3 Stages of Money Laundering: How it might infiltrate Your Business
Money launderers are a very clever lot. They are constantly looking for loopholes to exploit. They can sneak into your business as well, which is why it is essential that you understand how they operate. Banks and financial institutes are their primary target but other businesses are on their hit list too. One effective method in this regard is to implement AML screening.
It is the physical placement of money, for instance, in a bank, casino, local or international shop or bureau de change (currency exchange). Here are a few ways money launderers operate;
- Smuggling Currency – Physical movement of currency or financial instrument such as bonds across the border
- An Accomplice Bank – A banker that knowingly accepts deposits from smugglers and criminals
- Currency exchanges – Where there is liberalization of the foreign exchange market, there is room for laundering money
- Securities broker – The securities brokers who would put investment into different tranches to divide it to thwart any suspicions
- Blending funds – Criminals might open front companies to fool the authorities. Then, they start mixing the dirty money with the clean one. It’s akin to hiding cash within cash
- Asset Purchases – The most obvious form of laundering money is to purchase big assets. Once the transaction takes place, tracing back the source of income can be a challenge
The launderers try to hide the money under different layers. There are two major ways they do it;
- Converting dirty money into financial instruments. Banker’s drafts and money orders are readily used for this
- Buy and sell. In this case, the criminal buys a large asset with illegal money then sells it, locally or internationally. After this buy-sell cycle, tracing the asset back to the criminal’s source of income becomes difficult.
This is the phase where laundered money is brought into the economy, usually through the banking system. It is different from layering because here usually an informant tells the law enforcement agencies about it;
- Property Dealing – Buying property from illegal money is a common form of laundering money. Usually, this is done through a shell company.
- Shell Companies and Fake Loans – The culprits create a fake company and then give a loan to themselves. This loan amount is the laundered money
- Foreign Banks as Accomplices – If a foreign bank is an accomplice in laundering money it would be difficult for law enforcement to investigate and act since such banks are protected by international laws.
- Bogus invoices from import/export – Money launderers also use import and export as a way to enter black money into the system. They would exaggerate a bill to justify the payment by creating fake invoices or inflating the value of funds received from exports.
How to Keep Your Business Safe
Compliance measures such as Know Your Customer (KYC) and Anti Money Laundering (AML) are extremely helpful in keeping your business safe. Since in the majority of money laundering cases, some form of banking service is involved, AML screening and KYC compliance are mandatory for banks and financial institutes.
Compliance is not that difficult especially when you are using professional AML screening solutions. When a bank gets defamed for helping in laundering money it is not necessarily the entire bank that is responsible. It could be just an individual acting in their individual capacity.
By integrating third-party services such as Shufti Pro, the banks can put in highly effective AML screening and KYC checks. This not only protects your business from money launderers but ensures compliance as well.