Indicators of Money Laundering

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Indicators of Money Laundering

This can also be referred to as steps of Money Laundering. Hundreds of billions of ‘dirty’ monies are laundered through financial institutions every year, so it’s important that you are aware of the red flag indicators that accompany this illegal activity. ‘Dirty’ money is money that has been criminally-derived, such as from the profits of drug and gun sales. The process of money laundering converts these ‘dirty’ funds into ‘clean’ money using the following three steps:

Placement: This is the process of introducing ‘dirty’ money into the financial system. Night deposits, ATM deposits, exchanging money for cashier’s checks or larger bills, and smuggling cash out of the country, are all examples of placement. Placement is vital for money launderers as it helps to mask ‘dirty’ funds with ‘clean’ money and provide legitimacy to the funds.

Layering: This is the process of using several financial transactions to separate funds from an illegal source. Methods of layering include; moving funds between various onshore or offshore accounts and using complex financial transactions.

Integration: This is the process of reintroducing laundered money back into lawful trade, by providing explanations for the ‘dirty funds’ that appear to be legitimate. Banks and financial institutions are vital to the money laundering process. It can’t happen without passing the money through a financial institution in at least one of the three stages. Therefore, it’s important that those working in the financial sector know what to look out for. We have outlined the top ‘Red Flag’ indicators to help you identify when money laundering might be taking place.

Risk Factors

To determine the level of Customer Due Diligence (CDD) the following risk factors will have to be strictly updated.

  • To establish if the entity is incorporated

 

  • To establish an entities country of domicile
  • Being able to establish if there are any bearer shares
  • Being able to establish if it is private or public company

 

    • Being able to establish if the entity is regulated or subject to regulatory oversight.
    • Being able to establish if it is listed on the stock exchange market

 

  • Being able to establish the entities nature of business  
  • Being able to establish the entities source of income and source of wealth
  • Being able to establish the entities ownership structure 
  • Screening of the entity

 

 

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