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KYC AML Guide: the Clock shows the average reeding time of the blogAugust 2, 2023

Placement Stage in Money Laundering & Its Tactics

Placement is the first stage of the Money Laundering process. In this stage, Money enters the legitimate financial circle through different channels. This article explains the tactics that criminals use to place money so that it becomes undetectable by the regulators.

Misbah Tayib

Compliance Journalist

Placement Through Different Channels

Every country has its own economic circumstances. Money Launderers keep a close watch on the loopholes in the legal system to inject illegal funds. Following are a few ways of placing Money in the legal financial circle.

1 Smuggling The most common and easy way in less-regulated countries or non-regulated countries is smuggling. Physically, cash is moved through different hidden passages across borders. Once the money crosses borders, it is deposited in the destination country’s bank accounts under different identities.

  • In January this year, the Financial Action Task Force’s (FATF) report highlighted the risks associated with Migrant Smuggling in which the prime focus was on the crimes of Money Laundering and Terrorism Funding.
  • The report states that migrant smuggling generates above US $ 10 billion per year. It also explains the proceeds of migrant smuggling, the hawala system, and integration through different legitimate businesses.
  • The report stresses the need for a proactive approach in following the money laundering trails that link back to criminals through increased international collaboration.
2 Smurfing & Structuring The most crucial part of the Placement stage is breaking large amounts of cash into smaller and non-detectable chunks so that it can easily be placed in banks and other financial institutions. In this way, the complexity of transactions and irregularities in patterns makes it difficult to detect the Placement Stage of Money Laundering. Structuring and Smurfing make this process easier for drug cartels and other criminal organizations worldwide.
3 Money Mules The physical movement of money in the money laundering process is quite risky. That’s why criminals hire money mules to carry their burden of crimes in the form of illegal cash and transport it to different locations. Money Mules transport the illicit cash from state to state or even from country to country. They are paid for their services but in the majority of cases, Money Mule’s life is at stake. If he is caught by law enforcement and becomes an informant, the drug cartel may kill him for protecting its name.
4 High-End Purchases Criminals like to live a lavish lifestyle and it is unfortunate that most of the laundered money is used to purchase legal high-value assets like luxury cars, real estate, arts & jewelry, and much more. They also enjoy other luxury activities like clubbing, gambling, and going to high society places and it is all funded by their illegal money. Since luxury itself is legal, it gives a hideout to money launderers where they can convert illegal cash into legal luxury assets.
5 Cash-Oriented Businesses Criminals tend to invest their illicit money in cash businesses like stores, casinos, and restaurants. The illicit money backs up these businesses and is blended into the legal channels through paying salaries of employees marketing and other business activities.
6 Shell Companies Shell companies are a perfect hideout for criminals where they make the dirty money appear as revenue generated through a fictitious company. These companies either don’t exist except in the papers or have weak financial regulations and laws implemented on them. Mostly, shell companies are made in jurisdictions where Anti-Money Laundering (AML) laws are weak.

Cryptocurrencies as a Tool in the Placement Stage of Money Laundering

The chainalysis crypto crime report 2023 has compiled massive numbers that indicate a sharp rise in money laundering through cryptocurrencies. According to the report,

  • Nearly $ 23.8 billion worth of cryptocurrency was sent through illegal addresses which indicates a sharp increase of 68% as of 2021.
  • DeFi protocols witnessed the highest numbers of illicit funds than ever before in 2020.
  • OFAC sanctioned Blender.io for the first time for mixing funds and laundering cryptocurrency. It was stolen by a North Korean hacker group named Lazarus Group. OFAC sanctioned Tornado Cash for the same reasons in August same year.

Overall, the statistics presented in this report cover all the 3 stages of Money Laundering and related aspects.

BitCoin ATMs

Bitcoin is by far one of the most renowned cryptocurrencies in the world. Bitcoin offers an ATM service in which customers can deposit cash through ATMs and receive Bitcoins in return. In some cases, they can exchange other cryptocurrencies as well. Money Launderers often use BitCoin ATMs to deposit their dirty cash and receive BitCoins in return. Since it offers them a high level of anonymity due to being a crypto asset, it is difficult to trace back the real ownership of those crypto assets. Thus, it helps a lot in placement and other stages of money laundering.

Read the case on Bitcoin ATM Money Laundering by the Department of Justice

P2P Crypto Transactions

Another method of placement of money in money laundering is by changing the physical cash into cryptocurrency through P2P (Peer to Peer) transactions. People often hunt sellers through social media and other platforms and involve a trusted intermediary to facilitate the exchange of cryptocurrency with physical cash. People in need of immediate cash are mostly the prime targets who have crypto assets.

Also Read: Crypto Travel Rule | KYC AML Guide

Conclusion

Placement is a stage of money laundering where criminals try to inject their illicit money into the legal financial system. They have improvised and obtained different tools & adapted methods to outwit the AML compliance regulatory system. To prevent this risk, globally coordinated efforts of regulators, fintech firms, businesses, and individuals are required.

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Misbah Tayib

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Misbah Tayib is a compliance journalist and freelance writer with almost 6-year long experience of covering developments in blockchain sector, crypto industry, AML compliance, privacy regulations, and relevant political advancements.