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Money Laundering in the Digital Age. The Bottom Line. Article Sources. Investopedia requires writers to use primary sources to support their work.
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Compare Accounts. The offers that appear in this table are from partnerships from which Investopedia receives compensation. The United Nations Office on Drugs and Crime UNODC conducted a study to determine the magnitude of illicit funds generated by drug trafficking and organised crimes and to investigate to what extent these funds are laundered. The report estimates that in , criminal proceeds amounted to 3. Using statistics, these percentages would indicate that money laundering ranged between USD billion and USD 1.
At the time, the lower figure was roughly equivalent to the value of the total output of an economy the size of Spain. However, the above estimates should be treated with caution. They are intended to give an estimate of the magnitude of money laundering. Due to the illegal nature of the transactions, precise statistics are not available and it is therefore impossible to produce a definitive estimate of the amount of money that is globally laundered every year.
The FATF therefore does not publish any figures in this regard. In the initial - or placement - stage of money laundering, the launderer introduces his illegal profits into the financial system. This might be done by breaking up large amounts of cash into less conspicuous smaller sums that are then deposited directly into a bank account, or by purchasing a series of monetary instruments cheques, money orders, etc.
After the funds have entered the financial system, the second — or layering — stage takes place. In this phase, the launderer engages in a series of conversions or movements of the funds to distance them from their source. The funds might be channelled through the purchase and sales of investment instruments, or the launderer might simply wire the funds through a series of accounts at various banks across the globe. This use of widely scattered accounts for laundering is especially prevalent in those jurisdictions that do not co-operate in anti-money laundering investigations.
In some instances, the launderer might disguise the transfers as payments for goods or services, thus giving them a legitimate appearance. Having successfully processed his criminal profits through the first two phases the launderer then moves them to the third stage — integration — in which the funds re-enter the legitimate economy.
The launderer might choose to invest the funds into real estate, luxury assets, or business ventures. As money laundering is a consequence of almost all profit generating crime, it can occur practically anywhere in the world.
Generally, money launderers tend to seek out countries or sectors in which there is a low risk of detection due to weak or ineffective anti-money laundering programmes. Because the objective of money laundering is to get the illegal funds back to the individual who generated them, launderers usually prefer to move funds through stable financial systems.
Money laundering activity may also be concentrated geographically according to the stage the laundered funds have reached. At the placement stage, for example, the funds are usually processed relatively close to the under-lying activity; often, but not in every case, in the country where the funds originate.
The money laundering process most commonly occurs in three key stages: placement, layering and integration. Each individual money laundering stage can be extremely complex due to the criminal activity involved. After getting hold of illegally acquired funds through theft, bribery and corruption, financial criminals move the cash from its source. This is a complex web of transactions to move money into the financial system, usually via offshore techniques.
Once the funds have been placed into the financial system, the criminals make it difficult for authorities to detect laundering activity. They do this by obscuring the audit trail through the strategic layering of financial transactions and fraudulent bookkeeping.
Layering is a significantly intricate element of the money laundering process. Its purpose is to create multiple financial transactions to conceal the original source and ownership of the illegal funds. Integration is done very carefully from legitimate sources to create a plausible explanation for where the money has come from.
This money is then reunited with the criminal with what appears to be a legitimate source. At this stage, it is very difficult to distinguish between legal and illegal wealth. The launderer can use the money without getting caught.
It is extremely challenging to catch the criminal if there is no documentation to use as evidence from the previous stages. It is important to note that, in reality, there is often an overlap in these three stages of money laundering. The money laundering process is extremely complex and can involve multiple individuals involved in organised crime. The six most common examples of crime associated to the placement stage in the laundering money process are:.
This process is whereby businesses blend illegal funds with legitimate takings. This is typically done through cash businesses such as tanning salons, car washes, casinos, and strip clubs, as they have little or no variable costs.
Invoice fraud is the most common technique used for transferring dirty money. The illegal funds are often deposited into one or multiple bank accounts by either multiple people known as smurfs or by a single person over a long period. Laundered money is often hidden through offshore accounts as this process easily hides the identity of the real beneficial owners and is a way to evade paying tax to HMRC.
Offshore accounts are bank accounts opened in a country outside of where an individual resides. Money can be laundered by carrying small sums of cash abroad below the customs declaration threshold. Then this cash is paid into foreign bank accounts before sending it back home.
The money is transferred to a lawyer or accountant to hold until a proposed transaction is completed. The transaction is then cancelled, and the funds are repaid to the criminal from an unassailable source.
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