Money laundering is the process of making money obtained from illegitimate means appear to have been earned in legally. It can also be defined as the conversion of criminal (dirty) money to legitimate (clean) money. Thais implies that before money laundering can take place, an offence must have been committed. Offences and criminal activities that generate funds that need to be laundered are called predicate offences.
Predicate offences include:
- Armed robbery
- Insider trading
- Tax evasion
- Oil bunkering
- Drug trafficking
- Embezzlement and fraud
- Bribery and corruption
- Human trafficking
- Currency counterfeiting
- Illegal trade in stolen goods
- Illegal trade in fire arms.
Persons who commit any of the offences above need to hide the real source of their money to look like responsible individuals in society.
Stages in money laundering
There are three stages of money laundering. Placement, Layering and Integration.
Placement is when the funds are introduced to the financial system or economy. This can be via cash deposits, purchase of goods or high value items, purchase of money orders, purchase of prepaid cards, etc. This is the easiest stage at which money laundering can be detected.
Layering involves series of complex transactions. This is usually via business transactions and several wire transfers whose purpose is to mask the real source of funds. It also creates several money trails to confuse investigators.
Integration is the final stage of money laundering. At this point it’s very difficult to detect money laundering. It usually involves purchase of assets which can now generate legitimate funds for the beneficiary. For example, a property may generate rental income which may be further mixed with more proceeds of crime.
In combating money laundering the government, law enforcement agencies, financial institutions and designated non-financial businesses and professions play a key role. Though money laundering cannot be eliminated completely, it is important that society is aware of money laundering, and that all play active roles in anti-money laundering. This will make the economy better and make it more difficult for criminals to launder their ill-gotten funds.