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The 3 Stages of Anti-Money Laundering

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The GoCardless content team comprises a group of subject-matter experts in multiple fields from across GoCardless. The authors and reviewers work in the sales, marketing, legal, and finance departments. All have in-depth knowledge and experience in various aspects of payment scheme technology and the operating rules applicable to each. The team holds expertise in the well-established payment schemes such as UK Direct Debit, the European SEPA scheme, and the US ACH scheme, as well as in schemes operating in Scandinavia, Australia, and New Zealand. See full bio

Last editedSep 20212 min read

There are three stages of money laundering along with corresponding anti-money laundering tactics to combat this crime every step of the way. Keep reading to learn how to recognise money laundering as it happens, as well as the anti-money laundering regulations in place to fight it.

What is money laundering?

The term money laundering refers to the process of taking criminal proceeds and turning it into legitimate cash or assets. For example, stolen funds might be used to purchase real estate. The property is sold and the legitimate proceeds put in a bank account. The money must go through three stages to reach this point, with anti-money laundering checks put in place to prevent it every step of the way.

The three stages of money laundering

Before you can put these anti-money laundering checks in place, it’s first helpful to understand the three stages involved.

1. Placement

Money laundering begins by moving the criminal proceeds into a legitimate source of income. It might be moved into financial instruments or bank accounts. At this stage, anti-money laundering procedures would focus on sniffing out illegitimate sources of funds. Criminals are vulnerable during the first stage because they’re moving a large bulk of money and placing it directly into the financial system. Here are a few typical tactics used during the placement stage:

Creating false invoices
Putting money into cash-based businesses
Opening foreign bank accounts
Creating offshore companies
Moving small amounts of money at a time

2. Layering

Once the money has been put in place, the second stage is called layering or structuring. This involves breaking down large bulk funds into a series of smaller transactions. The idea is that these smaller transactions fall under the threshold of anti-money laundering regulations and won’t set off any alarms. Layering often takes place across borders to make it more difficult for UK-based anti-money laundering officials to detect foul play. Tactics might include:

Trading in international markets
Purchasing foreign money orders
Trading in foreign currencies
Purchasing and selling luxury assets

3. Integration

At the final stage of money laundering, the funds are integrated back into the criminal’s legitimate financial accounts. As with earlier stages, this typically involves a series of smaller transactions. For example, the funds might have been used to purchase a luxury asset such as jewellery or property. The luxury asset can be sold, and this creates a trail of legitimately sourced funds. They might also use tactics like:

Putting fake employees on the payroll
Paying out loans to directors of a shell company
Paying dividends to shareholders of criminal-controlled companies

UK anti-money laundering regulations

Putting a stop to money laundering means looking for red flags at each of these three stages. Anti-money laundering policy is implemented by two main authorities within the UK, including the Financial Conduct Authority (FCA) and Her Majesty’s Revenue and Customs (HMRC). It’s important for businesses to be aware of the anti-money laundering acts to ensure compliance with all regulations. Current anti-money laundering acts include:

2002 Proceeds of Crime Act: Requires banks to put anti-money laundering checks in place including transaction monitoring and detailed financial reporting
2017 Money Laundering Regulations: Requires all companies to submit written risk assessments
2019 Money Laundering Regulations: Extends the scope of anti-money laundering regulations including a more detailed requirement for customer due diligence

Protect your business with anti-money laundering checks

In addition to boosting your awareness of anti-money laundering policy, how can your business help to fight money laundering at each of the three stages?

To begin with, you can use artificial intelligence and data-driven technology to sweep your transactions and monitor any unusual activity. Data analytics helps businesses and financial institutions track patterns to note anomalies. It’s worth training all personnel to ensure your workforce is on the same page when it comes to fraud detection – starting with understanding the three stages above.

We can help

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