Criminals who have generated an income or proceeds from their criminal activities usually follow three stages to launder their money. The first stage is referred to as ‘placement’. This is when criminals introduce their illegally derived proceeds into legitimate financial systems. An example of this would be splitting a large portion of cash into smaller sums and thereafter depositing the smaller amounts into a bank account, or purchasing a series of monetary instruments (cheques, money orders, etc.) with the smaller amounts.
The second stage is called ‘layering’. During this stage the launderer engages in a series of transactions, conversions or movements of the funds in order to cloud the trail of the funds and separate them from their illegitimate source. The funds might be channelled through various means for example the purchase and sale of investment instruments, purchasing property and selling it soon after. The launderer could simply wire the funds through a series of accounts to various banks across the globe.
The third stage is ‘integration’. This generally ensues the successful stages of placement and layering. The launderer at this stage causes the funds to re-enter the economy and appear to be legitimate. The launderer might choose to invest the funds into real estate, luxury assets, or business ventures.
Although use of all three stages is common, it is not always used by the criminal who wishes to launder funds. In some instances, criminals may choose to ‘place’ the illegally derived funds into the economy by merely depositing the money into his or her bank account, without any layering occurring. They can withdraw the money and spend it at their will.
Category: Money laundering and terrorist financing