What is Placement in Money Laundering?

What is placement in money laundering?

Introduction

Money laundering is a pervasive issue that threatens the integrity of the global financial system. While complex money laundering usually has 3 stages (Placement, Layering, and Integration), in this blog, our focus will be on the initial stage – Placement in money laundering. As we explore the techniques employed by criminals in this phase, we also shed light on the alarming statistics of money laundering worldwide and the local repercussions faced by businesses. Additionally, we emphasise the critical role of compliance officers, in combating this financial crime.

Overview of Money Laundering and Its Stages

Money laundering was first addressed in the UN Vienna 1988 Convention, where it is defined as the conversion or transfer of illegally obtained property to conceal its origin. The process unfolds in three distinct stages: Placement, Layering, and Integration. While the stages are defined individually, real-life money laundering cases may involve combinations or repetitions of these phases.

Money Laundering Cycle

Placement in Money Laundering

Placement in money laundering involves introducing illicit funds into the financial system. Criminals use various methods, such as breaking down large sums of cash into inconspicuous amounts or operate cash intensive businesses. The proceeds are then deposited into accounts or invested in industries with lax regulations.

Other Techniques Used in Placement

  1. Adding Illicit Cash to Legitimate Business Takings: Criminals mix illegal funds with the lawful income of a business, particularly those with minimal variable costs.
  2. False Invoicing: Fabricating invoices to legitimise the origin of funds, creating a false trail for investigators.
  3. Smurfing: Inserting small amounts of money below reporting thresholds into bank accounts or credit cards, which are then used for various expenses.
  4. Hiding Beneficial Owners: Utilising trust funds and offshore companies to obscure the identity of the ultimate beneficiary of the funds.
  5. Cross-Border Lodging: Transporting small amounts of cash abroad, depositing them in foreign bank accounts, and then repatriating the funds.

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Money Laundering Cases on the Rise

According to a Eurojust report, cases of money laundering have surged from 315 in 2016 to 649 in recent years, with a projected upward trajectory. This substantial increase poses a significant threat to businesses globally, demanding a robust response from regulatory authorities.

AML Non-Compliance Penalties and Fines in the UAE

In the United Arab Emirates, the fight against money laundering is evident through stringent penalties. In Q3 of 2023, 225 firms were fined a total of AED 77 million, and 50 establishments faced suspension. The trend continues into 2024, with the first fine of the year was issued on 30th January, amounting to AED 1.2 million, imposed on an insurance company for non-compliance with AML laws.

The Role of Compliance Officers

To combat the rising tide of money laundering, businesses need expert compliance officers. These professionals play a crucial role in implementing and enforcing anti-money laundering (AML) policies. Additionally, in line with Article (21) of Cabinet Decision No. (10) of 2019 concerning the implementing regulation of Decree Law No. (20) of 2018 on AML and CFT and illegal organisations, DNFBPs are obliged to appoint a compliance officer. Many businesses opt for outsourced compliance officers, finding it a more practical and cost-effective solution.

Conclusion

Understanding the first stage of money laundering, Placement, is essential in comprehending the broader issue at hand. As we observe the techniques employed by criminals and witness the alarming statistics and penalties, it becomes evident that combating money laundering requires a concerted effort. Businesses must prioritise compliance by engaging expert consultants to avoid hefty fines.

At AKW Consultants, we understand the importance of staying ahead of regulatory changes. Our Governance, Risk, and Compliance (GRC) services are designed to assist businesses in navigating complex regulatory landscapes, ensuring a secure and compliant investment environment. Contact us today for your AML and Compliance needs: info@akwconsultants.com

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