What is Placement in Money Laundering

Last Updated on Nov 12 , 2024, 2k Views

Anti Money Laundering

Money laundering is all about hiding the source and nature of the illicit funds to make them appear as if they were obtained from some legitimate activities. The process of money laundering begins with the aim of disguising the original source of the criminal proceeds, and to do so, the illegal funds must be introduced first in the open economy. Placement is the first stage of money laundering where criminals use various methods like gambling, blending of funds, currency smuggling, etc., to introduce proceeds of crime into financial system.

What is Placement in Money Laundering?

A person who has received some ill-gotten gains will surely be on the lookout for measures to clean them in order to use them freely without any stipulations from regulators. So in order to use the funds, the criminal needs to disguise the source of proceeds to appear as the funds to be legitimate.

Money laundering involves a series of transactions to make its detection as difficult as possible. However, money laundering can broadly be classified into three stages.

1. Placement,

2. Layering, and

3. Integration.

The placement stage of money laundering involves the physical introduction of cash or other assets derived from criminal activity into the financial system. Criminals use various placement techniques like structuring, blending of funds, currency smuggling, etc., to commit money laundering.

Definition of Placement in Money Laundering

Placement is the first stage of money laundering, where dirty money is introduced into the financial system. It is the most vulnerable stage, and the chances of a criminal getting caught are the highest.

The goal of Placement in Money Laundering:

To hide the source of illicit money

To distance the money from its illegitimate source

To introduce dirty money into the financial system

The crimes like corruption, fraud, bribery, kidnapping, illegal arms trade, drug trafficking, smuggling, etc., are committed for money. Criminals obtain illegal proceeds, and then they try to find a way for their disposal without attracting the eyes of law enforcement.

Stages of Money Laundering

First: Placement Stage

The money launderer puts unlawful funds into circulation by depositing cash into the bank, executing any transactions to buy any luxury goods or using them in other legitimate businesses. This is the stage where the money launderer gets rid of illegal proceeds by placing them into the legitimate financial system.

The placement stage of money laundering is the most challenging for the launderer as the disposal of illegal proceeds by introducing them into the financial system causes suspicion.

Second: Layering Stage

Layering is the second stage of the three-step process. Under layering, the launderers make numerous transactions to distance the true owner and the source of illegal money, making it harder for the authorities to track. This can typically be as easy as using illegitimate funds to invest in something legitimate so that the funds now appear to be “clean”. Such funds are then transferred to purchase goods and services, making their detection nearly impossible.

Third: Integration Stage

Integration is the final stage of the money-laundering process. It is the stage where the disguised criminal proceeds are returned to and used by the money launderer, with a legitimate appearance given to the criminal proceeds.

When it comes to terrorist financing, integration is accomplished by distributing funds to terrorists and terrorist organizations.

Methods or Examples of placement in money laundering:

Smuggling illegitimate cash or liquid monetary instruments.

Blending unlawful proceeds with legitimate proceeds, such as illegitimate funds introduced into the

cash-intensive grocery business.

Repayment of debt using illegal proceeds.

Buying stored value cards with illegitimate money.

Depositing small amounts into several bank accounts to evade reporting threshold. It is also called smurfing, one of the most common money laundering techniques.

Buying foreign currency with illegitimate funds.

Cash purchase of a security or insurance.

Invoice fraud – over-invoicing or under-invoicing.

However, it is not always the case that criminals resort to the placement stage of money laundering. Criminals can use illegal proceeds for various purposes without resorting to money laundering. Black money can be used to pay salaries to partners in crime, bribery, etc.

The placement stage of money laundering is only relevant if the criminals have to introduce money to the legitimate financial system. If the black money is going to be utilized for other criminal activities, then the placement of funds will not occur.

What is Placement in Money Laundering