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Understanding the Stages - Placement, Layering and Integration

Laundering here essentially means washing or cleaning of dirty or illegal money and making it clean or legal money. Money laundering in general has three stages - Placement, Layering and Integration.

Source: United Nations

Placement - The first stage of the laundering or the washing cycle is the placement of the illegal money into the formal financial system. In this stage mainly the illegal cash obtained from various types of criminal activities like theft, bribery or any kind of fraud or similar activities is deposited in bank accounts. 

To avoid the scrutiny of banks, a process called smurfing may be used. It means breaking down large cash transactions into smaller, regular amounts. 

The various ways that can be used for placement may be - Bank deposits, expensive purchases of jewellery or art etc, creating fake or inflated invoices etc.

Layering - In the next step, various methods are used to introduce as many layers as possible to make it difficult to establish the connection between the money and its previous illegal source. 

The main difference between layering and placement is that placement only involves introducing the funds into the financial system. On the other hand, layering involves concealing the source of these funds with various financial transactions. 

After introducing the money in the financial system in the placement stage, the layering stage is used to perform multiple transactions which are sometimes complex to confuse the officials. 

Some of the methods may be - splitting and transferring the money in different bank accounts in different countries, making various types of investments or using shell companies. Shell companies are fake businesses which exist only on papers and are used to create fake trades to move the money.

Integration - After the previous two stages, the illegal money has now become indistinguishable from legal money. During the integration phase of money laundering, the launderer now legally transfers the illicit funds back to himself to be spent. He can now use the money as usual and appear to earn it legally.

One thing to note is, not all money laundering transactions go through all the three stages. Actually, the three stages may occur separately, or it may be such that the money is ‘washed’ in such a way that the stages occur simultaneously or may be overlapping.

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