Lesson Four – Definitions and Stages of Money Laundering

Now that you know what you must do if you detect fraudulent activity, let’s talk about the stages and definition of money laundering.

Money Laundering Definition

Money laundering is the process of conducting financial transactions and/or taking the proceeds from an illegal activity and:

  • Making them appear to be from a legal source, or
  • Hiding them or placing them beyond the reach of the government, or
  • Transferring the proceeds to a country with deficient anti-money laundering regimes and later returning those funds to their original source, often through a series of transactions.

This means someone is trying to…

  • Disguise the source
  • Change the form
  • Move the funds to a place where they are less likely to attract attention

Money Laundering Stages Defined

Money laundering is the participation in any transaction that seeks to conceal or disguise the nature or origin of funds derived from illegal activities such as fraud, corruption, organized crime or terrorism, etc. Generally speaking, the money laundering process consists of three stages:

Stage 1

Placement: The introduction of illegally obtained monies or other valuables into financial or non-financial institutions.

Stage 2

Layering: Separating the proceeds of criminal activity from their source using layers of complex financial transactions. These layers are designed to hamper the audit trail, disguise the origin of funds and provide anonymity.

Stage 3

Integration: Placing the laundered proceeds back into the economy in such a way that they re-enter the financial system as apparently legitimate funds.

These stages are not static and overlap broadly. Financial institutions may be misused at any point in the money-laundering process.