Money Laundering and it’s Stages

Background:

The goal of a large number of criminal acts is to generate profit for the individual or group that carries out the act. Money laundering is the processing of these criminal proceeds to disguise their illegal origin. This process is of critical importance, as it enables the criminal to enjoy these profits without jeopardizing their source.

Illegal arms sales, smuggling, and the activities of organized crime, including for example drug trafficking and prostitution rings, can generate huge amounts of proceeds. Embezzlement, insider trading, bribery and computer fraud schemes can also produce large profits and create the incentive to “legitimize” the ill-gotten gains through money laundering.

Definition:

Money Laundering is the process by which large amounts of illegally obtained money is given the appearance of having originated from a legal source.

INTERPOL’s definition of money laundering is: “any act or attempted act to conceal or disguise the identity of illegally obtained proceeds so that they appear to have originated from legitimate sources”.

Illegally obtained funds are laundered and moved around the globe using and abusing shell companies, intermediaries and money transmitters. In this way, the illegal funds remain hidden and are integrated into legal business and into the legal economy.

According to Investopedia, Money Laundering “is the process of creating the appearance that large amounts of money obtained from serious crimes, such as drug trafficking or terrorist activity, originated from a legitimate source.

Money laundering involves disguising financial assets so that they can be used without detection of the illegal activity that produced them. Through money laundering, the launderer transforms the monetary proceeds derived from criminal activity into funds with an apparently legal source.

Stages of Money Laundering:

It has three stages. They are:

  1. Placement Stage – in this stage, vast amounts of money is generated from an illegal source (like drug dealing, terrorist activity or other crimes) and it is placed into the financial system or retail economy or smuggled out of the country. The aim of this stage is to remove the cash from the location of acquisition and then transform it into other assets.
  2. Layering Stage – at this stage, complex layers of financial transactions are designed to disguise the audit trail and provide anonymity.
  3. Integration stage – in this stage, money is integrated into the legal economic and financial systems and is adopted with all other legal assets in the system.

Structuring or Smurfing, Casinos, real estate, cash intensive businesses, black salaries are some of the methods of money laundering.

(Prevention follows….)

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