The Layering Stage of Money Laundering

by | Sep 12, 2024 | Blog, News

As we saw in last week’s blog money laundering (ML) 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 second blog in a series of three, we explore the fundamental stages of ML, which are:

  1. Placement
  2. Layering
  3. Integration

The three stages—placement, layering, and integration—can overlap, occur simultaneously, or separately, making detection difficult.

The middle stage is known as ‘layering’, and this is where the so-called gatekeepers (accountants, solicitors, estate agents, trust and company service providers, to name but some) can become ensnared in criminal efforts that aim to disguise and distance the illicit funds from their original criminal sources.

Layering: Disguising the Trail

  1. The Complexity of Layering
    • Layering involves creating a complex series of financial transactions to obfuscate the audit trail and sever the link with the original crime.
  2. Techniques Employed – among the varied techniques used in this stage are the use of:
    • Shell Companies: Establishing companies and similar entities that act as a front to hold and move illegitimate funds legally. Accountants can be involved in approving such entities’ activities by signing off on the audited and unaudited financial statements and tax returns of such entities.
    • Electronic Transfers: Frequently moving funds between accounts across international borders.
    • Investment in High-Value Assets: Buying luxury items like Rolex watches, super expensive handbags, yachts, jewellery, antiques or real estate to help alter the form of the money.
    • Use of a legitimate business to act as a front: Legitimate cash businesses (like coffee shops, nail salons, cash for gold shops, mobile technology, or corner stores etc.), may be used to act as a ‘funnel’ for illegitimate cash (e.g. from drug sales) that is mixed in with genuine bank lodgements from the business so as not to draw unwarranted attention to the real size and nature of the business. Tell-tale red flags will include a lack of attention to important details by the proprietors such as:
  • Not having up to date business licences
  • Lack of staff training
  • Not seriously promoting the business
  • Being disinterested about staff theft or customer shoplifting.

The Importance of Awareness and Training

  1. Educational Training Programs
    • Implementing thorough training programs for all accounting firm employees at all levels to show them how to recognise and report suspicious activities is essential to preventing money laundering.
    • This training must include even back-office staff who may never meet clients, but who may see evidence of unusual patterns in the business through the transactions they process.
    • The penalties for not carrying out (and documenting) such training regularly include a 5-year prison sentence.
  2. Staff Awareness Campaigns
    • Increasing awareness about the ethics and the wider implications of ML (including the negative societal side-effects of ML such as human trafficking) among staff generally, can be most helpful.
    • In the end your firm’s reputation is what’s at stake, so keeping staff updated is one of the most important steps to secure that reputation.

Please go to our website for: