Identification of  Illicit Operations During 3 Phases of Money Laundering 

It is no surprise that the biggest financial fear is associated with Illicit monetary transactions. Imposters have been exploiting financial institutions through money laundering operations for centuries. For this reason, approximately 516 individuals were harmed by imposter’s money laundering practices in 2023. Money laundering is a dynamic process that is usually carried out through various stages. There are three most prevalent phases of money laundering through which imposters introduce Illicit funds into the legal financial structure of an economy. In this blog, all three stages of money laundering are examined, and several AML measures are suggested to overcome these risks.

Impact of Money Laundering Stages on Financial Instability 

Money laundering is the most frequent cause of financial crises as it is the practice of concealing and disguising the original source of illicitly acquired monetary funds. The purpose of undergoing the money laundering process is to legitimize the black money. These activities are usually carried out through 3 phases of money laundering, including funds placement, cash layering, and asset integration.

Imposters conceal their source of illegal funds to avoid legal repercussions in order to facilitate unauthorized monetary and financial practices. The understanding of different money laundering phases is necessary for businesses as well as customers in order to protect their hard earned money from imposter’s illegal financial attempts. Therefore, businesses are required to emphasize the monitoring of transactional activities carried out through various banking institutions, shell companies, and foreign accounts. 

Understand 3 Phases of Money Laundering – An Overview 

Money laundering process is carried out through three distinct steps, which attempt to conceal the illegal fund’s sources. The three most exploitative phases of money laundering are briefly examined below:

  • Money Laundering Placement: The beginning of money laundering practices requires imposters to somehow introduce large monetary funds into the financial system. Imposters usually break large monetary sums into smaller portions and smurf the funds into financial bank accounts. Smurfing and fund structuring forms the basis of money laundering practices. Additionally, the placement phase of money laundering is facilitated through the purchasing of monetary instruments. 
  • Money Laundering Layering: Once the funds are introduced into the banks, the next step for imposters is to hide the origin of the funds. This is done through multiple transactional practices across different banking channels, both online and in-person. These multiple transactional practices complicate the financial structure, making it difficult to track the fund’s movements. Additionally, imposters utilize shell and offshore companies, which helps them in the obscuring of unauthorized funds.
  • Money Laundering Integration: The integration stage deals with the reintroduction if Illicit funds as legitimately owned assets. Imposters use the funds to purchase valuable assets that are deemed legal by financial institutions. In this way, imposters successfully integrated illegal funds with legitimate financial resources.   

Illicit Practices Used During the Stages of Money Laundering

Financial institutions have observed various techniques through which imposters pass the three phases of money laundering. Here are some of the most frequent tactics used during the process:

  • Smuggling of financial funds across foreign accounts is one of the known money laundering practices. The movement of cash across foreign accounts helps the imposters evade domestic regulatory checks. 
  • Collaboration with shell and offshore companies raised the complexity of tracking the fund’s original sources. 
  • Money launderers invest in real estate properties to legitimize the illegal funds. This allows them to reintroduce the funds into financial institutions as authentic and reliable.  

Regulations Implemented to Overcome Money Laundering Crimes

According to the Proceeds of Crime Act (POCA), various offenses have been implemented against various phases of money laundering practices. 

According to section 327 of the POCA regulation, 14-year imprisonment is initiated in case of the funds concealing and property transferring for Illicit Operations. Additionally, section 328 states that facilitating such money laundering practices in the form of fund acquisition and retention will lead to severe repercussions.   

Integrating AML Practices to Combat Risks Associated with 3 Stages of Money Laundering

To reduce the risks associated with the three phases of money laundering, businesses are required to adhere to the anti-money laundering rules and regulations. This involves continuous transaction screening of customers in addition to the risk profile assessment. Businesses must evaluate the potential customer’s financial and identity profiles through globally recognized sanction and PEP databases. These practices ensure an effective identification of entities that are likely to be involved in money laundering practices, thus, enhancing the stability of the financial institutions. 

Concluding Remarks

Money laundering is a serious threat to an economy’s financial and economic stability. These operations are carried out through three distinct phases of money laundering. These phases enable the imposters to introduce, layer, and integrate Illicit funds into the financial system. Therefore, a detailed AML analysis is necessary to identify and overcome the harms associated with them. For this reason, regular transaction monitoring and risk profile analysis is critical for ensuring secure business and financial operations while reducing the probability of additional financial scams.

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