How Did Money Laundering Begin?
The act of money laundering dates back to as long as people can remember. It all began with a man named Sterling Seagrace who is still known for his laundered profits in the shape of commercial trading.
Ever since that money laundering is known as the process of changing the black money into white money using various methods. This money is mainly derived from criminal sources. It simply means to convert black money into white money and it has a proper pathway how money travels into the system. Purpose behind doing all of this tactic is to use that black money without any suspicion of law enforcement authority.
How many stages does money laundering have?
Money laundering is not a one step process rather goes through a series of steps until the money is converted into legitimate or white money. The three stages of money laundering are as follows:
- Placement
- Layering
- Integration, which is now also known as extraction
This blog will focus on how the placement in money laundering begins, what processes it entails, and how it facilitates the process of money laundering.
How does each stage progress?
Beginning with the first step of placement, let’s get into understanding how it works.
Placement Stage:
It is the very initial stage of money where they introduce black money into the financial system. There is a technique in AML placement stage to make a smooth entry in which large sums of money is broken down into smaller chunks thus making the transactions and identification more difficult to be marked as suspicious.
Take for example that money launderers while making a deposit, break down the amount into smaller amounts and use it to facilitate gambling. This process will make the detection of money and tracking of transactions more difficult to detect.
will make deposits of small amounts in the bank account or use it for gambling. The objective is to distance the black money from their origin.
It’s a very vulnerable stage of the process as it is quite the initial stage in the journey to assess the customer’s intent and behavior.
Here is how the process progresses:
- In Bank deposits, criminals can make small and back to back deposits into several other bank accounts making it difficult to detect the suspicious nature of activities behind.
- While sending money to offshore bank accounts, the amount can be converted to a different currency making it difficult to track down the source.
- While buying stuff, the black money can be used to buy goods and invest in art pieces, which are again difficult to track down how they were bought.
- The process of getting false invoices involves the use of fabricated invoices to show a different amount of money invested rather than actually done to conceal the true nature of criminal acts.
- Also used in gambling, the black money is used to buy chips and other gambling related essentials to represent money as gained by winning in gambling.
Thus, why is money laundering a necessity?
The core purpose of money laundering is to facilitate the flow of money laundering into the financial system without being noticed. Although all stages of money laundering are backed by the same motivation, yet the methodologies each stage takes vary greatly.
The process gives rise to second step in the process known as layering.
Layering Stage:
Known as the second step in the process of money laundering, it is like adding more layers to the process, making it more difficult to be detected.
The main motivation of this stage is to make it as difficult to trace back the actual source of funds.
Even though both the steps might look same but placement only makes it possible for the funds to enter the financial system while layerign involves the process of layering as the name suggests deals with concealing the source of funds.
Here’s how this stage progresses:
- While mixing and shuffling the fraudsters reposition the money by sending to various addresses or different bank accounts.
- While investing in trading and investing the money is mainly used by criminals to purchase crypto currencies and disposing of priceless goods. Teh money can be exchanged to obtain digital currencies in short.
- The use of shell companies further facilitates the process by simply making a company exist on paper which does not exist in reality.
- The main objective is to create the mesh of transaction over transaction so there it becomes nearly impossible to track down the origin of illicit funds.
The more the layers, the more complicated it becomes to detect.
Integration Stage:
Finally comes the last stage of money laundering.
The stage marks the process by which the money is put back into the natural economy. The launderers can get their money back and use it for their personal use.
Leave a Reply