Money Laundering: A Thought-Provoking Crime

Money Laundering Process

Teichmann (2019) identified money laundering as a three-tier process. It includes:

Placement

Putting the money earned through crimes into circulation. At the first stage of money laundering money is transferred from its source to different places. Money is moved from the home source to other countries where financial control is weak. Money is converted into smaller amounts and deposited into various bank accounts and invested in foreign exchanges. Placement is the best means to blend the dirty money with clean money and makes it less suspicious for law enforcement.

Money laundering is a cash-intensive business generating money from criminal actions including tax crimes, frauds, embezzlement, drugs, theft, bribery and corruption. Money launderers usually shift illegal money from a place of acquisition into the financial system, retail economy and smuggle it out of the country. The main objective of the first phase of money laundering is to transform illicit money into different forms of assets.

Layering

The second way to make illegal money less suspicious is layering. Once the placement is successful and funds are transferred to various places from the home source. Then, this dirty money is utilized for purchasing monetary instruments, for buying and selling financial securities and for selling the products of companies locally or abroad to show that all the money is legal and make it untraceable for law companies to detect the illegal source.

Layering is composed of a series of complex transactions planned to place the distance between the source of illegal proceeds and their current status to confuse the criminal investigation. The primary objective of layering is to disguise the audit trail and source of ownership of funds. The layering of funds is done through electronic funds transfer by transferring the illicit money in and out of offshore bank accounts. The disclosure of information on a single wire transfer is not enough to recognize the dirty money. Therefore, it is an excellent technique to transfer illicit money. Moreover, illicit money is invested in stocks, commodities and futures in financial markets. As anonymity is available to a high degree in financial markets, therefore, the chance to trace the transactions is insignificant.