What Is Layering In Money Laundering & How Does It Work?

Introduction

Layering in money laundering is a complex process used by financial criminals to conceal the origins of illicit funds. By conducting multiple transactions through various payment methods, banks, and intermediaries, these criminals aim to create a tangled web that makes it difficult to trace the money and their identities. In this article, we will delve into the concept of layering, its workings, and the measures put in place to combat it.

What Is Layering in Money Laundering?

Layering in money laundering involves passing illicit funds through a series of transactions, making it challenging to trace the paper trail back to its source. The effectiveness of layering lies in changing the nature of the laundered funds across multiple processes. For instance, converting US dollars into UK pounds and then into Japanese Yen makes it harder to detect the illegal activities.

The Post-Layering and AML Processes

After the layering process is completed, criminals enter the post-layering stage, where they plan to reintroduce the “cleaned” money into the economy. Anti-money laundering (AML) processes play a crucial role in preventing successful post-layering transactions. These processes include transaction monitoring, customer due diligence (CDD) and enhanced due diligence (EDD), KYC verification, and the suspicious activity report (SAR) filing process. By monitoring transactions, verifying customers’ legitimacy, and reporting suspicious activities, these measures tighten overall security and deter money laundering attempts.

How Does Layering in Money Laundering Work?

Layering in money laundering entails conducting numerous transactions to create complexity that obscures the illicit activities. It is the second stage in the three core stages of money laundering: placement, layering, and integration. To make layering successful, money launderers often change the nature of the funds during the multi-transactional process. For example, they may break down large amounts of money into smaller denominations, convert them into different currencies, and split, rejoin, and mix the funds.

Methods of Layering in Money Laundering

Layering techniques aim to add complexity to the paper trail, making it challenging for authorities to trace the source of the funds. Some common methods of layering include complex transactions, shell companies, asset investments, and the involvement of accomplices. Complex transactions involve using various approaches, such as forex trading and international transfers, to obscure the origin of the funds. Shell companies serve as fronts for illegal exchanges, while asset investments help hide laundered money in high-value assets. Accomplices, whether willing or unaware, aid in storing and exchanging illicit funds, further complicating the process.

Variants of Money Laundering

Money laundering comes in various forms, including structuring, currency exchanges, bank capture, shell company schemes, and trade-based and gambling-based money laundering. Structuring involves breaking down transactions into smaller payments to avoid detection. Currency exchanges take advantage of fluctuating values to camouflage illicit funds. Bank capture entails gaining control over banking operations to launder money. Shell company schemes utilize fictitious organizations to hide criminal activities. Trade-based money laundering disguises illicit activities through business exchanges, while gambling-based money laundering involves placing bets to legitimize illegal transactions.

How SEON Can Help in Combatting Layering in Money Laundering

SEON specializes in fighting fraud and money laundering, including the complex aspect of layering. By combining legal due diligence and fraud prevention, SEON offers a comprehensive toolkit to combat financial crimes. SEON’s tools include PII lookups against global crime and watch lists, continuous monitoring of suspicious transactions, and advanced API lookups and device fingerprinting for manual review. These features enable organizations to make informed decisions and identify potential money laundering activities. SEON’s whitebox machine learning algorithms allow for seamless adjustments to risk strategies, providing effective protection against layering in money laundering.

Conclusion

Layering in money laundering is a sophisticated process used by financial criminals to obscure the origins of illegal funds. Through multiple transactions and complex mechanisms, these criminals aim to make it difficult for authorities to trace the money and identify the individuals involved. However, with the implementation of AML measures and advanced tools like SEON, organizations can enhance their ability to combat layering in money laundering and protect themselves against financial crimes.

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