Money Laundering: Layering
Given the regulatory scrutiny on concealment in most jurisdictions, criminals must develop a laundering process that evades anti-money laundering (AML) controls. to the present end, criminals incorporate layering into the method to raised conceal the illegal source of their funds.
To detect layering, it’s important to know its place within the concealment process [money laundering]
Layering and Placement [money laundering]
the cash laundering process begins after criminals acquire illegal funds from criminal activity and seek to introduce them into the legitimate economic system . Accordingly, the primary stage of the money laundering process is understood as “placement.”
Criminals may use several methodologies to put illegal money within the legitimate economic system , including:
Funneling illegal funds through legitimate businesses that deal heavily in cash transactions.
Breaking down large sums of cash into smaller amounts which will be deposited in banks without triggering AML reporting threshold alerts.
Paying dummy invoices to criminal associates.
Smuggling illegal funds overseas to jurisdictions with much weaker AML controls.
Placement removes illegal funds from their criminal source, distancing them from perpetrators and making them more liquid in order that they will be transferred or transformed into other sorts of financial assets.
At this stage, illegal funds are still traceable back to their source. subsequent stage of cash laundering, layering, allows criminals to get rid of that traceability and lend legitimacy to their funds.
The Layering Process [money laundering]
Layering is usually considered the foremost complex component of the cash laundering process because it deliberately incorporates multiple financial instruments and transactions to confuse AML controls. There are numerous approaches to layering available to money laundering Examples include:
Transferring funds electronically between countries and into and out of offshore bank accounts.
Moving funds between multiple banks or financial institutions or between accounts within an equivalent institution.
Converting cash into financial instruments like money orders, wire transfers, life assurance , stocks, bonds and letters of credit.
Reselling high-value goods, like artwork, or any sort of stored-value product, like jewelry or prepaid cards.
Investing in land .
Investing in other legitimate business interests.
Setting up or using shell companies to maneuver illegal funds and obscure ultimate beneficial ownership and assets.
Using professional intermediaries or associates to handle transactions.
When money laundering got to clean large sums of cash , the layering process must become more complex and diverse. Sometimes layering methods are going to be nested within each other: money are going to be invested during a business, for instance , which can then open multiple bank accounts or begin investing its funds on the stock market .
Layering and AML
Detecting layering: Despite the intent to confuse and frustrate AML controls, there are strategies to spot layering activities. AML programs could also be found out to watch surely tell-tale signs or red flags. Those signs include:
Frequent transactions which end with exact (zero) amounts.
Funding speeds: deposits of cash into accounts that are then rapidly withdrawn.
Frequent transfers between accounts within an equivalent institution.
Frequent use of wire transfers into and out of accounts.
The destination and source of funds: to or from high-risk countries or accounts.
AML employees can also be ready to devour on contextual information, like comments customers make about their transactions or information they include on official documents. While screening and monitoring software remains a crucial AML component, the power of frontline employees to identify these contextual characteristics is crucial.
Layering AML Example:
One common layering strategy will see a customer withdraw multiple small amounts of money from accounts where illegal funds were deposited during placement. Each cash withdrawal are going to be in $100 bills and in an amount too small to trigger the reporting threshold.
The cash will then be wire-transferred to an offshore account, consolidated then wont to purchase a high-value item, like a painting or a yacht.
In this case, so as to spot layering as a part of a concealment process, an AML program might monitor for red flags, like funds deposited and withdrawn rapidly and in exact amounts.
After sufficient time within the layering process, criminals can extract their funds and reintroduce them to the economic system as legitimate money: this stage of the method is understood as integration. While layering costs may have decreased the worth of the placed funds, during integration, they’re going to likely still be wont to make high-value purchases, like land , luxury goods or residential or commercial property.
It is likely that criminals will engage banks and financial institutions at now , which suggests AML programs may again be especially effective at spotting laundered money via Know Your Customer (KYC) checks and, where appropriate, enhanced due diligence (EDD). Given the vast amounts of monetary data involved within the detection of layering, using an automatic AML solution is a chance to ease the pressure on AML employees, eliminate errors and add speed and accuracy to the method .