financial crimes have disrupted every sector. Money launderers have found loopholes in all types of business and tried to use them for their illegal practices.
“Money laundering is the procedure of converting illegal funds into legitimate earnings”
The sources are illegal, thus can be exposed to law enforcement authorities easily. Usually, it involves more than one state i.e. cross-border transfer.
Laundering is done so that the illegal funds can be used in the financial system easily. Money laundering is the complex process of circulation and blending of black and white money.
Let’s have a deeper look at the stage of money laundering:
This is the first and very sensitive stage of anti-money laundering. Money launderers have the highest chances of getting caught during placement. As clear by the name, the illegally gotten funds are deposited in the system. Criminals target those businesses in which records can be manipulated easily. These businesses have complex financial accounts. The income (profit) and outcome (expenses) reports are not well-managed.
Placement is done in the below ways:
The heavy amount of cash is smuggled inter-state. Cruise ships are mostly used for smuggling. This approach is rarely used in the modern-day, due to strict boudoir policing and controls. States that have very border low security, face this.
Smurfs are used to avoid suspicions and bypass the threshold level. In this method, different people are used, sometimes employees of banks. They carry small amounts of cash and deposit them in the bank through multiple accounts. In some cases, the cash chunks are placed in the same bank account but with different timings. Smurfs have a small percentage of money.
Criminals request heavy loans from the banks and pay them back through a mixture of legitimate and illegitimate money. In this case, the financial records are managed in such a way that the illicit cash is harder to classify.
The previously placed cash is further covered with multiple financial transactions. Layering is also known as structuring, involving the circulation of money in the financial system. The motive is to eradicate the link with the illegal source. Money launderers can also move funds electronically from one state to the other.
The next step is to arrange a legal source for this money. So the funds are invested in different businesses or markets to make them legal.
The ultimate beneficial owner of the funds gets hands on the money in this final stage. Among all the stages of money laundering, this is very easy and has fewer chances of getting caught. Initially placed as cash and covered with network multiple transactions. Now, the money has legal sources with no association with the criminal roots. The criminals have already made supporting legal and financial documents. The extraction can be done by purchasing expensive assets or arts. Now the UBO can use this money freely for business and investment purposes.
Money laundering can be controlled by screening people and monitoring their transaction. Financial services providers and other businesses should screen their people before onboarding.
For instance, if a customer requests for bank account opening, he must be verified through anti-money laundering watchlists. After screening, whenever he initiates a request like depositing, transfer or withdrawal of cash. The business should check the request under red flags. This is the part of ongoing AML screening and background monitoring, where customer transactions are verified. According to new AML regulations 2020 of BSA, transactions worth more than $10,000 should be reported to FinCEN.
Businesses that are at risk of financial crimes should go for anti-money laundering solutions. This will help them in having a clean business environment and safe customer onboarding. The compliance with AML/CFT regulations will be more reliable.