Layering in Money laundering
Layering in Money laundering
In theory, money laundering is a straightforward concept. The recipient of illicit profits or cash will make every effort to guarantee that they may use them without anyone knowing that they are the product of criminal activity. In order to carry out this process, the source of illicit cash is concealed, making the proceeds seem to have come from legal sources.
Layering in Money Laundering Means
Layering is a concept frequently discussed in the context of its use by criminals to evade detection of money laundering activities. Layering involves transferring money between accounts and across different banking and financial institutions to add layers of legitimate owners. This process aims to obscure the true source of the funds and complicate efforts by authorities to trace the original source of the money. Layering constitutes a financial crime.
3 Phases of Money Laundering
Placement
The first stage involves the initial introduction of the illicit profits into the legitimate financial system, dividing them into portions that do not trigger alarms among authorities. Here are a few common strategies for placement that can undermine reporting mechanisms:
• Plans for repaying loans
• Betting via casinos or wagering services
• Illegal trade
• Foreign exchange services
• Fund blending
Layering
In the second stage, additional layers of legitimacy are applied to the initially deposited funds until the origin of the profits is sufficiently concealed from authorities, making it appear that it was never illegal. Some typical instances of layering, which we will revisit later, include:
- Cross-border electronic transfers
- Utilizing front companies
- Transferring money across multiple banks
- Transferring money among various accounts within the same institution
Integration
During the third and final stage of money laundering, the criminal retrieves his or her illegal funds- which are often diminished in value due to the layering process- and by this point, they are so concealed under layers of legitimacy that their source is nearly impossible to trace. Common techniques (also found in layering) for integration include:
• Engaging in legitimate investments within lawful financial streams
• Transactions involving the sale or acquisition of expensive items, including luxury automobiles and fine art
• Acquiring or disposing of expensive real estate or other assets
Common layering techniques employed in Money Laundering
Some of the typical layering methods employed in money laundering include:
• Employing third parties for a complicated monetary deal
• Fund or wire transfers through electronic means to overseas jurisdictions
• Managing offshore bank accounts with less stringent AML compliance requirements
• Establishment of shell corporations to create layers for the transactions in jurisdictions with favorable tax conditions
• Establishment of Trusts to conceal the source of illegal funds
• Utilization of various bank accounts and jurisdictions to make the paper trail even more complex
• Utilization of assets like real estate and precious metals to conceal the flow of money
• Trade-Based Money Laundering involving the creation of fake invoices and fictitious shipping documents for international funds transfer
What do the terms smurfing and layering refer to?
A Smurf is a money launderer who attempts to break down large transactions into smaller ones in order to evade monetary thresholds that would trigger closer examination by banks and financial institutions. Smurfing is a technique involving layering, where a Smurf divides large sums of cash into numerous small transactions and distributes them across various accounts. Smurfing, a recognized method for laundering money, is used by criminals to evade detection by regulatory authorities
Which warning signs point to layering in money laundering?
Criminals worldwide employ certain common techniques for layering a transaction. Some red flags that suggest layering in money laundering include:
- A high volume of fund transfers within one bank
- High volume of dealings involving rounded amounts
- Several fund deposits and instant withdrawals
- High volume of wire transfers in rapid succession
- Fund transfers originating from customers or geographies assessed as high-risk