How do you think criminals can conceal the origin of their criminal proceeds? In the words of an expert, layering in money laundering is what enables one to disguise the source of the ‘stinky’ buck.’
Application of layers is a practice utilized widely by criminals to ensure that it becomes very hard to infringe on the sources of the unlawfully acquired property.
They accomplish this by routing the money through several other individuals and transactions, establishing a paper trail that is very impenetrable to law enforcement.
This also enables them to accommodate their users who provide them with dirty money by enabling them to wash it and feed it back into the real economy.
Purpose of the Layering Stage
A money laundering process involves layering, which is one of its important Stages of Money Laundering. The purpose is to wash up the buck trail for the illicit funds.
Criminals engage in layering to ensure beyond a reasonable doubt where the money they want to clean originates from.
One of the most important techniques that they use to ensure that the funds cannot be traced back to them.
It is used to make lots of transactions and many other accounts and hide the source of the money drawing in a very confusing pattern. Experts believe that 2 – 5% of the world’s total gross domestic product is laundered annually.
Bonus: Be proactive in preventing layering money laundering techniques. Check out the best practices for AML compliance on our website.
Common Layering Techniques Employed:
In three layers of money laundering, criminals have various twists in carrying out their activities.
They could camouflage transfers of funds to ensure that it reflect like other normal business operations.
And if that will not suffice, they’ll employ endless layers of offshore companies and foreign bank accounts to conceal where the money is coming from.
Another such strategy is layering through multiple layers of transactions. In the year 2023, the global annual amount of money being laundered was pegged at nearly $1.5 trillion.
They try as much as possible to lay a web that will hide their tracks. Updating with these layering techniques is critical in AML compliance strategies.
Hiding Fund Transfers and Fund Owners
An effort to eliminate tracing of the illicit funds escaping agencies by disguising the transfer and ownership of funds.
Criminals may send money using so many different accounts, which makes it easy to monitor.
They also can give a false name or incorporate the money for someone else to make it appear that it does not belong to them.
Layering Through Complex Transactions
Another way that criminals manage to launder money is by engaging in a lot of dubious financial operations. They use different transaction patterns and sources of inventions to hide money.
This has the effect of laying a complex paper trail on top of another that obscures the source of the money completely.
This layering is also used by criminals to get rid of their tainted cash and then launder it into the white cash pool. The worldwide money laundering market is more than $1.6 trillion each year.
Special Use of Foreign Bank Accounts
Concealment of proceeds in foreign bank accounts is one of the most often used layering techniques.
Criminals can open accounts in countries with less restrictive laws so that banks can cover the source of funds even more effectively.
This technique makes it difficult to track back the real sources of funds. They may also use a number of foreign accounts to complicate the issue even more.
According to statistics from 2023, about 2 trillion US dollars are spent annually using similar means internationally.
Use Of Shell Companies And Trusts
Criminals also engage in overtaking the formation of shell companies and trusts so as to veil their ill-gotten wealth.
Such shell entities can be used to transfer money and anonymize its ownership while it is obtained from criminal activities. Lauders buy different types of companies without actual use to hide funds.
According to the US government, in 2023, more than $10 billion washes were being washed through shell companies.
Recognize Suspicious Layering Transactions
An important rule to consider to help identify patterns of layering AML is to stay attentive to the process.
Activities such as making huge transactions, shifting large sums of money in an account, and maintaining foreign accounts are potential indices of money laundering.
Senior experts have approximated the annual money laundering activities globally at 2-5 percent of the global GDP. It is important to identify these patterns to spot this kind of improper behavior.
Legal and Regulatory Initiatives for Identifying Layering
Governments, as well as financial regulators, are on the lookout for ways to prevent layering in money laundering.
These financial crimes and frauds attempt to use sophisticated analytical means, as well as information exchanges and cooperative efforts.
It is critical to be current with the newest layering tendencies within the AML area to achieve reasonable compliance levels.
According to a report by Compliant, the global enforcement of AML in 2023 attracted fines and penalties of more than $10 billion.
Consult our experts on the website and learn how to strengthen your financial institution’s defenses against layering.