The three stages of money laundering are placement, layering, and integration (or extraction).
1. Placement
Placement is the initial stage where illicit funds are introduced into the legitimate financial system. This is often the most vulnerable stage for money launderers, as it involves physically disposing of the cash.
- Examples of Placement:
- Depositing cash into a bank account.
- Purchasing monetary instruments such as money orders or traveler's checks.
- Using cash to buy high-value assets like real estate or vehicles.
- Smuggling cash across borders.
2. Layering
Layering involves separating the illicit proceeds from their source through a series of complex financial transactions. The goal is to obscure the audit trail and make it difficult to trace the funds back to the original crime.
- Examples of Layering:
- Transferring funds between multiple accounts, often in different countries.
- Converting cash into other assets, like stocks or bonds, and then selling those assets.
- Using shell companies to disguise the ownership of funds.
- Creating false invoices or other documents to justify transactions.
- Wire transfers to offshore accounts.
3. Integration (or Extraction)
Integration is the final stage where the laundered money is reintroduced into the legitimate economy in a way that appears legal. At this point, it's difficult to distinguish the "clean" money from legitimate funds. Extraction is effectively the same as integration, referring to pulling the laundered funds out of the financial system in a usable and seemingly legitimate manner.
- Examples of Integration:
- Investing in real estate or businesses.
- Purchasing luxury goods.
- Using the funds to repay loans or other debts.
- Donating to charities or other non-profit organizations.
- Making legitimate-appearing business investments.
In summary, money laundering involves introducing dirty money (placement), obscuring its origins through complex transactions (layering), and finally making the money appear legitimate (integration).
