Key Stages of Money Laundering
Money laundering is usually a three-stage process:
- Placement -Illegal funds are paid into legitimate financial arrangements with reputable institutions, such as life assurance policies or building society accounts.
- Layering -Layering will involve a number of transactions to hide the original source of the
criminal funds. The number of transactions is unlimited depending upon how far the criminal wants to go in hiding the source of funds. Often large sums of money from criminal activities are broken up into smaller amounts before the laundering process takes place.
- Integration -This is the process by which the criminal funds finally look clean, in that they appear to be fully integrated into the economy having gone through several transactions to hide their origins.
Making transactions via financial services products is a method often favoured by criminals trying to hide the source of illicit funds. If an investment is made, for example when it is encashed, a legitimate source of funds is established.
In the case of general insurance products, there may be an instance where a high value premium is paid for insurance which is then cancelled quickly, resulting in repayment by cheque from a legitimate account.
These funds could then be moved through the system using a series of other transactions before finally being considered clean by the criminals.