What is Placement in Money Laundering?
Money Laundering is a global threat that is challenging the integrity of financial systems. The process involves three stages: Placement, layering, and integration. Out of these three stages, the placement stage is the most critical, as it involves placing illicit money into the legal financial system. In this article, we understand Placement in Money Laundering in detail with examples, and identify businesses prone to Placement of illegal funds under Australian regulations.
Additionally, the article highlights the best practices to counter Placement and how AML Australia can assist in detecting and preventing such activities effectively.
What is Placement in Money Laundering?
Money laundering is the process of disguising the proceeds of a crime and its origin to give it a mask of legitimately earned money. Placement is the process of moving funds derived from criminal activities into the financial system. It is the initial stage where money laundering is most vulnerable to its detection. The goal is to put dirty money into the legal financial system.
Placement is the physical disposal of cash or other assets derived from criminal activity. In other words, placing the “black money” into the financial system as white money.
Some common examples of Placement are:
- Depositing cash into the banks
- Buying expensive assets or even real estate to disguise the origin of funds, i.e. hiding that the money was derived by illegal means and introducing it as clean money.
Stages of Money Laundering
Money laundering is a series of complex transactions wherein money is moved in circulation by involving multiple entities and people, making it difficult to trace the origin with the intention of making it look “clean” or legal money. However, it can be described in three stages:
1. Placement: The first stage of money laundering is called Placement. At this stage, the illegal/ dirty money derived from criminal activity enters the legal financial system. The two main goals of this stage are
To free criminals from having proceeds of crime
To place the money into the regular financial system.
For example, they purchase value cards, buy foreign currency from illegal money, break large amounts of money into smaller amounts, and deposit it in banks.
2. Layering: This is the second stage of money laundering, where layers of complex transactions are created. The goal here is to move money multiple times, which makes it difficult to trace the origin of funds.
Oftentimes, at this stage, the money is moved internationally to create confusing trails. For example, money can be moved into different bank accounts in different countries through transactions involving different entities.
3. Integration: This is the final stage of money laundering. Till now, the illicit funds were placed into the legal economy and were layered through multiple transactions to hide it from its source. By integration, the criminal wants to get it back by making it appear legal or clean money. Some common examples of integration are the purchase of high-value assets, Jewellery, buying legal businesses, etc.
These three stages of laundering money can be overlapping (layering can start at the placement stage). However, each stage serves a different purpose to make illegal money appear legal.
Techniques of Placement in Money Laundering
- Using Casino Chips: Launderers may buy casino chips from their illicit cash funds and cash out the winnings, making them appear to be legitimate earnings.
- Structuring: Structuring is done to evade detection of a transaction and record-keeping requirements. Smurfing is a common structuring technique in which individuals are hired to deposit small amounts of cash in different banks to keep the transaction under the threshold and avoid reporting and recordkeeping.
- Mingling Funds: Criminals mingle dirty money with clean business money by creating various transactions, such as mixing business and personal expenses.
- Purchasing Assets in Less Regulated Industries: Launderers buy and sell assets in less regulated industries in certain jurisdictions. Investing in real estate, cryptocurrency, and precious metals.
- Fake Invoices: False invoices are created to show the movement of money, such as inflated sales receipts or the sale of goods that do not exist. This is done to create the illusion of having legitimate funds.
- Repaying a Loan: Dirty money can be used to repay loans taken from legitimate financial institutions.
Businesses Prone to the Placement of Illegally Obtained Money
Businesses that attract launderers to place illegally obtained money usually generate high cash inflows, which makes it easy to mingle black money in the economy.
Thus, reporting entities that provide designated services which are susceptible to ML/TF activities are required to undertake AML/CTF compliance under the Anti‑Money Laundering and Counter‑Terrorism Financing Act 2006. Such reporting entities include:
- Entities providing financial services
- Entities in the bullion dealing business
- Entities providing gambling services
- Entities providing professional services
- Entities dealing in precious metals, stones, and products
- Entities providing real estate services
- Entities providing professional services
Why It Is Easier for Businesses to Detect Money Laundering at Placement Stage
Out of all three stages of money laundering, the Placement stage is easier to detect. A criminal has illicit funds, and at this stage, the funds are introduced into the financial system for the very first time.
For example, large sums of dirty cash are deposited in small amounts in different banks. With scrutiny and transaction monitoring systems, these transactions are visible to financial institutions and authorities.
When the funds are still illicit, the money laundering red flags or links to criminal activities are easy to detect. This can be achieved with strict AML compliance programs, Transaction Monitoring tools to detect unusual patterns, and regulatory reporting mechanisms in place.
Best Practices to Counter Placement in Money Laundering
- KYC & CDD – Establish strong Know Your Customer (KYC) and Customer Due Diligence (CDD) procedures to identify and verify the customers before starting a business relationship and even on an ongoing basis before executing a fresh transaction.
- Transaction Monitoring – Using transaction monitoring tools to see unusual patterns, large cash transactions inconsistent with the nature of business, and alerts for identifying transactions that reach just below the threshold can help in investigating suspicious transactions.
- AML Training – Training the team members on the latest trends and case studies of money laundering and staying up to date on laws and news in the AML industry to make the right decisions in a timely manner.
- Adopting Advanced Technology – Use the latest and most secure technology to optimise compliance when handling large amounts of data, etc.
- Reporting and Information Sharing – Report suspicious activities and transactions to the FIU, collaborate and share information with other institutions and law enforcement agencies for better prevention of the Placement of illegal funds.
The First Stage of Money Laundering and How to Detect It
How can AML Australia Assist You in Detecting and Preventing Placement in Money Laundering?
AML Australia provides complete services to help businesses follow the rules for preventing money laundering across Australia. We work with businesses to help them understand and manage the risks of money laundering.
Our goal is to make sure your business is ready to spot, reduce, and handle these risks. We help businesses stay safe from financial crimes by making sure they follow all the necessary laws and regulations set by the regulatory authorities.
Frequently Asked Questions about Placement in Money Laundering
What is Placement in money laundering?
Placement is the first step in money laundering, where criminals try to introduce their illegal money into the financial system. It’s like taking “dirty money” and trying to make it look like “clean money.”
What is the difference between Placement and layering?
Placement is when criminals first get their illegal money into the financial system. This may include depositing cash or buying valuable assets. Whereas, at the Layering stage, criminals try to hide where the money came from by moving it around in complex transactions. They may transfer it between different accounts or countries to make it harder to trace.
What are some common methods used for Placement in money laundering?
Common methods include depositing small amounts of cash into banks (structuring), buying casino chips and cashing them out, mixing dirty money with legitimate business funds, and purchasing valuable items like real estate or jewellery. These methods help hide the original source of money.
About the Author
Jyoti Maheshwari
CAMS, ACA
Jyoti has over 7+ years of hands-on experience in regulatory compliance, policymaking, risk management, technology consultancy, and implementation. She holds vast experience with Anti-Money Laundering rules and regulations and helps companies deploy adequate mitigation measures and comply with legal requirements. Jyoti has been instrumental in optimizing business processes, documenting business requirements, preparing FRD, BRD, and SRS, and implementing IT solutions.
