MONEY LAUNDERING

We know that, the process of transformation of illicitly-obtained money into ostensibly legitimate money or other assets is called Money Laundering.In other words, money obtained from crimes such as drug trafficking, extortion, insider trading etc. are dirty and that needs to be obscured to appear to have been derived from legitimate activities.And to make these transactions convoluted one needs some subterfuge to carry out this deceptive act which is called money laundering.Money Laundering can be done by several ways which vary in complexity and sophistication.

Basically, Money Laundering is performed in three stages.they are, Placement, Layering and Integration.

PLACEMENT  >> LAYERING >> INTEGRATION

*Placement- It is the first step of money laundering and involves the placement of bulk cash into the financial system   without the appearance of having any sort of connection with a criminal activity.There are many ways in which cash  can be placed into the system.The simplest way is to deposit cash into a financial institution;however, this is also        one of the riskier ways to get caught laundering money.

*Layering- The second stage of money laundering is typically layering.This stage is the process of moving and  manipulating funds to confuse their sources as well as complicating or partially eliminating the paper trail.it may  involve moving funds in various forms through multiple accounts at numerous financial institutions, both domestic  and international, in a complex series of transactions.

*Integration- It is the  third stage of money laundering and  it typically follows the layering stage.In the discussion of  the placement stage, integration can be accomplished simultaneously with the placement of funds.After the funds  have been placed into the financial system and insulated through the layering process, the integration phase is used  to create the appearance of legality through additional transactions such as loans, or real estate deals.The  transactions provide the criminal with a plausible explanation as to where the funds came from to purchase assets  and shield the criminal from any type of recorded connections to the funds.

In response to the growing concern over money laundering and the threat constituted to the banking system and to the financial institutions, several steps have been taken by the Financial Action Task Force( established by the G-7 summit held in Paris in 1989) as anti money laundering, which i will discuss in my next article.

Click here for government certification in Accounting, Banking & Finance