Layering in money laundering is among the world’s most important problems, as it attacks the integrity of financial systems. According to an expert, “Layering is the crucial middle phase of the money laundering process, through which criminal organizations achieve anonymity for their illegally obtained funds.” One of the definite processes in this cycle of money laundering is layering. It is the step of separating illegally acquired money from its source through a series of transactions designed to camouflage the audit trail and obscure any connections to crime. The article will discuss some of the more common layering methods in use today, as well as address steps that can be taken to detect and deter such activity.
What is Layering in Money Laundering?
Layering in general means the separation of illegally obtained funds from their source. This is accomplished by using as many financial transactions as possible to create a complex web of transfers and transactions. According to the FATF, layering in money laundering refers to conduct complex financial transactions.
The layers attempt to obscure the paper trail left behind by the layering schemes of money laundering so that it can’t quickly be followed back to the initial criminal act. They make tracing of the money source and whether the money was indeed involved in layering AML activities challenging or impossible.
Common Goals of Layering
There are a couple of significant goals that criminals try to achieve through layering in money laundering schemes. First of all, criminals want to trace funds back to certain persons or organizations engaged in layering money laundering, which is difficult for law enforcement agencies. Another common purpose is to make laundered money appear as if it is legally earned income, embedding layering AML Compliance proceeds more profoundly into the legal and financial system.
Bonus: Get new post notifications directly and be on high alert for how to help prevent criminal activities like money laundering from impacting your business or investments.
Common Layering Techniques
Some main techniques are commonly used to lay the funds while laundering money. Structuring deposits, wire transfers, and international transactions come under the most practiced techniques for inundating the trail of layering in money laundering process. According to the United Nations Office on Drugs and Crime, between $800 billion and $2 trillion gets laundered every year, much of it using these layering techniques, which is 2-5% of global GDP.
Structuring Deposits
One of the most common methods criminals use to layer AML proceeds is structuring deposits under certain thresholds across multiple bank accounts over elongated periods. Rather than depositing the entirety of their illicitly gained cash at one time, they spread it out in less-than-requirement-reporting increments. Doing so allows them to avoid layering AML reporting and continue obscuring the funds while further layering them into legitimate banking activity.
Wire Transfers
The money is swiftly transferred through several accounts and countries to layer AML to such an extent that it becomes nearly impossible to trace the funds back to their criminal origin through the rapid succession of low-value transfers. This means that the audit trail is buried due to the collaboration of wire transactions.
International Transactions
What role do international transactions play in layering in money laundering schemes? Criminals frequently transfer funds to other countries to further remove the laundered money from its criminal source. Through the transmission of funds to accounts in different countries, they catalyze international wires, trades, and transfers to layer AML and build complex webs of transactions that impede efforts to track funds through money laundering cycles.
Detection of Suspicious Layering Activity
How can one detect suspicious layering activity among all other regular financial activity? Because layering in money laundering is a process aimed at eventually investing laundered money deep inside the economic system, it gets more challenging to make any differentiation between genuine money flows. However, suspicion-based detection is an essential component in connection with all compliance obligations for financial institutions. According to the Bank for International Settlements 2023 report, over 60% of such suspicious activities are initially identified by automated systems, so they are essential at the threshold Stages of Money Laundering.
Role of Financial Institutions in Preventing Layering Schemes
Banks and other financial institutions have a very significant role in combating money laundering. They must have strict know-your-customer and follow-up policies, along with detecting and reporting suspicious activities. Spending on AML software reached over $1.2 billion globally in 2022, a testament to how much financial institutions are investing in better detection. It is this intensity that predominantly works to disrupt the layering in money laundering, where criminals attempt to launder money into the financial system.
