Be it blackmailing or scamming, all the crimes have one single motive that is getting financial benefits. The funds collected from illegal means are needed to be laundered so that they can be used freely in the system. Money laundering is a crime that has no borders or limitations. Later we will discuss how illegal money transfers from one state to another.
The money that is earned from illegal sources like drug trafficking, arms dealing, or corruption, cannot be used without laundering. Whenever a person goes to a bank or any other financial institution to deposit his money or to buy some stocks, it will always ask for some source. The customers are liable to give the source of their income. When our customers present proof of their income, it is verified by the business.
If a person gives a wrong or illegal source of income, the business might inform the law enforcement authorities. He can get arrested and has to face further prosecution. To save from all these complications, Illegal money is laundered.
Money laundering, in the process of concealing illegal funds by hiding their source and giving them a legitimate one. In simple words, black money is converted into white through three stages of money laundering. Illegitimate sources are washed from the money and illegal sources are given to them.
For a better understanding of the process, money laundering is divided into three stages.
Illegal funds have the highest vulnerability at this point. The funds are about to enter the system and are in massive amounts. Mostly the illicit money is in hard form i.e.cash. Physical money in huge amounts can get the attention of the masses. Thus, it is not good to keep the money in hard form but to spread it in the system in smaller chunks. Multiple ways are used to transfer the funds in the system.
People can transfer their money into some currency here. As they deal with multiple currencies, they are at the risk of being used as the medium of money laundering. Not only placement, but they also help in the conversion of money.
Paintings and Art Craft
Expensive craft or jewelry is purchased using illegal funds, as this sector is not well-regulated, they do not require a source of income. A money launderer can easily buy these crafts. Now his illegal money was converted into another form and entered the system without leaving any mark.
Dividing into smaller chunks
As discussed earlier, the cash is in huge amounts. So the funds are divided into small amounts. Then they are entered into the businesses through smurfs. More than one bank account is used for this. The funds are deposited into these accounts at different timings. This act does not raise any suspicion as the money is very small.
The previously placed funds are then circulated in the system in structuring, which is also named layering. The reason is illegal funds are given multiple layers in this. The money undergoes the cycle of financial transactions in it. The assets are sold and purchased to break the connection with the sources.
At this stage, the money has all the legal sources with no connection with the illegal sources. The new sources are legal now, it becomes very difficult to spot money laundering at this point. The UBO gets its hands on the money after this stage.
There is no hard and fast rule that money is laundered through three stages, it might be possible that these stages occur simultaneously or overlap. The motive is to wash criminal proceedings. Banks, currency exchanges, and all other businesses should use anti-money laundering solutions to mitigate the risk of money laundering. The AML compliance will help them to comply with the regulations.