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This question is the basic of Financial crime and money laundering risk, which everybody should know.
Money layering is the most dangerous phase affecting the banking and finance industry.
· Money layering is a process when a large sum of money is distributed to different locations and then again transferred to other locations so that it becomes very difficult to know about the source and destination about the funds.
· While working in Stan Chart bank I had found a client willing to open an account with20 lacs in Cash which was a lot of money in1998. My manager checked the name of the organization with a list and with in5 minutes came with a negative answer. The cash could be used to send drafts to villages in small districts and then from there the post offices would be used to send the money to other places. Once the process is complete it would be impossible to rope in the offenders.
· Apart from the pan card bank account holders now need to have a KYC (know your customer no), a step the Govt says would reduce money layering.
Placement is the initial phase. Banks and other financial intermediaries are most vulnerable at this stage. They need to have adequate client due dilligence processes in place to prevent unscrupulous elements from getting into the financial system.
The three stages of Money Laundering are:
Placement
Layering
Integrartion
The stage that is most vulnerable to the Financial and Banking Industry is the Placement stage, which is the stage by which criminals deposit illegal proceeds into the Financial System. Financial Institutions and Banks should be at all times completely aware of the origin and source of funds deposited within the institution.
Placement
Placement is where illegally earned funds are deposited into a bank acoount once depostied the money launderer will have access to many banking products in order to effect layering and there after integration. therefore Placement is the most vulnerable stage of Money Laundering
Bleaching phase • placing (prewashing) the launderer introduces its profits, which are illegal in the financial system, by splitting large quantities of cash to obtain smaller and less suspicious sums. They are then deposited directly into a bank account or by obtaining various payment instruments (checks, bank transfers) which are subsequently collected and deposited to accounts in other places. • stacking (washing): the launderer undertakes a series of complex financial transactions designed to move the funds away from their sources. For example, those who are large sums to launder, create fictitious companies, in countries that are known to have strict laws on bank secrecy, or to apply laxly those that regulate money laundering. • integration (the launderer invested, funds in legitimate economic activities, making business investments, buying real estate or buying luxury goods. E) how do we launder? Three methods are: 1) Makeup (present directly dirty money as a lawful gain 2) disguise (to attribute the illicit gain to a lawful operation. 3) amalgam (integrating illicit gain into legal activity
