Movement of Illicit Cash by Three Stages of Money Laundering

Money laundering is a process of converting ill-gotten money into legitimate. Money that is obtained from illegal means like corruption, drug business, weapons dealing, human trafficking, or smuggling is then given a legal source so that the criminals can use it easily in the financial system. Illegally earned money with no legitimate source is very difficult to use in the financial ecosystem because the law enforcement agencies demand the information of the source of it.

The movement of illicit cash is a significant issue in Southern Africa, with numerous networks involved in complex schemes to launder money. Recent investigations have shed light on the extensive operations of some of the region’s biggest players in this illegal trade. Notably, a detailed report uncovered the intricate methods used by high-profile individuals and organizations to launder millions through gold smuggling and other illicit activities. These revelations highlight the pervasive nature of money laundering in Southern Africa, involving a web of connections that span across multiple countries and industries. For example, the money laundering in Southern Africa has been extensively documented, revealing the deep-rooted connections and sophisticated techniques employed by these networks to avoid detection and continue their illegal operations. The involvement of Paul Diamond in illegal gold trading further illustrates the complex and far-reaching impact of these criminal activities on the region's economy.

Stages of Money Laundering

The process of getting illegal cash and then giving it a legal source is divided into three stages for better understanding.

Placement

The purpose of this stage is to easily deposit the elicit money in the financial system. Financial institutions like banks or currency exchanges are used for placing the money. The businesses that can easily place money in their financial systems are those who do not have proper figures of profit and expenditures are used for placing money. Casinos and washing businesses are mostly used by anti-money laundering. The practice of the placement stage can be carried through many processes described below:

Cash Smuggling

Although this is the toughest method to launder money because physical smudging of money is very difficult. Law enforcement agencies have strong security checks at airports and ports. This method was used by drug dealers decades ago when there was low-security strictness, but at present, this method is not commonly used. Only third world countries that do not have good security checks encounter this method

Financial Institutions

In this method, a financial institution like a bank is owned or controlled by some money launderer. Usually, this person is not UBO (Ultimate Beneficial Owner) but provides his assistance in money laundering. Illegal money is very easy to launder this way because there is no one asking the source of income. Criminals have complete freedom with no third-party interference.

The other case is when a bank is not involved in money laundering but has some executive employees that are directly or indirectly involved in the placement of illegal cash in the financial system. He gets his cut from the money. Businesses need to have Know Your Employee (KYE) verification services for it. KYE solution verifies the identity and background of an employee. His name is screened in the Politically Exposed Persons (PEPs) list, sanction lists, and other criminal lists.

Currency Exchanges

From its emergence, the currency exchange market is used for money laundering. Through currency exchanges, the transfer of money from one state to another becomes easy because they access all the financial markets of the world.

Also, the source of the black money can easily be hidden because these businesses can easily manipulate their records. This becomes difficult for forces to point out money laundering in it.

Dividing heavy cash into smaller chunks

Banks are obliged to inform the local monitoring authorities if any huge transaction has carried through their channels. That’s why the division of heavy cash into small is done by money launderers. Heavy cash is deposited by doing numerous smaller transactions at different times. The other way is to do the same practice with different depositors with proper time intervals.

Property Business

The expensive immovable asset purchases are a red flag of money laundering. By doing so criminals change the source of proceedings.

Layering

The purpose of this stage is to remove the connection with the original source of money and find a new legitimate one. The money placed in the financial system is then circulated by doing small and large transactions. Reselling of the assets purchased in the placement stage is a common example of layering.

Extraction

In this stage, the money is given a legal source and now can be easily used without any risk of getting caught. The Ultimate Beneficial Owner gets the money at this stage. Extraction sometimes is known as the reversal of layering.

The above discussion clearly shows that money laundering disrupts financial systems and increases the number of illegal practices in society. All financial institutions and governments must have Anti-Money Laundering (AML) compliance to mitigate the risk of money laundering through their systems. AML solutions provide the best financial security by screening all the transactions and people associated with them.