Money laundering is a sophisticated process where illicit funds are made to seem legal, concealing their criminal origin to infiltrate the legitimate financial system and avoid detection.
In this first blog in a series of three, we explore the fundamental stages of money laundering, which are:
- Placement
- Layering
- Integration
Understanding the details of these stages is vital for accountants to identify suspicious transactions and activities and assist in effective anti-money laundering (AML) efforts. The three stages—placement, layering, and integration—can overlap, occur simultaneously, or occur separately, making detection difficult.
Placement: The Initial Phase of Concealing Illicit Funds
Placement is the first phase of the money laundering process. Here, the illicit funds are introduced into the financial system, often through small deposits to avoid detection.
Some common techniques include:
- Smurfing: This is where large amounts of money are divided into smaller, less suspicious amounts which are below the AML reporting threshold. The sums are then inserted into bank accounts or credit cards and used to pay expenses.
- Currency Exchanges: Cash is exchanged for different currencies or financial instruments.
- Gambling: Casinos are often used to place bets and cash out with ‘clean’ money.
- Legitimate Trading – with criminal cash added – Adding illicit cash from a crime to the legitimate takings of a business, particularly those with little or no variable costs.
- False invoicing using fake customers/suppliers.
- Hiding the beneficial owner’s identity through trusts and offshore companies.
- Customs fraud: Taking small amounts of cash below the customs declaration threshold abroad and lodging it in foreign bank accounts before being re-sent.
In fact, the list of techniques is endless.
Challenges in Detection
The variety and simplicity of initial placement techniques often makes it the most difficult stage for accountants and regulatory bodies to detect and prevent.
Combating Money Laundering
- Global Efforts and Regulations
- International organisations like the FATF establish standards and promote the effective implementation of legal, regulatory, and operational measures.
- Technological Advances in AML
- The use of AI and machine learning in detecting patterns consistent with money laundering activities can help flag criminal activity.
- Public and Private Sector Cooperation –
- Enhancing the collaboration between governments, accountancy bodies, financial institutions, and others is essential in the fight against money laundering.
Please go to our website for:
- Our latest CPD Webinar on The Main Changes in Irish GAAP (recorded July 2024)
- Anti-Money Laundering Policies Controls and Procedures Manual (March 2022) — View the table of contents
- AML Webinar (December 2023) available here, which accompanies the AML Manual. It explains the latest legal AML reporting position for accountancy firms and includes a quiz. Upon completion you receive a CPD certificate for attendance in your inbox.
- Letters of engagement and similar templates—Please visit our website here where immediate downloads are available in Word format. A bulk discount is available for orders of five or more items bought together.
- ISQM TOOLKIT, or if you prefer to chat through the different audit risks and potential appropriate responses presented by this new standard, please contact John McCarthy FCA by email at john@jmcc.ie.
- We typically tailor ISQM training and brainstorming sessions to suit your firm’s unique requirements. The ISQM TOOLKIT 2022 is available to purchase here.
