Ever wonder what tactics criminals use to place dirty money into the financial system in the first place?
Criminals constantly try to avoid regulatory efforts by finding loopholes in businesses’ compliance systems to easily infuse their illegally obtained money into the legal financial system.
However, we have seen that organizations have already incorporated advanced monitoring and detection systems. How can one easily do this? Is this a system failure or a criminal’s cleverness?
It is actually both. The system often leaves some loopholes, which criminals try to exploit for their benefit.
This writing will highlight the different tactics criminals use at the first stage of money laundering to infuse money into the system and why, despite spending millions of dollars annually, financial institutions are still not capable of combating money laundering activities.
Does placement mean the money has been laundered?
Practically, successfully placing money in the financial system does not mean that the money has been laundered. Instead, it is considered the first step towards laundering.
At this stage, the illicit funds are introduced into the system to hide the origin of the money.
However, if the money passes the other two stages of money laundering, such as layering and integration, then it will be laundered successfully.
Methods Criminals Use in the Placement Stage of Money Laundering
Though criminals employ various unique methods to introduce their illicit funds into the financial system during the placement stage of money laundering, we will discuss some of them here.
1. Structuring, also known as Smurfing
This is the most common technique criminals use at the placement stage. How does this technique work?
As criminals are well aware of the reporting threshold, they Break down large amounts of cash into smaller amounts that become less suspicious, and then they deposit them into multiple bank accounts.
For example, most regulatory bodies have defined the $10,000 amount as the reporting threshold, so what do criminals do? They Deposit $9,000 into multiple accounts to stay below the $10,000 reporting threshold and avoid detection.
2. Cash-Intensive Businesses
Another best practice used by the launderers is to indulge a business in these activities that handle a huge volume of cash transactions on a daily basis. Criminals give them some benefits and mix their illicit funds with their legal money, which becomes undetectable for financial institutions.
Restaurants, bars, casinos, gaming, and gambling businesses are often used for such purposes.
3. Bank Deposits
The banking channel is where laundering becomes difficult, but criminals still find some ways to do it. How do they get successful? Actually, they deposit the amount using multiple accounts on behalf of their servants, RCA, and friends.
They break down large amounts and deposit them into multiple accounts using multiple banks. This process makes the detection process more complicated and difficult for the organizations.
4. Using Shell Companies
For Financial institutions, any transaction with a shell company is always seen as an act of crime, but they still have to find reasons to prove the activity of money laundering.
They create shell companies that exist only on paper to process and launder money. So, they Set up a fake company that invoices for non-existent goods or services.
5. By Taking Insurance Policies
Have criminals left any field that is not being used for money laundering? No, it seems funny. But this is the reality.
And how do they use insurance companies? First, they use their illicit funds to purchase insurance policies, overpay premiums, request refunds after some time, or surrender policies early for cash value.
These transactions integrate dirty money into the financial system, helping them to exploit the legitimacy of insurance companies.
Ethical and Social Implications of Placement
This is the bigger picture everyone should discuss, and that is the effects that go beyond just laundering illicit funds. It has been observed that criminal activities related to money laundering undermine social trust and global economic stability.
So, to retain customer trust and stabilize the economy, Businesses need to implement AML measures that are crucial not only for maintaining the integrity of the financial system but also for upholding ethical standards and protecting society from the adverse effects of financial crimes.
What’s the best way forward for business?
Generally speaking, businesses need to strengthen their internal compliance systems, which must be aligned with the AML measures defined by regulatory bodies worldwide.
After having a strong compliance strategy, AML to0l must be incorporated into businesses’ existing AML efforts to fight money laundering and other financial crimes.
Which AML software is best for screening and monitoring suspicious transactions in financial institutions?
Well, you might find hundreds of software online, but AML Watcher Software is the best in town. They provide you with peace of mind with their Automatic, AI, and ML-powered features that automatically detect suspicious transactions in real-time with zero false positive rates.
It will also reduce your compliance cost by almost half. Don’t you want to give it a try? You must.