Layering is the second of the three stages of money laundering, when successive layers of legitimacy are added to the ill-gotten funds, until their source is sufficiently obscured from authorities to be undetected as ever having been illegal.
Some common methods of this stage include, but are not limited to: electronic transfers between countries, using shell companies, and moving funds between multiple banks or between multiple accounts within an institution.
The three stages of money laundering in order are placement, layering, and integration:
The first stage is when the ill-gotten gains are initially introduced into the legitimate financial system, carved up into portions which do not raise alarms amongst authorities. Some common methods of placement to subvert reporting mechanisms include:
The second stage is when successive layers of legitimacy are added to the initially placed funds, until the source of the gains is adequately hidden from authorities to be undetected as ever having been illegal. Some common examples of layering, which we will return to later, include:
The third and final stage of money laundering is when the criminal retrieves his or her illicit funds- often diminished in value by the layering process- which by now are so shrouded in layers of legitimacy that the source is all but untraceable. Some common methods (also seen in layering) of integration include:
But for now, we will focus on layering:
How can AML technology detect layering in money laundering? Some of the many methods of layering are:
Layering – the most complicated stage in money laundering
Napier previously described how criminal sophistication and exponential advances in technology result in a greater range of layering opportunities for money laundering.
The last few years of border-free technical developments have made it easier to layer illegal funds. Technological advancements such as online multiple-player games, P2P payment platforms, and cryptoassets now also muddy the waters for anti-money laundering (AML) practitioners.
What are the red flags pointing to layering in money laundering?
There are certain activities and types of transactions that AML practitioners deem to be indicators of possible layering in money laundering. Some of them are:
Although the focus here is on layering, it is important to understand that there are three core elements in AML regimes:
Napier has previously reported on the rising cost of AML globally. The challenges the sector faces are clear: the rise in money laundering through technological advances, the increased expectations put on AML practitioners, and the staggering fines being meted out for AML breaches worldwide. The challenges apply to anti-financial crime efforts, but particularly so when combatting layering, the most complex stage of money laundering.
Napier’s CEO Julian Dixon noted that the intentions of the UK’s 2019 Economic Crime Plan are noble, but hampered by the monumental scale of the task, which is further hampered by the impact of the Covid-19 pandemic.
An example of this is SARs reporting requirements. an average of 460, 000 SARs reach UK enforcement agencies per year, a rising number which is becoming challenging to process effectively or timeously. Again, detecting complex and evolving layering methods is compromised. The joint FATF/Egmont Group publication calls for digitalisation in FIUs to address the problems.
At Napier, we believe the solution to combatting money laundering and zeroing in on layering lies in digital automation and holistic AML, using AI-driven technology. We believe our cutting-edge tech and our skilled, experienced team can show your organisation the future of fighting financial crime, and will help your business and our society to better combat layering, and money laundering in general.
You can contact us here.