What all is included in Money Laundering – Layering?

Money laundering requires criminal groups who want effective use of illegally obtained funds. It is inefficient and risky to deal with large amounts of unlawful currency. So, criminals need a mechanism to deposit money in legitimate financial institutions, but they can only do so if the money appears from respective sources.

The illegitimate funds enable criminals to fund a variety of other criminal operations. Furthermore, money laundering promotes corruption, distorts economic decision-making, magnifies societal issues, and jeopardises financial institution integrity.

Money laundering layering is a technique used by criminals to conceal their assets. They transfer funds between accounts and businesses. The more layers there are, the more difficult it is for law enforcement to track the funding source.

What is layering in Money laundering?

The process of using layers of transactions or different financial instruments to strengthen the legitimate appearance of illegal money is known as money laundering layering.

Once the proceeds of a crime enter the financial system and their origins are removed from the illegal source, the funds are moved, distributed, and hidden to avoid identification by law authorities.

To keep the money moving globally and prevent the authorities from simply following the finances, the cash is split into smaller transactions and transferred abroad.

How is the layering stage of money laundering achieved?

Money laundering layering is transferring funds so they can no longer get traced back to their source. To successfully escape and avoid AML detection, investments can be made into advanced financial possibilities and shifted regularly.

The ways to do layering:

• Investing the money that needs to get laundered through casinos in real estate and other investments. Many countries lack money protections for layering or ‘structuring,’ which occurs when criminals false fronts like strangers to buy real estate while they are the true beneficiaries.
• Shell companies are used to hide beneficial ownership.
• High-value assets, such as vehicles or artwork, are resold.
• Changing cash into financial instruments like traveller’s checks, money orders, stocks, bonds, NFTs, cryptocurrency, Etc.
• Several transactions are made among several banks and financial institutions to hide the paper trail.
• Creating fake employees for other legal businesses to extort money from them.
• Dividends are paid to shareholders of corporations operated by criminals.

Layering and placement

Layering

Layering is shifting money around in the financial system to hide the source of the money. Exchanging monetary instruments for greater or smaller quantities is an example.

• Funds are transferred or received.
• Multiple accounts are used to buy and sell securities.
• Getting a loan from a bank or other financial organisation.

Placement

The entrance of illegal proceeds into the financial system is known as placement. Any attempt to avoid regulatory reporting requirements for cash/currency transactions made with a financial institution is classified as structuring, a sort of placement activity. Placement examples include:

• Checks for amounts that are marginally over or below reporting or recording thresholds
• The physical crossing of a border with illegal currency or monetary instruments
• Using a legitimate business to mix dirty money with legitimate sales receipts

Post-layering in money laundering

After the money laundering layering process is complete, a procedure known as ‘extraction’ is followed to properly integrate funds back into legitimate financial institutions and use the money to purchase any item.

Because money is reintroduced into legitimate financial institutions, AML (Anti-money laundering) measures can be used to detect and trace money laundering. It can be accomplished through methods such as enhanced due diligence (EDD) and Know Your Customer (KYC) inspections.

Money Laundering Layering Impact on Business?

If criminal funds can be easily processed through a particular institution because either the employees or directors got bribed or because the institution turns blind to the criminal or the institution is drawn into active collaboration with criminals and become a part of the criminal network itself. Evidence of such collaboration will negatively impact the opinions of other financial mediators, regulatory agencies, and ordinary customers.

Unimaginable cross-border asset transfers, inexplicable changes in money demand, prudential risks to bank stability, contamination effects on legal and financial transactions, and increase in international capital flows and exchange rates are potential negative macroeconomic consequences of unchecked money laundering.

Successful money laundering—layering stage also harms the integrity of society and weakens democracy and the rule of law since it promotes corruption and crime.

Conclusion

The money laundering—layering stage comes after placement. The layering stage is the most difficult and frequently involves international fund transfers. In this stage main goal is to separate the illegal money from its source. It is accomplished by layering financial transactions to obscure the audit trail, and the link to the initial crime is severed.

During this stage, money launderers may begin electronically moving funds from one country to another and then divide them into investments in advanced financial options or overseas markets. Constantly moving avoids detection, exploiting loopholes, miscalculating legislation and delays in judicial or police cooperation.

About Author

Shilpa P.

I am a law final year student and an aspirant for Company Secretary (CS) who is keenly interested in Company law and other commercial laws.

I have cracked the first level of the CSEET exam & also I have written a couple of research papers, articles, and blogs few of them got published.

I have worked under a few law firms and gained practical experience in the field of company law, civil law, and criminal law. In my previous internship, I assisted different company & consumer disputes and helped the counsel in researching and drafting.

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