ANTI – MONEY LAUNDERING AND COMBATING THE FINANCING OF TERRORISM (AML/CFT)

PART 2:

INTRODUCTION

image008Placement (placement, moving the funds from direct association with the crime) is the first stage in money laundering where the cash proceeds of criminal activity enter into the financial system.

This is most critical stage for any money launderer as the criminal can effectively mask his ‘dirty’ funds by commingling ( The term commingling is most often applied to funds or assets. Where funds are mixed or blended) his ‘clean’ funds and create an aura of legitimacy.

Examples of Placement include:

  • Depositing into bank accounts via tellers, ATMs, or night deposits
  • Changing currency to cashier’s checks, bankers drafts or other negotiable instruments
  • Exchanging small notes/bills for large notes/bills
  • Smuggling or shipping cash outside the county

Layering (layering, disguising the trail to foil pursuit) is the second stage in money laundering where attempts are made to distance the money from its illegal source through layers of financial transactions.

Examples of Layering include:

  • Sending funds to different onshore and offshore bank accounts
  • Creating complex financial transactions
  • Loans and borrowing against financial and non-financial assets
  • Letters of credit, Bank Guarantees, Financial instruments, etc.
  • Investments and investment schemes
  • Insurance products

Integration (integration, making the money available to the criminal, once again, with its occupational and geographic origins hidden from view.) is the third stage of money laundering. This stage involves the re-introduction of the illegal proceeds into legitimate commerce by providing a legitimate-appearing explanation for the funds.

Examples of Integration include:

  • Buying businesses
  • Investing in luxury goods
  • Buying commercial property
  • Buying residential property

As you can see in the figure below, banking institutions are required by money launderers to conceal their illegal funds and that is why it is important that Know-Your-Customer (KYC) checks are done on customers. In certain cases there may be a need for Enhanced Due Diligence (EDD) on clients. KYCB (Know Your Customers’ Business)

In a future series I will go over Bank Risk Areas, Suspicious Signs to look for in Banks and High Risk Countries as ways to lower the risk of money launderers targeting our bank and the industry at large.

 

From the desk of the Chief Risk Officer (FORTIS MFB)

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