Money laundering is the most recurring crime in today’s fast-paced world. It is the process of disguising illicit monetary funds and converting them into assets that appear to be legitimate. The imposters manipulate the customer’s authentic bank accounts and real estate property documents to conceal the illegal source of funds. They launder illicit money through offshore accounts that are administered through criminal organizations. According to a 2017 published report, approximately 62 cases of money laundering attempts were observed in Hong Kong. Industries must prevent such illicit fund transfers by following several AML stages.

To understand how anti-money laundering (AML) stages prevent the imposter’s attempt at illicit fund transfers, we must examine the three money laundering stages through which imposters commit illegal financial fund transfers.

The 3 Stages of Money Laundering

The imposters disguise their illicit source of funds by transforming them into legitimate sources, eliminating the suspicions involved in tracking these funds. The imposters conceal the illicit funds by moving them across various accounts in three different steps.

Placement in Money Laundering

The placement stage deals with the transformation of illegal funds into legitimate financial systems. This is done when imposters classify the funds into smaller deposits with the aim of blending illicit funds with legal sources. They also place these funds into other locations by smuggling them to foreign countries.

Layering in Money Laundering

Money laundering layering is the process of making a series of complex financial transactions across multiple bank accounts. The imposters usually convert these funds into different currencies, creating inconsistencies for the authoritative bodies to track the funds’ original source. The money launderers manipulate the transaction invoices to make illicit funds appear legitimate and authentic.

Integration in Money Laundering

Money laundering integration is the last stage in which the imposters use illicit funds to make tangible investments. The aim of integration is to eliminate the suspicions of money laundering by investing these funds into business ventures, asset purchasing, and loan provision. In this way, the illicit money is reintroduced into the financial market as legitimate and authentic monetary funds.

Stages of AML – An Extensive Framework to Mitigate Money Laundering Crimes

The anti money laundering (AML) compliance introduces a framework that detects and eliminates the source of illicit funds and money laundering attempts. These stages are as follows:

Customer Due Diligence (CDD)

Customer due diligence is an effective solution to detect entities involved in illicit money laundering attacks. It is the process of checking the customer’s legitimacy before onboarding them and providing them access to financial services. CDD is an essential phase of AML screening because it requires companies to validate the customer’s identity by verifying their financial activities and transactional histories. The customers are screened across multiple watchlists, including exit control lists (ECL), politically exposed persons (PEP) lists, sanction lists, and criminal watchlists. The customers must not be included in these lists to prove their authenticity.

Risk-Based Approach

Anti-money laundering screening provides an extensive risk-based approach to tracking the risks involved during the customer onboarding stage. It enables companies to check the risk levels of various customers. If an entity possesses a highly risky profile, it must be screened for enhanced due diligence, designed to deal with such high-profile entities.

Ongoing Transaction Monitoring

Once the customers’ identities are verified, the companies must always ensure continuous transaction monitoring to track their financial activities. This process is implemented to ensure that customers are not making illicit and multiple financial transactions, eliminating the risk of money laundering attacks.

Suspicious Activity Report (SAR)

After the customer’s risk profiles and transactions are analyzed during the transaction monitoring and due diligence stage, the illicit activities are disclosed to the suspicious activity report (SAR) department. The SAR conducts an extensive analysis of such entities in accordance with high law enforcement authorities. It detects the customer’s involvement in risky activities, such as money laundering, human trafficking, and terrorist financing.

Regulatory Compliance and Audits

The AML stages involve all the processes that comply with the official government regulations. They ensure that all the money laundering preventive measures are updated and abide by the AML rules. The AML audits review the company’s and customer’s involvement in the business operations. The internal AML audits protect companies from financial penalties and non-compliance repercussions.

Summing It Up

Compliance with the AML stages is critical for the prevention of money laundering attempts. The imposters move the illicit through three different stages to make them appear legitimate and authentic. They place, layer, and integrate money through various accounts to conceal the original source of illicit funds. Money laundering threats can effectively be mitigated with the utilization and compliance of AML stages. These stages involve a proper risk assessment process for the customers. Their identities and risk profiles are authenticated through customer due diligence. AML screening requires companies to conduct extensive audits to track the customer’s activities.