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There are three stages involved in money laundering; placement, layering and integration.

Placement This is the movement of cash from its source. On occasion the source can be easily
disguised or misrepresented. This is followed by placing it into circulation through financial
institutions, casinos, shops, bureau de change and other businesses, both local and abroad. The
process of placement can be carried out through many processes including:
1. Currency Smuggling This is the physical illegal movement of currency and
monetary instruments out of a country. The various methods of transport do
not leave a discernible audit trail FATF 1996-1997 Report on Money
Laundering Typologies.
2. Bank Complicity This is when a financial institution, such as banks, is owned
or controlled by unscrupulous individuals suspected of conniving with drug
dealers and other organised crime groups. This makes the process easy for
launderers. The complete liberalisation of the financial sector without
adequate checks also provides leeway for laundering.
3. Currency Exchanges In a number of transitional economies the liberalisation
of foreign exchange markets provides room for currency movements and as
such laundering schemes can benefit from such policies.
4. Securities Brokers Brokers can facilitate the process of money laundering
through structuring large deposits of cash in a way that disguises the original
source of the funds.
5. Blending of Funds The best place to hide cash is with a lot of other cash.
Therefore, financial institutions may be vehicles for laundering. The
alternative is to use the money from illicit activities to set up front
companies. This enables the funds from illicit activities to be obscured in
legal transactions.
6. Asset Purchase The purchase of assets with cash is a classic money
laundering method. The major purpose is to change the form of the proceeds
from conspicuous bulk cash to some equally valuable but less conspicuous
form.

Layering The purpose of this stage is to make it more difficult to detect and uncover a
laundering activity. It is meant to make the trailing of illegal proceeds difficult for the law
enforcement agencies. The known methods are:
1. Cash converted into Monetary Instruments Once the placement is
successful within the financial system by way of a bank or financial
institution, the proceeds can then be converted into monetary instruments.
This involves the use of bankers drafts and money orders.

2. Material assets bought with cash then sold Assets that are bought through
illicit funds can be resold locally or abroad and in such a case the assets
become more difficult to trace and thus seize.

Integration This is the movement of previously laundered money into the economy mainly
through the banking system and thus such monies appear to be normal business earnings. This is
dissimilar to layering, for in the integration process detection and identification of laundered
funds is provided through informants. The known methods used are:
1. Property Dealing The sale of property to integrate laundered money back
into the economy is a common practice amongst criminals. For instance,
many criminal groups use shell companies to buy property; hence proceeds
from the sale would be considered legitimate.
2. Front Companies and False Loans Front companies that are incorporated in
countries with corporate secrecy laws, in which criminals lend themselves
their own laundered proceeds in an apparently legitimate transaction.
3. Foreign Bank Complicity Money laundering using known foreign banks
represents a higher order of sophistication and presents a very difficult target
for law enforcement. The willing assistance of the foreign banks is frequently
protected against law enforcement scrutiny. This is not only through
criminals, but also by banking laws and regulations of other sovereign
countries.
4. False Import/Export Invoices The use of false invoices by import/export
companies has proven to be a very effective way of integrating illicit
proceeds back into the economy. This involves the overvaluation of entry
documents to justify the funds later deposited in domestic banks and/or the
value of funds received from exports.
Smurfs - A popular method used to launder cash in the placement stage. This technique involves the use of many
individuals (the"smurfs") who exchange illicit funds (in smaller, less conspicuous amounts) for highly liquid items such
as traveller cheques, bank drafts, or deposited directly into savings accounts. These instruments are then given to the
launderer who then begins the layering stage.
For example, ten smurfs could "place" $1 million into financial institutions using this technique in less than two weeks.
The money laundering cycle can be broken down into three distinct stages; however, it is important to remember
that money laundering is a single process. The stages of money laundering include the:

Placement Stage

Layering Stage

Integration Stage
The Placement Stage
The placement stage represents the initial entry of the "dirty" cash or proceeds of crime into the financial system.
Generally, this stage serves two purposes: (a) it relieves the criminal of holding and guarding large amounts of bulky
of cash; and (b) it places the money into the legitimate financial system. It is during the placement stage that money
launderers are the most vulnerable to being caught. This is due to the fact that placing large amounts of money
(cash) into the legitimate financial system may raise suspicions of officials.
The placement of the proceeds of crime can be done in a number of ways. For example, cash could be packed into a
suitcase and smuggled to a country, or the launderer could use smurfs to defeat reporting threshold laws and avoid
suspicion. Some other common methods include:

Loan Repayment Repayment of loans or credit cards with illegal proceeds


Gambling

Purchase of gambling chips or placing bets on sporting events

Currency

The physical movement of illegal currency or monetary

Smuggling

instruments over the border

Currency

Purchasing foreign money with illegal funds through foreign

Exchanges

currency exchanges

Blending Funds

Using a legitimate cash focused business to co-mingle dirty funds


with the day's legitimate sales receipts

This environment has resulted in a situation where officials in these jurisdictions are either unwilling due to
regulations, or refuse to cooperate in requests for assistance during international money laundering investigations.
To combat this and other international impediments to effective money laundering investigations, many like-minded
countries have met to develop, coordinate, and share model legislation, multilateral agreements, trends &
intelligence, and other information. For example, such international watchdogs as the Financial Action Task Force
(FATF) evolved out of these discussions.
The Layering Stage

After placement comes the layering stage (sometimes referred to as structuring). The layering stage is the most
complex and often entails the international movement of the funds. The primary purpose of this stage is to separate
the illicit money from its source. This is done by the sophisticated layering of financial transactions that obscure the
audit trail and sever the link with the original crime.
During this stage, for example, the money launderers may begin by moving funds electronically from one country to
another, then divide them into investments placed in advanced financial options or overseas markets; constantly
moving them to elude detection; each time, exploiting loopholes or discrepancies in legislation and taking advantage
of delays in judicial or police cooperation.
The Integration Stage
The final stage of the money laundering process is termed the integration stage. It is at the integration stage where
the money is returned to the criminal from what seem to be legitimate sources. Having been placed initially as cash
and layered through a number of financial transactions, the criminal proceeds are now fully integrated into the
financial system and can be used for any purpose.
There are many different ways in which the laundered money can be integrated back with the criminal; however, the
major objective at this stage is to reunite the money with the criminal in a manner that does not draw attention and
appears to result from a legitimate source. For example, the purchases of property, art work, jewellery, or high-end
automobiles are common ways for the launderer to enjoy their illegal profits without necessarily drawing attention to
themselves.

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