explosion of money laundering
The Risks to
The Risk to the
Money Laundering as Tax
and Political Costs
EU Directives on
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Methods and Stages of Money Laundering
There are three stages involved in money laundering;
placement, layering and integration.
Placement This is the
movement of cash from its source. On occasion the source can be easily
disguised or misrepresented. This is followed by placing it into
circulation through financial institutions, casinos, shops, bureau de
change and other businesses, both local and abroad. The process of
placement can be carried out through many processes including:
- Currency Smuggling
This is the physical illegal movement of currency and monetary
instruments out of a country. The various methods of transport do not
leave a discernible audit trail FATF
1996-1997 Report on Money Laundering Typologies.
- Bank Complicity This
is when a financial institution, such as banks, is owned or controlled
by unscrupulous individuals suspected of conniving with drug dealers
and other organised crime groups. This makes the process easy for
launderers. The complete liberalisation of the financial sector
without adequate checks also provides leeway for laundering.
- Currency Exchanges In
a number of transitional economies the liberalisation of foreign
exchange markets provides room for currency movements and as such
laundering schemes can benefit from such policies.
- Securities Brokers
Brokers can facilitate the process of money laundering through
structuring large deposits of cash in a way that disguises the
original source of the funds.
- Blending of Funds The
best place to hide cash is with a lot of other cash. Therefore,
financial institutions may be vehicles for laundering. The alternative
is to use the money from illicit activities to set up front companies.
This enables the funds from illicit activities to be obscured in legal
- Asset Purchase The
purchase of assets with cash is a classic money laundering method. The
major purpose is to change the form of the proceeds from conspicuous
bulk cash to some equally valuable but less conspicuous form.
Layering The purpose of
this stage is to make it more difficult to detect and uncover a
laundering activity. It is meant to make the trailing of illegal
proceeds difficult for the law enforcement agencies. The known methods
- Cash converted into Monetary Instruments
Once the placement is successful within the financial system by
way of a bank or financial institution, the proceeds can then be
converted into monetary instruments. This involves the use of bankers
drafts and money orders.
- Material assets bought with cash then sold
Assets that are bought through illicit funds can be resold locally
or abroad and in such a case the assets become more difficult to trace
and thus seize.
Integration This is the
movement of previously laundered money into the economy mainly through
the banking system and thus such monies appear to be normal business
earnings. This is dissimilar to layering, for in the integration process
detection and identification of laundered funds is provided through
informants. The known methods used are:
- Property Dealing The
sale of property to integrate laundered money back into the economy is
a common practice amongst criminals. For instance, many criminal
groups use shell companies to buy property; hence proceeds from the
sale would be considered legitimate.
- Front Companies and False Loans
Front companies that are incorporated in countries with corporate
secrecy laws, in which criminals lend themselves their own laundered
proceeds in an apparently legitimate transaction.
- Foreign Bank Complicity
Money laundering using known foreign banks represents a higher
order of sophistication and presents a very difficult target for law
enforcement. The willing assistance of the foreign banks is frequently
protected against law enforcement scrutiny. This is not only through
criminals, but also by banking laws and regulations of other sovereign
- False Import/Export Invoices
The use of false invoices by import/export companies has proven to
be a very effective way of integrating illicit proceeds back into the
economy. This involves the overvaluation of entry documents to justify
the funds later deposited in domestic banks and/or the value of funds
received from exports.
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