You may have wondered What is Money Laundering Layering , and in this blog we will aim to answer that question for you.
Money Laundering Layering otherwise just known as "layering" is what criminals need to incorporate into their money laundering activity in order to try and conceal the otherwise illegal activities they are undertaking.
This is due to the increased regulatory scrutiny on money laundering in many jurisdictions, and the ever increasing anti-money laundering (AML) controls being put in place worldwide.
Table of Contents for Money Laundering Layering
What is the Money Laundering layering process?
The Money laundering layering process is the activity of making the true origin of illegal cash and money as problematic and difficult to detect as is possible by gradually and progressively adding more and more legitimacy to it as it moves through the process.
In a similar way to money laundering placement, money laundering layering aims to distance the criminal proceeds from their original source, but it also serves to make the appearance more legitimate by passing money through various “layers” of genuine transactions or financial instruments.
Every time such a transaction or layer is conducted it means the original source of the original illegal money is more difficult to trace.
What is Money Laundering Layering - Layering and Placement
When answering the question What is Money Laundering Layering , we also need to understand a previous stage in the process. Before money laundering layering takes place, there is a first stage called placement.
The criminal gangs can use several different strategies to place their illegal money into the legitimate financial system, for example;
they can process funds through legitimate businesses that deal regularly in cash transactions.
they can break down larger amounts of cash and money into smaller amounts that can easily be deposited in banks or building societies without triggering any suspicious laundering alerts.
they can create void invoices and pay them to others in the criminal chain.
they can also smuggle illegal cash overseas where other countries and jurisdictions have much weaker money laundering controls and then filter it back into the system that way.
So, in summary placement removes illegal funds from the original illegal source, and then put some distance between them and the criminals by making it easier to transform and transfer the cash into other financial assets.
However, even at this stage the illegal cash is still traceable back to their criminal source.
So this is where we can answer What is Money Laundering Layering , as it is the next process of the money laundering cycle, i.e. the layering which tries to remove that traceability and legitimise the funds.
What is Money Laundering Layering - The money Layering Process
Money Layering is often thought as being the most complicated part off the money laundering process, as it quite deliberately uses many financial instruments, assets, and transactions to deliberately confuse AML controls.
There are many different ways to layer money, some examples include:
many electronic transactions in and out of different countries and different bank accounts including offshore bank accounts.
Moving funds between numerous different financial organisations and banks.
Converting cash into different assets and financial assets such as insurance policies bonds stocks and shares equities life insurance policies and so on.
Buying and reselling high-value goods, such as cars, jewelry, expensive artworks, gold, silver, platinum etc.
Investing in property such as buy to let houses or new build developments or development loans.
Investing in other more legitimate businesses, such as investing fraudulent money into new start ups and waiting for it to clean overtime and ultimately make a return.
some criminals can use or set up shell companies or empty companies just to move illegal cash and money between themselves and buying various assets that don't actually exist in the real world.
Often when money launderers need to clean very big sums of cash, the layering process must become ever more complex and challenging. Sometimes layering methods will be used together in train, such as criminal money could be used to invest in a real business, which could set up a real bank account which could then be used to buy stock, inventory, invest in assets such as stocks and shares.
What is Money Laundering Layering - how to detect money laundering
Despite the obvious intent to try and confuse and throw financial institutions and agencies off the scent of the proceeds of financial crimes, there are still methods that can be successfully used to identify layering activities from criminals.
There are certain signs that can flag to institutions it's worth investigating, those signs can include:
very frequent or fairly frequent transactions often ending with exact zero amounts such as 1000 or 10,000 fifty thousand 100,000 etc.
money being transferred to one account and then quickly withdrawn from that account and put somewhere else.
often frequent transfers between accounts within the same institution can flag suspicious activity
Frequent use of wire money transfers into and out of various different accounts.
the frequent distribution of cash to high risk countries with low AML strategies in place for example much of the African continent.
What is Money Laundering Layering - After layering
once an extended period of time has passed following the money layering process the criminals will then decide to take out their cash and try to reintroduce it into the financial system by way of legitimate purchases this is known as integration.
Integration can see the laundered money be used to make further high value purchases such as luxury real estate yachts luxury goods diamonds gold platinum residential property commercial property and many other different opportunities.
when the integration stage is reached it is quite likely that the criminals will engage mainstream banks and financial institutions who will then also validate the transactions.
This is why we now have to fill in forms such as kyc or know your customer cheques and some transactions have to go through EDD or enhanced due diligence to make sure our funds are not laundered.
Anyone who has bought a house recently will have experienced both in enhanced due diligence and KYC cheques on themselves by their legal team and their put buyer's solicitor.
What is Money Laundering Layering – Conclusion
We hope we have answered your question about What is Money Laundering Layering and you now understand why so many checks are made when setting up a bank account or trying to buy a house.