The Three Stages Of Money Laundering

The Financial Action Task Force, FATF for short, is the multinational body that sets the global tone for AML efforts. Formed in 1989, it is based in Paris. The Financial Action Task Force (FATF) has a three-part working definition. Each part basically defined one of the stages:

PLACEMENT – introducing the illicit funds into the financial cycle. Even if the funds already were in a bank or brokerage account (as in cases of embezzlement or fraud), it is that first step as illicit funds that we will view as placement. However, the most common example of placement is the drug dealer who needs to get large quantities of smaller currency bills into the banking system.

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LAYERING – the moving and transferring of the funds in order to disguise the origins and true ownership of the money. This phase can be the most important and the most difficult – it truly separates the pros from the amateurs. Here the money can change accounts, form, ownership, country, etc. It can go into and out of trusts and shell companies, it can buy or sell real estate or hard goods, it can move through different jurisdictions – anything to confuse or eliminate a paper trail. And finally, there is

INTEGRATION – This is when the criminal takes economic advantage of the illicit funds and they appear to have come from legitimate sources.

Maybe the drug dealer buys a mansion, or a high-end car, or a yacht, or even planes to move drugs and other money (in the case of the planes, they will likely be bought through a front or shell leasing company, who will rent it to a front or shell freight company, so that when a plane is ultimately impounded by law enforcement somewhere, it cannot be traced back to the dealer).

So there they are the three stages of money laundering: Placement, Layering, Integration.