The Money Laundering Cycle

The Money Laundering Cycle

A simplified explanation of money laundering is depicted by the three-stage money laundering cycle. The three stages of the money laundering cycle are placement, layering and integration. However, it is important to note that the three stages of the money laundering cycle may occur separately, simultaneously any may even overlap.  It is also important to note that money laundering does not always take place in accordance with steps depicted in the three stage cycle.

Placement

Placement is considered the first stage of the money laundering cycle. During the placement phase, illicitly obtained funds are placed into the financial system through several methods. Such methods include using front companies, co-mingling illicit proceeds with funds from legal sources, purchasing foreign exchange, currency smuggling, structuring deposits to avoid declaring the source of the funds and repaying loans with cash.

Layering

This phase involves converting the illicit proceeds into another form in order to camouflage their origin or ownership and evade detection. This may be accomplished through layers of complex transactions such as using shell companies to obscure the ultimate beneficial owner, purchasing stocks and life insurance products and investing in real estate and other legitimate business. Layering may also include electronically moving funds from one jurisdiction to another, moving funds from one financial institution to another or from one account at the same financial institution to another.

Integration

The third and final stage of money laundering involves re-introducing the illicit funds into the economy in a manner that makes them appear to have originated from a legitimate source, thus allowing them to be used in seemingly legitimate transactions.