guideline on anti-money laundering and the combating of terrorist ...

Guideline on Anti-Money Laundering and the Combating of Terrorist Financing3.2 Stages of Money Laundering3.2.1 Despite the variety of methods employed, money laundering is generally accomplished in three stages,which may comprise numerous transactions by the launderers that could alert a financial institution tocriminal activity. These stages are placement, layering and integration:-a) Placement: refers to the placing of "dirty money" or unlawful cash proceeds into the financialsystem without arousing suspicion for example via deposits, purchases of cheques or moneyorders.b) Layering: refers to the movement of the money, often in a series of complex transactionscrossing multiple jurisdictions designed to disguise the audit trail and provide the appearance oflegitimacy. These transactions may include purchasing investment instruments, insurancecontracts, wire transfers, money orders and letters of credit.c) Integration: refers to the attempt to legitimize wealth derived from criminal activity. The illicitfunds re-enter the legitimate economy by way of investment in real estate, luxury assets andbusiness ventures, until the laundered funds are eventually disbursed back to the criminal.3.2.2 Efforts to combat money laundering largely focus on those points in the process where the launderer’sactivities are more susceptible to recognition and have, therefore, to a large extent concentrated on thedeposit taking procedures of financial institutions, i.e., the placement stage. However, there are manycrimes where cash is not involved. Financial institutions should consider the money laundering risksposed by the products and services they offer, particularly where there is no face-to-face contact withthe customer, and devise their AML procedures with due regard to that risk.3.2.3 The most common form of money laundering that a financial institution will encounter on a daily basis,in respect of their mainstream banking business, takes the form of accumulated cash transactionswhich will be deposited in the banking system or exchanged for value. Electronic funds transfersystems increase the vulnerability by enabling the cash deposits to be switched rapidly betweenaccounts in different names and different jurisdictions. Additionally, financial institutions as providers ofa wide range of services are susceptible to being used in the layering and integration stages of moneylaundering. Mortgage and other loan accounts may be used as part of this process to create complexlayers of transactions. A financial institution's AML programme should seek to ensure that appropriatemethods exist for identifying and reporting money laundering at each of the three stages.3.3 Terrorist Financing3.3.1 Terrorism is the unlawful threat of action designed to compel the government or an internationalorganization or intimidate the public or a section of the public for the purpose of advancing a political,Page 3 of 75