Analysis Of Stages Of Money Laundering

‘Money-Laundering’ is a single process but its cycle can be classified into three different stages, namely:

Placement

This is the first stage in the cycle. Placement shows the initial entry of funds into the financial system. It involves transforming the money derived from criminal activities into a more portable and less suspicious form, then getting those proceeds into the mainstream financial system. The placement stage in ‘money-laundering’ process entails the physical movement of cash or property away from the location where it was obtained and its placement in the legitimate financial system.

Traditional smuggling methods are used to transport the cash or property. These include concealing money or property in the luggage or cargo, swallowing it etc. The most common method of placing money in the financial system is to deposit it into a bank account. The placement stage is amalgamation of tainted assets or funds derived or obtained directly or indirectly from illegal sources.

In Binoy Viswam v. Union of India Supreme Court observed that “to check money laundering or unearthing black money various measures can be taken.

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If one the measures is introduction of Aadhar into the tax regime, it cannot be denounced that only because of the reason that the purpose would not be achieved fully. Such kind of menace, which is deep-rooted, needs to be tackled by taking multiple actions and those actions may be initiated at the same time. It is the combined effect of these actions which may yield results and each individual action considered in isolation may not be sufficient.

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Layering

Layering means uncoupling of illegal proceeds from their source by creating multiple layers of financial transactions. Layering conceals the audit trail and provides the anonymity. Shell companies are created to establish a layer of anonymity between certain assets, funds or activities and the individual with interests in those assets or funds. In most of the cases these companies exist only on the paper without having true shareholders who actually have an interest in the profitability of the company. Under-invoicing and over-invoicing refers to a practice where false information is reflected in an invoice in order to create the appearance of a legitimate business transaction. Now Electronic Fund Transfer, back to back loans, fictitious sales and purchases and Special Purpose Vehicle are used for the purpose of laundering money. It is a matter of concern that the layering transactions are crossing several national borders either physically or electronically or through corporate structures involving entities in a number of different countries.

Integration

It is the final stage at which the laundered money is re-introduced into the legitimate economy. At this very stage the person may choose to invest in real estate sector, capital or money market, gold or diamond market. The integration stage of money laundering process entails that money infused into the normal commercial sphere is collected and made available to criminals to be enjoyed or reinvested into their criminal activities. The funds that were processed during the layering stage are placed in apparently legal business. This is done by investing in shell companies, buying stocks, properties etc. it is virtually impossible to connect the funds to the original proceeds from the underlying criminal activity. At this point, the launderer can use the money without getting caught. It's very difficult to catch a launderer during the integration stage if there is no documentation during the previous stages.

It must be borne in mind that the stages described above do not necessarily exist in the mind of the wrongdoer. They are based on the experience of investigators who have succeeded in uncovering such operations. In no money laundering operation there is an exact and clear picture between these stages. Instead, the stages flow into each other creating an overlap between one stage and the next. It is also not necessary for a successful money laundering investigation to be able to indicate on which date a specific stage ended and next stage commenced.

Works cited

1. Financial Action Task Force. (2012). The Financial Action Task Force on Money Laundering: The 40 Recommendations. Paris: FATF.
2. Alldridge, P. (2018). Money laundering: A concise guide for all business. London: Routledge.
3. Quirk, P. J., & Musumeci, M. (2015). Combating money laundering and terrorist financing: A model of best practice for the financial sector. New York: Springer.
4. Unger, B., & Ferwerda, J. (2015). Convergence or divergence? A global analysis of the criminalization of money laundering. New York: Springer.
5. Rabelo, E. C., & Botton, H. A. S. (2018). Money laundering: The challenges of detection and prevention. Cham: Springer.
6. United Nations Office on Drugs and Crime. (2017). Global money laundering and terrorist financing threat assessment. Vienna: UNODC.
7. Levi, M. (2016). The laundering machine: How fraud and corruption threaten our financial system. New York: Palgrave Macmillan.
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