What are the steps involved in anti money laundering?

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Money laundering is a heinous financial crime that contributes to the downfall of almost any financial system. Money laundering constitutes criminally obtained proceeds by disguising their origins to make it look like it is coming from a genuine source. It ranges from small tax evasion to drug trafficking to public corruption. 

Anti-money laundering or AML refers to a web of laws and regulations that aims to uncover disguised illicit funds as legitimate incomes. The incorporation of AML in the financial sectors has substantially raised the market's financial stability standards. It has helped in finally lifting international capital control as well as ease in conducting complex chains of financial transactions. 

Specific steps involved in anti-money laundering help in the financial growth of the market. Here we have curated some ideas to stop money laundering to ease financial growth. 

History of Anti-Money Laundering

The concept of money laundering dates back about 100 years. The formal concept of anti-money laundering arose 50 years after this. 

The first case of USA AML Legislation was in 1970 with the Bank Secrecy Act. The aim was to thwart organised financial crime. Its provisions required the banks to report cash deposits of more than $10,000. Furthermore, the legislation would require banks to identify the individuals for conducting these transactions and keep records of future transactions. 

AML got much more prevalent in 1989 when a task force was formed by a group of countries with eminent international organisations. The Financial Action Task Force or FATF was formed to devise international standards to prevent money laundering or promote their adoption. In October 2001, to combat terrorist financing, FATF expanded its mandate post-9/11 terrorist attacks. 

Additionally, another financial institution was formed to fight against money laundering. The International Monetary Fund (IMF) has urged their members to comply with international standards and help thwart terrorist financing. 

The Anti-Money Laundering Act of 2020 ensured the sweeping overhaul of every US AML regulation since 2001. This legislation included the different aspects of the Corporate Transparency Act, making it harder for shell companies to evade anti-money laundering and economic sanction measures. The legislation was also subjected to cryptocurrency exchanges and antiquities dealers to the same customers requiring diligence as financial institutions. 

The 3 Stages of Money Laundering

Money laundering consists of three important stages that must be checked as quickly as possible. Here, we will discuss the stages of money laundering in detail to give you a clear concept of stopping these at their early stage. 

Placement Stage 

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The first stage of money laundering involves the criminals moving their illegal funds in disguise of a legitimate income. Criminals are prone to use these tactics. They are: 

  • Creating false invoices: Criminals tend to create false invoices matching the cash amounts. This makes it look like the cash was used to settle transactions. 
  • Foreign bank accounts: Using foreign bank accounts is also a crucial step in money laundering. Criminals deposit small amounts of cash in a foreign bank account before sending it to the origin bank account.
  • Offshore companies: Businesses registered outside the origin country are offshore companies. These companies help criminals to hide their illicit funds. 
  • Cash-based business: Criminals often add cash to legitimate businesses as a disguise. These cash-based businesses include car parks, casinos, car washes and launderettes. 
  • Micro-laundering: When an individual or a group of individuals deposit small amounts of illicit funds that do not fall under the AML threshold into bank accounts, it is a fine example of micro-laundering. 

Layering Stage 

Once the criminals place the money into the financial system, it tends to hide the illicit origin. Criminals often divide the bulk of funds into different smaller transactions falling under the threshold of AML regulations. This further obscures the audit trail and makes it virtually impossible to identify the source of origin of the funds. Layering often occurs in different geographical locations, making it hard to detect. Several tactics are included to hide its origin. They are: 

  • Trading in international markets
  • Trading in foreign countries
  • Purchasing and selling luxury goods

Integration Stage 

The final stage of money laundering is integration. Criminals tend to integrate the funds back into their sources or legitimate accounts and use them without attracting the attention of the authorities. They often do this in smaller transactions. They integrate the funds by purchasing a luxury asset or property or creating fake employees by adding them to company payrolls. They often pay out loans to the directors of small shell companies and pay dividends to the shareholders of those criminally controlled companies. 

Stages to Integrate Anti-Money Laundering Procedures

The primal procedure of AML is to instruct financial institutions to monitor customer transactions and deposits. They need to flag any suspicious activity and report it to the authorities. Here we have iterated some stages that would help the business to remain compliant with AML regulations. 

  • Implementing KYC Measures: KYC or Know Your Customer regulations require financial institutions to verify the customers' identities thoroughly, which would eliminate the idea of money laundering. 
  • Conducting Customer Due Diligence (CDC): CDC is one of the integral policies of AML. This should be done in line with FATF recommendations. 
  • Tracking High-Risk Clients: Even though AML regulations require regular monitoring of every client, it is pivotal to look after the clients with high risks. Every transaction must be monitored closely and flagged if any suspicious activity occurs. 


Money laundering is one of the most serious crimes in the financial sector. According to the UN, roughly 2-5% of the global GDP money is laundered every year, which amounts to $2 trillion. A growing financial institution needs to be fueled with comprehensive AML regulations. This would impact the global economy greatly, decreasing the percentage of money laundering by the year. 

If you are interested in learning investment banking or in an investment banking course with placement, check out Imarticus Learning's Certified Investment Banking Operations Professional (CIBOP) course. This 180-hour program is designed to give you an in-depth understanding of complex financial problems along with different operational risks and regulations. 

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