Money and financial gain is always the main motive for fraud. Recently, the Fenergo data supplier company has released a report summarizing the biggest cases of scamming in 2020. Their analysis of safety issues found on platforms they operate revealed that the amount of fines for privacy issues increased by 141%. The total sum of global data privacy fines reached $88.6 million. The company’s infographic suggests that the rate continues to grow after a huge leap in 2015.
What does money laundering layering mean?
Profitable criminal affairs, associated with illegal financial operations, need avoiding detection. With the growing number of scams, there is a growing interest of regulators in preventing them. Criminals continue to develop new ways of “cleaning” the dirty funds from illegal activities. Money laundering layering is just one of the ways of how the scammers can proceed with those controls and overcome the law.
How common are laundering cases? For measuring the withdrawal and smurfing rates in the world, we can use the Basel AML Index. The Basel Institute of Governance (an organization that combats corruption and other financial proceeds of crime) founded it in 2012. The company is currently based in the town of Basel, Switzerland.
Each year the organization conducts a global score and publishes a ranking to assess the shadow economy risks. At this point in time, the top countries under risk are Afghanistan, Haiti, Myanmar, Laos, Mozambique, Cayman Islands, Sierra Leone, Senegal, Kenya, and Yemen. Check out the full list of the year number 2020:
What are the 3 steps of money laundering?
Money laundering layering is the process of covering the illegal channels so it would not fall under detection. It involves three stages. The first one is placement. It suggests finding ways of cash laundering: dividing huge amounts of money, smuggling funds abroad, or other ones.
The second step is laundering. It includes the tools, which criminals apply to confuse laws and make it harder to detect criminal activity. It may be creating different bank accounts, transferring money between them, or making property investments. The last stage of the money laundering process, integration, is the process of receiving back the finances legally. At this final stage, scammers use money the way they planned at first.
During the laundering three-stage process, criminals introduce funds into the legitimate financial system. Money laundering placement is used just for two aims:
1. Depriving the scammer of the necessity to maintain large amounts of value.
2. Transferring money into the legit financial system to avoid exposure.
The money placement stage is the step that makes scammers most vulnerable to the laws’ surveillance. The main goal at this stage is to place finances in a way that does not attract attention and seems to be legitimate. Buying real estate, property, art, assets, and jewelry are the most common ways to launder funds. Laundering money is associated with other illegal areas of gambling or smuggling. That is why similar areas appear under strong official’s control and jurisdiction. The process of money placement layering is also conducted by other popular measures:
- Movement of currency and cash out of a country using different methods. The services of online banking make it even easier now.
- Control of banks. Figures of terrorism, drug dealing, and other organized crime factions can form their own institutions. This makes the laundering process easier — entering into the employment contract and receiving wages is a legal affair.
- International currency exchanges. Many states with the liberalization of exchange markets form the area for currency movements. Money laundering schemes can often use such policies since the area is hardly regulated.
- Security brokers. Brokers can support similar activities just by directing large amounts of cash deposits in ways that cover the sources of origin.
Layering, as a step after, aims to hide the possible evidence with the help of transaction and bookkeeping manipulations. This method is also known as structuring. It is the most complicated step during money laundering. Literally, layering is used for creating “layers”, which help to hide “dirty” cash from the banks and regulative institutions. Often it includes the following steps:
- Dividing the assets into several investments.
- Moving illicit funds from one country or bank to another.
- Involving intermediaries.
- or just using the services of foreign offshores and shell corporations.
Scammers can also transfer “dirty money” into the legitimate system, which is known as integration. It is usually conducted after some time when layering proceeds. Integration is the process of making purchases that make it possible to hide stolen cash. Laundering is not always followed by all three steps. They are usually mixed, overlapped, or reordered.
What is AML transactions monitoring?
Anti money laundering transactions monitoring allows controlling the transaction proceedings, preventing possible risks. As a rule, AML transactions monitoring requires using software programs and applications. They allow analyzing each client’s information, and, in such a way, finding out the most suspicious figures.
Private institutions and companies can also suffer from money laundering, even if they don’t know about it. If a client launders their illegal funds through your business, both will be the subjects of court enforcement. The scammer will be fined with a cash laundering process, but your business may be fined just for not being able to find safety issues. Private institutions need transaction monitoring solutions to analyze every deposit and suspicious bank accounts, preventing this issue.
The typical case of layering money laundering includes the following three steps:
- Withdrawing several small amounts of money from several accounts. Criminals can receive small cash deposits with small sums, so it does not exceed the “threshold of suspicion”.
- Scammers can send the amounts of cash abroad, on an offshore account.
- Scammers receive their wire transfers back, introducing illegal funds into the legal financial system.
You can carry out monitoring AML transactions manually. However, the help of artificial intelligence is involved more and more often. The process of monitoring can include various steps depending on the needs of your organization. The main ones are commonly the following.
- Monitoring transactions above a certain threshold;
- Customer assessment;
- Creating risk, black and sanction lists;
- Determination of the level of crime risk;
- Creating a report.
AML transaction monitoring is an integral safety element of all banks. Typically, financial institutions use a combined risk mitigation solution for a customer’s account.
1. Search for risks. After profile registration, the information about the account enters the base. Then, the KYC system proceeds, assessing the profile for risks.
2. Assess the risk of the future account. After collecting the data and ensuring the safety of the client, the system opens the profile. Now the client can use banking techniques and connect with other users.
3. Monitoring as it is. The transaction monitoring program repeatedly checks account activity. It assesses possible risks and looks for inconsistencies.
How AML prevents layering
You can still detect a layering trail even without complex software systems. Despite the measures taken by money launderers, there are some steps for detecting red flags. The heralds of the money laundering process might include:
- Many financial transactions that end in exact amounts with zeros.
- High speed of operations. You can find the deposits of laundered money in the bank accounts, which are then quickly withdrawn.
- Frequent wire transfers between accounts in the same financial institution.
- Frequent use of bank transfers to and from accounts.
- Suspicious destination and origin of funds. They can come to or from high-risk countries, or bank profiles. The frequency of transferring can also be a red flag for scams.
There is also something you can do for your enterprise to avoid fines for cash laundering operations in your business (if you own the one). For example:
Money laundering can be a problem for you even if you do not know that your platform is used for something similar. Criminals may hide their activity not only from the government but from the institutions’ owners. Fenergo software provider counted the $5.6 billion in criminal fines for financial institutions around the world. And it is only for the first half of 2020.
While the government punishes scammers by imprisoning them, the business will fall for fines. The United Nations Convention Against Transnational Organized Crime provides guidelines to help institutions prevent smurfing — check them out.
If you operate with an online banking platform, you should ensure a reliable verification system. Do not forget to place Know-Your-Customer guidelines as well. It will help to find risky wire transfers and, in case of high risk, create a report to regulative institutions. You should know that your client is a real person. Customers’ data privacy must be respected as well.
The opportunities for artificial intelligence continue to provide more and more solutions. Be sure to keep up with the newest market trends and best uses of AI! Find software solutions that can help you in struggling with financial scammers. The applications developed to detect uncertain activities keep on to evolve and become more accurate.
Concluding remarks on anti money laundering
We have reviewed the stages of money laundering, the ways of placement layering and integration, and methods of prevention. Tracing obscure corporations becomes more challenging with time since the profit sources are lost behind many layers. It is often argued that under the many layers the incomes begin to lose their original criminal significance. However, laundered cash only seems to originate from legitimate sources. It just takes a different form.
Since the criminal proceeds can put your own company at risk, it is crucial to understand how to avoid possible law enforcement. You can increase the safety of your services just with procedures of KYC and multilayer verification.