The initial stage of money laundering placement is the means by which criminals introduce ill-gotten funds into the legitimate financial system. Placement strategies may well be deviously intricate, but they all share a common end: the successful masking of the source of dirty money.
Financial institutions must be knowledgeable about the modus operandi of this type of criminal activity to prevent money laundering effectively.
“It’s how criminal profits first penetrate legitimate financial channels.” By using some methods of placement, launderers try to mix dirty money with clean money to put together this mingling so it does not stand out. But financial institutions can do a great deal.
By being alert to criminal techniques and carefully tracking their customers’ behavior, banks and other businesses can thwart a launderer’s efforts to take full advantage of placement.
Keep reading below to understand more about how these criminals deploy their placement strategies and what financial institutions can do to prevent the laundering of ill-begotten money.
Common placement techniques
There are a couple of key approaches to placement that criminals commonly use in AML Compliance programs. Structuring breaks down large dirty money sums into unremarkable small amounts that are then deposited separately.
The other is by utilizing cash-intensive businesses, such as casinos or strip club garage businesses, that can easily blend funds from illegitimate activities into their everyday revenues. Another method for placement is fraud schemes involving identity or credit card number theft, where money is then spent and transferred elsewhere.
Getting money into the system
Once criminal profits are generated, getting the funds into mainstream financial institutions is the first AML placement stage.
Whereas some placement directly uses cash, converting it allows other store-of-value assets to be used for further laundering cycles down the line.
The common ways through which raw money is integrated include depositing or exchanging at banks or credit unions.
It can also be done by purchasing valuable commodities like gold, diamonds, or cryptocurrency, which later are sold for wire transfers or cashing out. In the year 2023, over $30 billion of this was laundered through commodities such as gold, diamonds, or cryptocurrencies.
Criminals want to blend in
The planners of the placement process in AML intend that their dirty money must be camouflaged within regular banking or other financial activities. Criminals will deliberately deposit, withdraw, or move assets in ways that mirror legitimate customer behavior. Structuring smaller transactions or frequenting institutions that are busy avoids attention. Operatives may even maintain fictional business ledgers or jobs to help explain irregular money movements. The Flutterwave Scandal, for instance, is a prime example of how transaction fraud can be disguised as customer behavior, with cases like this increasing by 15% in 2023. Bonus: Discover more on our website about anti-money laundering strategies and how your institution can enhance due diligence and improve placement monitoring.
Financial institutions must be aware
As the frontlines where the processes of placement in money laundering first start, financial institutions like banks must be abreast of common placement techniques.
Staff should know how criminals plan to integrate their ill-gotten money through structuring, businesses, or any other means. Being educated on red flags, such as suspicious patterns, large cash transactions, or misty backstories, helps catch attempts at dirty money integration early.
In the presence of knowledge, it would be easy for employees to identify such potential issues and stop this process of laundering placement before it advances too far.
A 2023 report showed that more highly trained bank staff lifted fraudulent account detection by 25%.
Know your customer
It can thwart the placement techniques in money laundering when financial institutions know their customers well.
Proper verification of identities, occupations, and details relating to these makes it very hard for criminals to rationalize irregular placement tactics or fabricated placement backstories.
Continuous monitoring of financial activities by the client also makes things clear with regard to which transactions are legitimate and which may be related to laundering.
If any suspicious placement behaviors come to the fore, then there are questions answered; hence, comprehensive customer due diligence is of prime importance right from the commencement of the business relationship.
Monitoring for suspicious activities
After onboarding customers, it is critical to monitor their accounts and transactions to find possible strategies for placement.
Software solutions, such as rapid wiring, structuring, or inconsistencies between stated roles and actual money movements, can automatically flag these.
Human analysts who have been trained to look at them in a nuanced and holistic manner are also needed.
Still, anomalies could be identified and reported for further investigation in all the ongoing placement processes before money laundering through placement actually happens.
In 2023, enhanced staff training was reported to have increased the identification of fraudulent accounts at financial institutions by 25%.
Reporting to authorities
In the event that financial institutions, through awareness, know-your-customer practices, and vigilant oversight, do spot suspicious tactics of placement or activities incongruent with placement, action is called for.
Instead of continuing suspicious relationships, possible problems indicative of money laundering attempts at the level of placement should be reported both internally and externally to the appropriate authorities.
Such notification will prompt financial watchdogs and crime agencies to open full investigations that may help trace funds and curb broader criminal schemes.
Find tools and resources on our website that can help your compliance team stay ahead of criminal laundering networks.
