The United Nations Office on Drugs and Crime (UNODC) found that $800 billion to $2 trillion, which means that 2 to 5% of the world’s GDP is laundered every year. It is a global issue, which begins with collection of unlawful assets through criminal activities and led through banks and businesses. The extremely adverse effects of money laundering affect many institutions such as banks, businesses, and economies of the world. It is also a great issue for the developing countries and they are most vulnerable to it.
Money laundering is 90% made by the rich and the elites mostly of the developing countries because the elites have the power and resources to do it, on the other hand the countries are vulnerable to it too.
The people who do it are very clever and they are continuously looking for loopholes to exploit. They are so smart and have so much power and resources that they can even sneak into your business, which is why it is important for you to understand how they manage to do it. Their main targets are banks and financial institutions, however, other businesses are on their list too. One of the best ways to protect yourself from it is to implement Anti-Money Laundering screening.
Money laundering is the movement of illegal money through several transactions, conducted through financial frameworks. It is conducted in three phases to manipulate the authorities.
The 3 Steps of Money Laundering
There are a total of three stages, each with a purpose, the purpose to manipulate. Below are the three steps defined briefly.
- Placement
- Layering
- Integration
1. Placement
The first stage starts with placement of money. In this stage, the process starts with the physical placement of money in the financial institutions, such as banks, casinos, local or international shops or (currency exchange). It is conducted through investment in financial and non-financial assets.
In this stage, culprits enter the businesses’ system as a client, investor, or seller. Placement is directed through a few strategies, a couple are referenced below.
- Smuggling – Physically moving money or financial goods like bonds across the border
- An Accomplice Bank – This takes place when a banker deliberately accepts deposits from knowing that they are smugglers and criminals
- Currency Exchange – Where there is progression of the foreign currency exchange, there is space for laundering money
- Blending – This happens when criminals open companies and start mixing the illegal money with the legal one
- Asset Purchasing – This is the most common form of laundering. It is initiated by purchasing huge assets. Once the transaction is completed, tracking the source of income is merely impossible
2. Layering
The second stage is called, layering. It is made to manipulate the origin of money laundering with a several followed financial transactions and accounting tricks. It is conducted through multiple sales and purchases of assets both financial and non-financial.
Layering is conducted to hide the original source of the income of illegal funds. Businesses and financial institutes are utilized in every layer of money laundering. Below are some common strategies utilized for layering:
- Converting black to white: Banker’s drafts and money orders are usually utilized for this approach
- Buying and selling: In this approach, huge assets with illegal funds are bought then sold which makes it difficult to trace the laundered money
- Assets: Buying and selling real-estate assets, financial assets, and more.
3. Integration
This is the stage where the entire laundered amount is brought into the economy, mostly through the bank. However, it differs from layering because Banker’s drafts and money orders are usually utilized for this:
Property Dealing – Buying property from illegal funds is one of the most common forms of laundering money. It is mostly initiated through a shell company.
Shell Companies and Fake Loans – In this case, a miscreant makes a fake company and then give a loan to himself, the loaned amount is the laundered money
Foreign Banks as Accomplices – If a foreign bank accompanies in laundering money it would be difficult for law enforcement to investigate it and act since such financial institutions are protected by international laws.
How You Can Save Yourself
It is a typical conviction that financial institutes, particularly banks are utilized for money laundering. Criminals have tracked down loopholes in each industry to perform layers of tax crimes. Banks have a significant gamble since they are utilized in all phases of money laundering.
For that reason, banks and businesses are expected to perform AML services on their clients, and sellers also. Generally exploited organizations for tax avoidance include Banks, Land, and Online business.
Consistence measures, for example, AML are very useful in securing your business. Since in most of tax evasion cases, some type of banking administration is involved, AML screening is compulsory for banks and financial institutions. By coordinating third-party services, for example, Spicer Pegler, the banks can place in exceptionally successful AML screening. This shields your business from tax criminals as well as guarantees consistency too. SP is one of the best auditing firm in Sharjah and in fact across the UAE and even offering CFO Services, Corporate Tax Consultant, and more.
