Criminals use money laundering to carry out criminal activities, including fraud. It’s hard to achieve an exact number on how much money is laundered globally. From the informations that United Nations Office on Drugs and Crime gave, money laundering costs 5% of global GDP. It is approximately 2 trillion dollars. Money laundering usually happens in three phases. These phases are:

1. Placement
2. Layering
3. Integration

What is Money Laundering Phase 1: Placement to the Financial System

This phase is about the placement of dirty money into the financial system. They often do this by breaking big amounts of money into smaller sums to be appropriate for direct deposit into a bank account legally. Other methods used during the placement phase include:

• Transitioning the dirty money earned by a crime into the legitimate takings of a business, especially those with less variable costs.
• Issuing fake invoices.
• Smurfing, which means inserting small sums of money into bank accounts or credit cards to use the money.
• Hiding the owner’s identity through offshore businesses.
• Taking small sums of money below the customs declaration threshold abroad and keeping it in foreign bank accounts.

What is Money Laundering Phase 2: Layering the Money

Layering is the second phase of money laundering. It means putting the dirty money through a series of financial transactions to make it difficult to trace where the money comes from.

The money is channeled through investments and various purchases and eventually reaches bank accounts around the world. In some cases, criminals can disguise their transactions as payments for a service or as a loan to another business trying to give the dirty money a legitimate look.

The layering stage includes:

• Chain-hopping: They convert a cryptocurrency into another and move between blockchains.
• Mixing: They mix various transactions across several exchanges, accounts, or owners to make the money harder to trace back.
• Cycling: They make deposits by buying and selling cryptocurrency and deposit the proceeds into a different bank account.

What is Money Laundering Phase 3: Integrating into the Financial System

The third phase of money laundering is called integration which is the final step of the process. This is where the criminals integrate dirty money into the legitimate financial system by typically buying luxury goods and services or investing in real estate and business.

Common integration tactics include:

• Fake Employees: They may fabricate staff members in order to siphon money out of the system. Since these “employees” are usually paid in cash, it is possible to collect illegal payments covertly.
• Loans: Another way to include illicit monies is through loans made to directors or shareholders with no real intention of repaying them. A genuine financial transaction appears, which helps hide the money’s source.
• Dividends: Of the enterprises they control, criminals may choose to distribute dividends to their shareholders. This helps with the integration process by giving the funds a facade of legitimacy.