Layering in the Money Laundering process is to pass their illicit money intentionally through multiple layers of transactions making it difficult to trace. The paper trail leads back to both the origin of the money, as well as their own identities becomes complicated due to this process.
The most effective layering occurs when the characteristics of the illegal funds are changed along the chain of transactions. It is harder to identify and follow the money laundering activities, for instance, if money obtained illegally is first turned into US dollars, then transferred to British pounds, and then converted into Japanese yen.
Furthermore, those who are involved in layering money laundering might employ different banks, intermediaries, and payment methods to intentionally add complexity to financial transactions and obscure the paper trail.
Thankfully, anti-money laundering (AML) laws exist to help people and businesses fight layering. To identify and stop such illegal actions, these regulations offer the required methods and instructions.
Three Phases of Money Laundering
The ultimate goal of money laundering is to convert profits from illegal activities into assets that appear legal and can be used without raising any red flags. This normally involves several steps, some of which might be,
1. Placement
Bringing illegal funds into legal businesses through the use of strategies like high-cash-volume enterprises, fictitious invoices, trusts or offshore entities, foreign bank accounts, halted transactions, or even smurfing, which entails depositing small amounts of money (below the amount required to be reported for anti-money laundering purposes) into bank accounts and credit cards and using them to pay for expenses.
2. Integration or Extraction
This phase entails spending the laundered money while evading tax officials, law enforcement, and anti-money laundering teams. To accomplish this, criminals frequently direct the money toward outwardly reputable costs like taxes. Criminal networks frequently project a considerable reduction in the total quantity of laundered money, say by 50%.
It may be necessary to use strategies like fabricating staff, offering fraudulent loans to directors or shareholders, or paying dividends to shareholders in businesses that the criminal network controls to extract the funds.
3. Layering
Layering is the deliberate use of placement, integration, and extraction tactics repeatedly to obstruct law enforcement officials' and anti-money laundering (AML) experts' ability to conduct thorough investigations. To add more complexity to the process of identifying instances of money laundering, this entails carrying out transactions with various values over a prolonged period.
Financial institutions can use cutting-edge machine learning technologies to outsmart fraudsters during the layering phase.
Usually, Money Laundering involves these three stages,
- A criminal or partner will introduce money obtained illegally into the legal financial system.
- A money launderer carries out a series of transactions to create layers of separation between the controlled cash's illicit origin, whether they are operating on their behalf or that of the criminal.
- The criminal reintroduces the money that has been laundered into the financial system.
Layering Process in Money Laundering
The objective of the layering phase is to break the link between money and its unlawful sources. Usually, the greater the number of layers that money flows through, the harder it is to establish a direct connection between the funds and their illegal source.
Layering has the effect of making it more difficult to follow the passage of the money. This may entail changing the form in which the assets such as money, gold, casino chips, real estate, and so forth are held.
Complex layering systems frequently include moving money through a series of transactions in several international locations. Finding the money's illegal origins gets more challenging the more countries that are engaged in the money's flow.
Common Layering Techniques in Money Laundering
The following are the most common Layering techniques in Money Laundering,
- Opening of shell corporations to layer transactions
- The establishment of trusts to conceal the source of illegal funding
- Offshore banks with inadequate AML compliance
- Using intermediaries in a complex financial transaction
- Electronic funds transfers or wire transfers
- Use of assets such as real estate and precious metals to conceal the flow of money
- Use of various bank accounts and countries to confuse the paper trail
Layering in Money Laundering Examples
When someone is money laundering a huge sum of money, they may follow any of the following steps for example,
- Real estate investment through middlemen or shell companies
- Money Laundering Through Trade
- Coordinating transactions such that huge sums of money may be divided into smaller sums
- Entering into intricate financial transactions in order to conceal the trail of criminal proceeds
Comprehensive actions are required to strengthen AML frameworks and improve detection capabilities in the battle against layering. Businesses should also look out for the Red flags of Anti Money Laundering to fight such layerings and money laundering.
Developing and implementing reliable monitoring systems, enhancing information sharing and coordination between financial institutions and regulatory agencies, and incorporating cutting-edge technology like artificial intelligence and machine learning are all examples of this.
The international community may make more progress in the battle against money laundering by understanding the complexity of layering and confronting these difficulties head-on. By working together and making a commitment to preventative actions, we can better safeguard the financial system, maintain its transparency, and reduce the risks brought on by illegal financial activity.
AML Compliance Services
In conclusion, layering is both an important and difficult part to handle while combatting money laundering. It is a sophisticated technique used by criminals to hide the source of illicit payments and make it very challenging to find and trace them. As stated by BMS Auditing, AML practitioners, and regulatory agencies must fight layering with steadfast commitment, constant adaptability, and increased monitoring.
We are IDENFO Certified Firm to offer Anti Money Laundering Audit and AML Compliance services for businesses that require and implement AML programs in their organization.
