Question

Using funds on deposit in foreign financial institutions as security for domestic loans is a favorite technique to make monies appear to be normal business earnings. Another ploy is over-billing or producing false invoices for goods allegedly sold across borders. This is dissimilar to layering, for in the integration process detection and identification of laundered funds is provided through informants.

What does everyone think about this statement? Do you agree or disagree? Anyone??

Answer 1

We can agree to the statement considering these facts:

Layering is the process of making the source of illegal money as difficult to detect as possible by progressively adding legitimacy to it. In the given situation, using funds on deposit in foreign financial institutions as security for domestic loans to make monies appear to be normal business earnings and over-billing or producing false invoices for goods allegedly sold across borders amounts to layering process. These techniques to avoid detection by authorities are layering and placement methodologies in money laundering. Through placement criminals may use several methodologies to place illegal money in the legitimate financial system, including:

• Funneling illegal funds through legitimate businesses that deal heavily in cash transactions.
• Breaking down large sums of money into smaller amounts that can be deposited in banks without triggering anti-money laundering reporting threshold alerts.
• Paying dummy invoices to criminal associates.
• Smuggling illegal funds overseas to jurisdictions with much weaker anti-money laundering controls.

It allows criminals to remove the traceability of money and lend legitimacy to their funds.

There are numerous approaches to layering available to money launderers. Examples include:

• Transferring funds electronically between countries and into and out of offshore bank accounts.  
• Moving funds between multiple banks or financial institutions or between accounts within the same institution.
• Converting cash into financial instruments such as money orders, wire transfers, life insurance, stocks, bonds and letters of credit.

Integration is the final stage of the money laundering process. This involves the process to get the funds back to the criminal from what seems to be a reputable source. After placing and layering the cash into the financial system, the funds become integrated. In this manner, the criminal can receive funds from their original illegal source in methods that do not draw attention to the situation. This may include receiving money from a business purchased by the funds, such as a restaurant, department store, car wash or laundry business.

The business may carefully follow all other regulations in order to avoid detection, such as carefully paying all employee and business taxes and filing tax returns on a timely basis. This is the phase where laundered money is brought into the economy, usually through the banking system. It is different from layering because here usually an informant tells the law enforcement agencies about it:

• Property Dealing – Buying property from illegal money is a common form of laundering money. Usually, this is done through a shell company.
• Shell Companies and Fake Loans – The culprits create a fake company and then give a loan to themselves. This loan amount is the laundered money
• Foreign Banks as Accomplices – If a foreign bank is an accomplice in laundering money it would be difficult for law enforcement to investigate and act since such banks are protected by international laws.
• Bogus invoices from import/export – Money launderers also use import and export as a way to enter black money into the system. They would exaggerate a bill to justify the payment by creating fake invoices or inflating the value of funds received from exports.

Compliance measures such as Know Your Customer (KYC) and Anti Money Laundering (AML) are extremely helpful in detection of laundered funds.