It is no surprise that the biggest hurdle faced by businesses in their growth process is the rising money laundering threats. For this reason, more than 516 money laundering cases were reported by Spanish residents in 2023. Money laundering is not a stagnant process, rather, it is a comprehensive process that is operated through three different stages.
However, continuous illicit transactional operations across multiple bank accounts are the phase in which most financial institutions are exploited. This layering in money laundering is difficult to detect and overcome, which is why imposters put great emphasis on this stage while concealing the fund’s origin.
Tactics Used During Money Laundering Layering Operations
Layering in money laundering is the most exploitative stage, as it deals with obscuring the original source of funds by undertaking multiple transactions across different bank accounts. This is the second money laundering stage in which multiple transactions are carried out to disrupt the financial tracking operations. Layering in money laundering is carried out through various techniques, which are examined below:
- Imposters undergo the layering of money laundering operations by making complex monetary transactions across multiple recognized banking accounts and financial channels.
- Money launderers break down the funds into smaller transactional activities in order to complicate the transaction screening and tracking procedures.
- Imposters use offshore and shell companies to conceal the ownership status of the illicitly acquired funds.
- Money launderers layer the illicit funds in the legitimate banking system by investing in valuable assets.
- These unauthorized entities collaborate with banking officials to help them incorporate illegal funds into the official financial structure without raising suspicions.
An Analysis of the Three Layers of Money Laundering – A Brief Overview
There are three stages of money laundering through which illegal funds are launched into the financial institutions. The aim of this process is to hide the origin of funds in order to avoid regulatory repercussions and consequences. These money laundering phases are briefly examined below:
- Placement in Money Laundering: This is the first stage in which the imposters initiate the money laundering practices. In this phase, the imposters break down the large monetary sums into smaller portions through smurfing in order to reduce the detection of malicious activities.
- Layering in Money Laundering: This stage deals with the transactional activities concerned with the concealing of the fund’s original source. By making multiple monetary transactions, imposters try to complicate the fund detection process, which leads to the facilitation of money laundering practices.
- Integration in Money Laundering: This is the last stage in which imposters convert illicit funds into legitimate assets by purchasing valuable assets that are authorized by the country’s financial structure.
Events Signaling the Occurrence of Layering in Money Laundering
To identify the occurrence of layering in money laundering practices, it is advised to examine the following red flags that raise suspicions in the financial operations. Some of these layering events are as follows:
- When continuous instances of rounded-off transactions are observed, then it points towards the presence of money laundering layering.
- Layering in money laundering is also highlighted when the number of fund deposits rises significantly as compared to the number of fund withdrawals.
- As funds are transacted into multiple accounts, businesses must examine these situations to combat the layering of money laundering operations.
AML Strategies Necessary for Identifying and Preventing Layering Practices
The identification of layering in money laundering is not enough to regulate the financial structure. It requires enhanced AML solutions to overcome these practices. Therefore, businesses are required to conduct the customer’s KYC identification process to identify their previous financial and risk profiles.
Additionally, the identification of money launderer’s illegal practices requires their transaction screening and monitoring. This involves the name, sanction, and PEP screening of customers. These lists store the information and identities of all those entities that were involved in illicit activities in the past. Moreover, the examination of these lists highlights all the influential entities that are vulnerable to being associated with money laundering activities.
Common Practices Associated with Money Laundering Practices
Imposters have been exploiting various financial channels to legalize their illicitly acquired funds for centuries. They hire money mules through which the illicit funds are introduced into the legitimate financial system. Additionally, various sports events are misused by the imposters, and imposters undertake money laundering activities through betting and selling the player’s image rights.
Concluding Remarks
Money laundering is the biggest threat faced by financial institutions. Imposters use layering in money laundering to conceal the original source of the illegally acquired funds. These funds are used to facilitate smuggling and terrorist financing activities. Additionally, layering in money laundering deals with the transactions of funds across multiple banking channels. Therefore, businesses are required to incorporate effective anti-money laundering measures to identify and combat money laundering practices. This can be done through the screening of all the potential customers against several officially recognized databases.
