Cunninghams Solicitors

What Are the Three Stages of Money Laundering?

Money laundering is a serious crime, and according to the National Crime Agency, over £100 billion of laundered money affects the UK’s economy yearly. According to HM Revenue and Customs, the definition of money laundering is “Exchanging money or assets that were obtained criminally for money or other assets that are ‘clean’.”

Money laundering is a technique used to conceal the origins of unlawfully obtained money. It is commonly associated with criminals and corrupt foreign regimes who use it to make illegal funds appear as if they were obtained legally. Typical criminal activities linked to money laundering include drug trafficking, terrorism, tax evasion, fraud, theft, and embezzlement.

Money laundering typically involves mixing illegally obtained funds with legitimately earned money that passes through a business. The blended funds are then directed back to the criminals, making it difficult for law enforcement to trace the money back to its original source.

The UK is one of the world’s worst countries for money laundering, with £88 billion laundered annually. This has increased pressure on businesses to perform anti-money laundering (AML) checks. One requirement of AML legislation is that everyone in an organisation dealing with customer transactions knows the money laundering process and how to spot financial criminals. The gangs can then use the illegal funds to reinvest in their criminal activities or fund a lavish lifestyle.

The consequences of being accused of money laundering can be severe. Individuals charged with money laundering can face imprisonment and hefty fines. It is, therefore, important to know what to do if you are accused of money laundering. Seeking defence from a money laundering solicitor is crucial, as they can guide the next steps to take.

The process of money laundering typically occurs in three main stages: placement, layering, and integration. Each stage is complex and can involve various techniques and methods to obscure the audit trail and hide the source of the funds.

Placement

The first stage of money laundering is placement. During this stage, criminals introduce illegal funds into the legitimate financial system. This is done by separating the illegally acquired funds from their criminal activity and placing them into the financial system. The money is often broken into smaller, less suspicious quantities and deposited into several bank accounts to avoid detection.

Placement techniques can include:

• Mixing illegal profits with a business’s takings.
• Invoicing for products or services that haven’t been purchased.
• Using trusts and offshore businesses.
• Taking small amounts of money abroad and depositing them in foreign bank accounts.

Layering

Once the money is placed in the financial system, the second stage of money laundering, layering, begins. During this stage, criminals use a complex web of financial transactions to complicate and obscure the trail that leads back to the illegal activity and its origin.

Layering techniques can include staking money at a casino or other form of gambling, purchasing securities, financial products, or assets like property, funnelling funds through a holding company as loans or purchases, buying foreign currencies (especially those that don’t comply with anti-money laundering (AML) regulations), and purchasing cryptocurrencies and other unregulated assets.

Integration

The third and final stage of money laundering is integration. During this stage, criminals integrate the illegally acquired funds into the legitimate economy by making it appear that the funds have come from legitimate sources. By this stage, the funds are difficult to distinguish from legal wealth and can be used without raising suspicion.

Integration techniques can include:

• Creating fake employees and paying into a bank account that belongs to the criminal.
• Paying loans to themselves that they won’t repay.
• Paying dividends to shareholders of a company.

It is important to note that the three stages of money laundering can overlap, and not all stages may be necessary in every case. Individuals are constantly finding new and innovative ways to launder money, and it is crucial for countries to continuously update their legislation to keep pace with existing and emerging financial crimes.

To avoid being unwittingly involved, regulated businesses must stay abreast of money laundering laws and techniques. By understanding the three stages of money laundering, individuals and businesses can better protect themselves and their financial systems from exploitation by financial criminals. If you are being investigated or have been charged with money laundering it is important to not delay in speaking to a money laundering solicitor.

Common Money Laundering Techniques

The following are some common money laundering techniques which can be employed during any of the three stages of money laundering:

1. Blending: Dirty money is mixed with the proceeds of a lawful business, usually cash-based establishments like car washes, betting shops, bars, and tanning salons. The term “money laundering” originated from criminals using laundromats to launder money.
2. Smurfing: Large amounts of dirty money are split into smaller transactions to avoid arousing suspicion. This is done by depositing illegal funds into multiple bank accounts over a prolonged period by individuals known as “smurfs,” making it appear that the money originated from legitimate sources. It is harder for banks to detect than large cash deposits.
3. Invoice fraud: Criminals manipulate a company’s billing system by over or under-billing for goods or services or by falsifying invoices, allowing them to keep the excess money as legitimate spending. However, the company’s accounts or stock levels won’t match up, making it unreliable. Phantom shipping is an example of invoice fraud, where orders are placed but not actually shipped, allowing criminals to transfer dirty money to other countries.
4. Offshore accounts: Criminals use countries with low regulatory requirements to open offshore or overseas bank accounts, making it difficult for authorities to identify the actual beneficial owners. This is a popular way for money launderers to evade law enforcement and the Financial Action Task Force.
5. Depositing cash abroad: Dirty money is transported overseas and deposited into a foreign bank account, usually in small sums, to avoid customs declaration thresholds and AML checks.
6. Shell companies exist only in name and serve as fronts to accept illegal money payments and redirect them elsewhere. They are frequently used during the layering phase of money laundering.
7. Small cash-based businesses: Criminals also employ functional businesses, often small enterprises that primarily accept cash payments, making it challenging to differentiate between clean and dirty money.

Now that you have a clear understanding of what money laundering is, how it is defined, and the three main stages of the money laundering process, it is crucial to seek money laundering defence from a solicitor as soon as possible, regardless of whether your involvement in the process was intentional or unintentional. This is to avoid any potential penalties.

Cunninghams are experienced money laundering defence solicitors based in Manchester and London, with over 20 years of experience defending clients facing money laundering charges. Our team of experienced solicitors have the expertise to help you build a strong case and to support you through each stage.

Cunninghams initial advice is always free of charge and can be contacted at 0800 051 2542 or enquire online.