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Complete Analysis of Three Stages of Money Laundering

- By jesseroy
Publish Date : 2021-03-10 06:08:58
Complete Analysis of Three Stages of Money Laundering

There is no second opinion that most of the criminal activities are done to get financial benefits. From street crimes to illegal cross-border smuggling all the crimes are intended to get money. These are also known as shortcuts and are considered illegal by all the states. The second step after getting black money is to use it freely in the financial system which is not easy. All financial institutions demand the source of money whenever someone tries to deposit money into their channels. Law enforcement institutions always scrutinize and monitor these transactions through anti-money laundering checks. 

Why Money is laundered?

To use illicit cash in the business sector, criminals use the technique of anti-money laundering. It is a change of black money into white. The ill-gotten funds earned through illegal ways are then laundered to give it a legitimate source. The illegal sources may be drug sales, human trafficking, illegal weapons sale, corruption, prostitution rings, or terror financing. Before jumping on how money is being laundered, the concept of some terms  should be understood like:

Ultimate Beneficial Owner (UBO)

The individual or group of individuals or a company that owns all money that is being laundered. UBO usually consists of several people that provide the channels of money laundering and have a heavy (about 25%)  stake in it. 

Offshore Accounts

The bank accounts in another state where a person resides are called offshore accounts. Like if a person is a legal resident of the UK but has a bank account in Singapore bank. The account in Singapore’s bank is said to be an offshore account.

Three Stages of Money Laundering

For a better understanding and its mitigation, the procedure of money laundering is divided into three steps discussed below:


Motive: Place black money in the financial system

This is the first and most valuable step of money laundering. The ill-gotten funds are deposited in the financial sector. Money launderers are most likely to catch at this stage because they carry a huge amount of money physically. Money laundering can be easily identified at this stage through the anti-money laundering process. Financial Institutions keep an eye on the placement of huge money for any purpose. 

Below mediums are used for the placement of illegal funds:


This can involve cash, jewelry, or expensive ornaments smuggling. It is done from one state to another bypassing both states’ securities. Smuggling through flights is not easy as all the customs or aviation authorities have made strict immigration rules.

So the ships or land border routes are used for smuggling. Every day dozens of criminals are caught at state boundaries carrying smuggled items. 

Currency Exchanges   

It is the easiest way to launder money because it provides inter-border coverage. It is easy to launder money through currency exchanges because it provides comfortable cross-border transfer. Also, their system is not as well regulated and financial institutions. They can easily manipulate their records to deceive law enforcement agencies.

Breaking Cash Amount

As money is in huge amounts, it can be easily exposed to law enforcement agencies. To decrease this risk the huge amount is broken into smaller chunks. Then this small amount is deposited into the financial institutions by several transactions.

Money Mules

They are the persons that do not have any share in the money but are paid for their services, also called surfers. They physically carry the amount for smuggling and sometimes are aware of money laundering


Motive: Remove the link with the original source

In this step, the money is processed with several transactions to isolate it from illegitimate sources. This is done by circulating the money in currency exchanges or reselling assets. Then it is given a new legitimate source. All the black money is declared to be the profit of the fresh source.


Motive: To give it back to the UBO

The money after all the transactions and financial circulations is delivered to the Ultimate Beneficial Owner of it. Now the UBO can use it freely in the financial system. It is very tough to point to money laundering at this stage because now the criminal has made all sources of it.

Category : business

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