AML Compliance against three Stages of Money Laundering

Money laundering is the process of legalizing black money obtained through criminal activities like drug dealing, human trafficking or weapons sale. Money launderers are always in hunt of weak monetary channels to launder money. The ultimate effects of money laundering impact banks, businesses, insurance corporations, and financial institutions. As per the reports of FATF and UNODC, the money launderers have taken the amount to 3.6% global GDP, with 2.7% global GDP in 2009.

3 Stages of Money Laundering

The black needed to be circulated in the financial system to make it clean. Criminals use financial channels and businesses do not have good inspection policies. There are businesses that are not yet monitored or are not easy to track like casinos or sale/purchase. The illegal money is laundered in three stages listed below:

Placement

This is the first and most difficult stage for anti-money laundering because at this stage they have to enter the financial system as a trusted entity and are most vulnerable to make a mistake. Criminals carry the bulk of money and have to physically place that money in the system.
One of the advanced methods of placement is by acquiring the access of some legal user’s bank account through phishing attacks or dumpster diving. Then deposit money in that account, transfer that into another foreign account and withdraw that money before getting caught.

Most common methods used for the placement of black money in the financial system are

Smuggling Currency: Cash, gold, expensive artworks, or bonds are physically smuggled beyond borders.
Asset purchase: Big assets are purchased or money is circulated in the property sector. The objective is to have something equal to the bulk money with altered circumstances. Once the purchase is done, the backtracking of the original source is very tough in the asset purchase.
Currency Exchanges: criminals take advantage of the foreign currency exchange to launder money because currency exchange provides ease of money transfer.

Layering

At this stage, money launderers try to cut the primary link of the source. The purpose is to make it difficult for authorities to track the source of black money by circulating it in the financial system. Sale purchase of movable and immovable assets and transfer of money from one account to another is done in this stage. Sometimes money is put and withdrawn in different businesses. The sale-purchase cycle of banker’s drafts, money orders and bonds are mostly used for layering.

Integration or Extraction

The ultimate beneficial owner gets the white money with a clean source at this stage. The previously laundered money is moved to the financial system mostly through banks. The money is legitimate at this point and authorities are informed about the money, it is very difficult for law enforcement agencies to point the money laundering. At this stage, because the owner has all the documentary evidence of it. To successfully prosecute the money launderer, authorities should have proof of the previous two stages of money laundering and the link with the original source.

Anti Money Laundering Compliance

AML compliance is the procedure of achieving background screening and on-going monitoring of business entities to point out and eradicate any attempts of money laundering or terror financing. It involves implementing laws, regulation and procedures issued by regulatory authorities in the financial ecosystem.
Financial Action Task Force, FinCEN, Financial Monitoring Authority and other global watchdogs have issued guidelines for AML compliance. It should be followed by all businesses to block money laundering activities.
Real-time AML and Know Your Customer screening
Compliance Officer
Conduct regular audits
Monitor each and every transaction
Figure out suspicious activities
Risk Assessment

If a business does not comply with the AML program, it can be fined or blacklisted by regulatory authorities.

By the time the channels used for money laundering also evolved with the advancement of technology. Now criminals use online financial channels to launder money. Every business should adopt KYC/AML regulations to stop any chances of money laundering through their channels. This will strengthen the business by enhancing the customer due diligence.

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