Understanding the 3 Stages of Money Laundering: Placement, Layering, and Integration
Money laundering typically unfolds in three structured steps—placement, layering, and integration. Learn how each stage works and what it means for compliance professionals, regulators, and financial institutions.
The Steps of Money Laundering
The goal of money laundering is to obscure the origin of criminally obtained funds so they can be used without attracting suspicion. While techniques vary, most laundering schemes follow a predictable path. Let’s break down each stage.
1. Placement
What it is
Placement is the first stage, where illicit funds are introduced into the financial system. The primary goal is to move the money away from its criminal origin.
Common methods
- Structuring (Smurfing): Breaking down large sums into smaller transactions to avoid detection.
- Bank Deposits: Placing cash into financial institutions in small amounts.
- Asset Purchases: Buying high-value items like vehicles, artwork, real estate, or jewelry.
- Money Services Businesses (MSBs): Using remittance providers or MSBs to move funds.
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2. Layering
What it is
Layering involves obscuring the money trail by moving funds through a series of complex financial transactions. This makes tracing the origin of the funds extremely difficult.
Common methods
- Wire transfers to offshore accounts
- Trading in cryptocurrencies or securities
- Using shell companies or legal trusts
- Moving funds across different jurisdictions or financial instruments
This stage is often the most technologically sophisticated and aims to confuse investigators and evade AML systems.
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3. Integration
What it is
Integration is the final stage, where laundered funds re-enter the economy as seemingly legitimate income or assets.
Common methods
- Investing in businesses
- Loaning money to oneself via shell companies
- Purchasing real estate
- Buying luxury assets
Once funds are integrated, they can be spent freely. At this point, the laundering cycle is complete.
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Why Compliance Professionals Should Care
AML professionals, CAMLOs, and regulators need to understand these stages to:
- Detect red flags early and intervene before further damage is done
- Implement robust KYC, transaction monitoring, and internal controls
- Maintain compliance with regulatory bodies like FINTRAC and FATF
- Avoid reputational damage and costly regulatory penalties
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How AML Incubator Can Help
At AML Incubator, we support financial institutions, FinTech startups, and VASPs in their fight against financial crime. Whether you're launching a new product, undergoing an audit, or scaling your compliance infrastructure, we offer expert services tailored to global AML/CFT requirements.
Services include:
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- 5 Components of an Effective Compliance Program in Canada
- Why Companies Outsource Compliance
Conclusion
Placement, layering, and integration represent more than just steps in the money laundering process—they are points of vulnerability in the financial system. By understanding how these stages work, compliance professionals can identify red flags, act early, and design better safeguards.
