How do criminals launder money? This question may seem simple, but the answer to it involves three distinct stages that all criminals use to make their dirty money look clean. If you’re interested in crime scene investigation or just want to know more about how criminals are caught and put in jail, keep reading to learn about the 3 stages of money laundering and what you can do to stop it in your community.
History of money laundering
Money laundering has been around for a long time, and it’s essentially as old as a human crime. It wasn’t until after World War II that organized crime made money laundering an integral part of their operations. At first, criminals were mostly interested in taking cash generated from illegal activity and turning it into legal cash, which could be used to buy property or businesses that wouldn’t attract attention. As criminal organizations became increasingly sophisticated with technology—and increasingly dependent on large amounts of cash to carry out their illegal activity—they started using money launderers more regularly.
What are the 3 stages of money laundering?
The 3 stages of money laundering are placement, layering, and integration. Placement involves placing illicitly obtained cash into an ongoing business where it is harder to detect because it will look like a normal financial transaction. Businesses that sell luxury goods, like jewelry or art, are frequently used for placement purposes because they have high-profit margins. Layering is when large amounts of dirty money are moved around from one account to another. The goal here is to make it difficult for law enforcement to determine who owns what assets by moving small amounts of cash through multiple accounts and banks in order to create confusion about its origins.
First Stage of Money Laundering is Placement
Money laundering placement definition involves getting money into a financial system. This can be done through many different ways, but some common ones include: depositing cash in a bank account; structuring deposits to avoid reporting requirements or labeling large cash deposits as something else (like a wire transfer); selling property for cash; getting paid in illegal profits for services rendered, or even turning black-market sales proceeds from drugs into legitimate currency.
The idea here is to get money from A to B without leaving any trace of its criminal origins behind. It’s important to note that placement doesn’t have to occur all at once — criminals can spread out their transactions over time by sending small amounts frequently.
Once you’ve obtained illegal money, it’s time to move it around so that it looks like it came from a legitimate source. The placement stage involves moving money into financial institutions where large sums come and go—casinos, check cashing services, currency exchanges, and wire transfer companies.
In some cases, money launderers will buy goods with dirty cash—cars, boats, and planes—and resell them for clean cash or use them to generate profit through rental fees or other means. The goal of these transactions is to make money look more legitimate by moving it between accounts.
Layering Stage of Money Laundering
When someone is laundering money, it is a process that is done in the layering stage of money laundering. In layering, they attempt to hide where their money came from or what it was originally used for. They will take large amounts of cash and attempt to look like they have earned it legitimately by mixing in small legal deposits with it.
For example, if someone gets paid for doing illegal activities but only wants to deposit $10,000 into their bank account without raising suspicion, then they would deposit smaller legal amounts over time so that no one knows about their other income sources.
Smurfing
The process of smurfing can be conducted through a variety of methods. People create shell companies or hide behind groups to launder money. Smurfing is also called structuring, layering, and hesitation laundering. This is done by purposefully breaking up illicit transactions into smaller amounts.
Each transaction typically breaks down into less than $10,000 in order to get under scrutiny from authorities and avoid reporting requirements that come with larger amounts. Many times, it’s hard for authorities to discover any suspicious activity when you break things down into parts.
Integration Stage of Money Laundering
The final stage of money laundering is called integration. The money is put back into circulation through investments, expensive luxury items, or business transactions. The money launderer wants to be sure that it looks legitimate and above-board. This gives criminals a chance to launder their profits without raising red flags. Once an item has been successfully laundered, law enforcement must prove where it came from in order to bring criminal charges against someone who earned it illegally.
The integration stage of money laundering marks a shift from cash deposits to using banks and other financial institutions for laundering operations. When you have millions, it’s not easy to carry such large amounts of physical cash around with you. This is why money launderers will integrate their dirty money into legal business dealings.
For example, they’ll deposit large sums of money into their bank accounts and then make transfers between accounts to mix clean and dirty money together. Later on, they’ll access these funds via checks or wire transfers as needed for various purposes—or just withdraw them in cash.
The money that was once dirty is now treated as clean or legitimate by being physically and metaphorically interwoven into a seemingly legitimate enterprise. The proceeds from illegal activities can be used to purchase goods for sale or trade on open markets, and then those goods sold at higher prices.
This also creates a physical record showing where the income came from and how it was earned. Some people will even say it is almost impossible to prove that those funds were ever originally criminal in nature. For example, if criminals sold drugs illegally, they might use that money to buy a property that they then rent out at market value.
Conclusion of 3 Stages of Money Laundering
Money laundering is a process that disguises a profit gained from illegal activities as legitimate. In order to successfully launder money, an individual or group must follow three stages: Placement, layering, and integration. The goal is to eventually turn dirty cash into clean money by mixing it with legal funds. By removing any traceable links to these illegal sources, launderers can make their funds look like they originated from legitimate business profits. This provides criminals with anonymity and creates challenges for investigators who rely on financial records during criminal investigations.