Layering is the second phase of money laundering. At this level, the criminals use the money in several transactions in a bid to separate it from the unlawful source.
Through this, they ensure that the movements of the funds form layers in order to make it difficult for the authorities to follow them. Taking the UN’s data, it becomes clear that the scale under consideration is huge.
Between $800 billion and $2 trillion worth of illicit proceeds are laundered each year globally. This amount might still translate into between two and five percent of the global GDP.
These numbers of currency transactions indicate how important it is to recognize how money laundering works through the layering process. It will help to detect crimes and prevent institutions from penalties.
How Criminal Use Layering Process for Money Laundering Works
Criminals use a variety of tactics to make sure the money they get is far from where it came from.
By the FATF, layering moves funds through various and successive financial institutions through the borders to make the chances of identification remote.
Some common methods of the layering in money laundering include:
- Offshore accounts: The connection of several accounts between banks or bank branches, between countries, and within one country. In 2022, more than 500 billion US dollars were transferred between offshore accounts for illegal operations.
- Shell companies: Concealment of the ownership of funds through the formation of shell companies. They are fictitious business entities that are used for the purposes of moving cash without revealing the real owner at large.
- Expensive goods: Buying costly goods such as automobiles, luxuries, paintings, and high-end properties. According to the FATF, about $100 billion of illicit funds flow through real estate every year.
- Cryptocurrency: purchases made through the conversion of cash into digital currency or wire transfers. The use of cryptocurrency in money laundering operations was linked to over $10 billion in 2023, making it considerably harder to find the money.
Bonus: Reduce the risks of your company’s unlawful operation. Find out more about AML tiers of services and how they assist you in fighting the layering process in money laundering.
Why is the Layering Stage in Money Laundering Hard to Detect?
It is difficult to detect the second phase of money laundering easily as it involves many transaction layers. It is the most mysterious method for a criminal to hide their assets earned from illegal sources.
Criminals also use the advancements in technology and various legal structures of international banking firms to move money without easily detecting it.
With such strategies as cryptocurrency, online transactions, and digital wallets, money laundering becomes more easily hidden in new layers to illicit funds.
According to the analysis report, 23 billion, which is equivalent to 20% of El Salvador’s GDP, is held by its citizens in cryptocurrencies.
Cryptocurrency-associated crimes, where 8 billion US dollars worth of cryptocurrency transactions in 2022 were linked to criminal activity.
This puts law enforcement agencies and financial institutions in a quandary in efforts to monitor these unlawful businesses.
The frequency of such operations and the amount of money that can be transferred between accounts in a short time drowns the proceeds of crime in white money.
Understand the Warning Signs of Layering
During the layering stage, multiple signs might be hard to spot. The following are some typical indicators of money laundering layering:
- A series of multiple transfers that have been made within a relatively short period and involving large volumes of money. For instance, if $1000 is transferred in ten accounts within one day, then it could be an indication of layering in money laundering.
- The transfer of funds into and out of countries with some risk has also been abnormal. Such nations have low financial legislation standards or high corruption rates, which is why they are suitable for money laundering.
- Large, rounded-off transactions occur enough concerning such sums as $50,000 or $100,000, which could be a laundering.
- Low-time utility, situations when money is deposited and withdrawn frequently with little or no definite business need.
How Anti-Money Laundering (AML) Systems Detect Layering?
Banks incorporate AML systems that check for activities that are believed to be in the layering process of money laundering. Such systems depend on several key tools.
One important tool used by banks and other financial organizations to verify a client’s identification before granting account privileges is Know Your Customer (KYC). It helps to identify high-risk individuals early on.
Transaction monitoring is an additional tool that tracks real time consumer behavior. It was designed to identify unusual activities such as activity rush, frequent transfers, and many transactions.
Also, every financial institution must fill in some Suspicious Activity Reports (SARs) each time the institution notices possible money laundering schemes.