There are many different methods a money launderer may use to clean money but in all instances, there are three steps to the process. Those steps are:
The first step, placement, is the riskiest. This is where the launderer introduces the illegally obtained funds into the financial system. The funds are typically divided into smaller amounts and placed in a multitude of different ways, including being deposited into accounts of individuals within their network or by purchasing monetary instruments for a small amount.
Once the funds have been placed into the financial system the professional money launderer moves to the layering step. They move the funds around to conceal their origin. Funds are transferred all over the world since there are many countries who assist in concealing the customer's identity.
On paper, the money launderer purchases goods or services from the entities and send funds, even though the business serves no actual legitimate business purpose. Names are concealed by layering entities used to hide the person or person(s) making the purchases. Obviously, more money makes the layering step more complex.
Once the first two steps are complete, the criminal profits move to the integration step where they re-enter the legitimate economy. The launderer might choose to invest the funds in real estate, luxury assets or business ventures. These transactions appear to be legitimate, but there still may be red flags involved with them.
Over the years, as law enforcement has uncovered the many tactics professional money launderers use, regulations have been put in place to identify those who facilitate this crime. The Bank Secrecy Act requires most financial institutions to report cash deposits and even some withdrawals — especially when multiple deposits are made in small increments. This act helps law enforcement prosecute professional money launderers and assists in crippling criminal organizations.
The information provided herein does not, and is not intended to, constitute legal advice; instead, all information, and content, in this article are for general informational purposes only. Information in this article may not constitute the most up-to-date legal or other information.
Article provided by contributing author:
Diana Hoffman, Corporate Escrow Administrator
Fidelity National Title Group
National Escrow Administration