Doing the "money-laundry"

Money laundering is a global problem.
How do you hide a million in cash? Staying one step ahead of the law has lead to increasingly sophisticated methods of hiding dirty money and we all know how much criminals love playing hide and seek with the law.

Money launderers can use any of the following methods to hide dirty money:

1. Transport the cash to another country and dispose it there.
2. Put the cash into a bank or other financial business.
3. Purchase a luxury item.
4. Channel money through a shell company*.
5. Channel money through a legitimate company.
6. Purchase instruments such as travellers' cheques or bankers' drafts, which are legitimate instruments used for overseas exchange purposes

The money laundering process may vary depending on the criminal organisation’s available laundering mechanisms. However, all criminals attempting to launder funds have three requirements in common, which are to:

- conceal the true ownership and origin of the funds,
- maintain control over the proceeds,
- convert cash into other assets as quickly as possible.

And to do so, they need to go three stages. Irrespectively of whether these three stages occur simultaneously, overlap, or occur as separate and distinct phases, the money laundering process stages are:

1. Placement. At this stage, the launderer needs to transform banknotes into non-cash assets. The launderer’s first step is to place this physical cash with some form of financial institution and/or to purchase some form of asset. They usually prefer to purchase luxurious items using the illegally-derived cash. Alternatively, it could be deposited in a bank or placed through a non-bank financial institution such as a currency exchange, casino – how convenient really! -, or cheque-cashing service.
2. Integration. Basically, the launderer tries to integrate illicit funds with legitimate business. The launderer covers his tracks by using banks and other low-risk businesses or institutions to integrate their assets. The type of financial institution will determine the nature of the laundering. Retail banks are most exposed when handling cash; investment banks are most exposed when dealing with businesses and high net worth individuals.
3. Layering. The objective of the layering stage is to disguise the origins of criminal funds. The launderer creates complex layers of financial transactions designed to hinder the audit trail, disguise the origins of the criminal funds, and provide anonymity. Examples of layering techniques are sales of illegally-derived luxury assets (usually at inflated prices), back-to-back loans involving illegally-derived funds, and bogus letter of credit transactions.

There are three areas where the money launderer is most vulnerable to detection:
- initial entry of cash into the financial system
- funds transfers within and from the financial system
- cash flows abroad.

*Shell Companies
A shell company is a non-trading company used as a vehicle for various corporate manoeuvres.