What is Placement in Money Laundering?

What is Placement in Money Laundering?

Money laundering involves a series of transactions to make its detection as difficult as possible. However, money laundering can broadly be classified into three stages. 1. Placement, 2. Layering, and 3. Integration. The placement stage of money laundering involves the physical introduction of cash or other assets derived from criminal activity into the financial system.

The crimes like corruption, fraud, bribery, kidnapping, illegal arms trade, drug trafficking, smuggling, etc., are committed for money. Criminals obtain illegal proceeds, and then they try to find a way for their disposal without attracting the eyes of law enforcement.

Placement stage in Money Laundering

The money launderer puts unlawful funds into circulation by depositing cash into the bank, casinos, and other legitimate businesses. This is the stage where the money launderer gets rid of illegal proceeds by placing them into the legitimate financial system.

The placement stage of money laundering is the most challenging for the launderer as the disposal of illegal proceeds by introducing them into the financial system causes suspicion

What is Placement in Money Laundering

Examples of placement in money laundering:

  • Smuggling illegitimate cash or liquid monetary instruments.
  • Blending unlawful proceeds with legitimate proceeds, such as illegitimate funds introduced into the cash-intensive grocery business.
  • Repayment of debt using illegal proceeds.
  • Buying stored value cards with illegitimate money.
  • Depositing small amounts into several bank accounts to evade reporting threshold. It is also called smurfing, one of the most common money laundering techniques.
  • Buying foreign currency with illegitimate funds.
  • Cash purchase of a security or insurance.
  • Invoice fraud – over-invoicing or under-invoicing.

However, it is not always the case that criminals resort to the placement stage of money laundering. Criminals can use illegal proceeds for various purposes without resorting to money laundering. Black money can be used to pay salaries to partners in crime, bribery, etc.

The placement stage of money laundering is only relevant if the criminals have to introduce money to the legitimate financial system. If the black money is going to be utilized for other criminal activities, then the placement of funds will not occur.

Businesses prone to the placement of illegal proceeds:

  • Banks and Financial Institutions
  • Insurance Companies
  • Money Exchanges
  • Capital Market
  • Accountants
  • Auditors
  • Trust and Company Service Providers
  • Lawyers
  • Dealers in Precious Metals and Stones
  • Virtual Asset Service Providers
  • Casinos
  • Art and antique dealers
  • Restaurants
  • Hotels
  • Bars
  • Nightclubs
  • Vending machine operators
  • Retail Businesses
  • Luxury goods traders

Law enforcement agencies must keep themselves updated with the new money laundering typologies used by criminals to fight money laundering. The AML authorities need to detect money laundering crimes early to prevent them from getting too complex for their detection. The early detection of money laundering at the placement stage would save a country from harmful socio-economic impact.

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FAQs About Placement in Money Laundering

Placement is the first stage in which illegal proceeds are introduced into the legitimate financial system.

About the Author

Pathik Shah

CISA, FCA, CS, DISA (ICAI), FAFP (ICAI)

Pathik is a multi-disciplinary professional with more than 22 years of experience in compliance, risk management, accounting, system audits, IT consultancy, and digital marketing. He has extensive knowledge of Anti-Money Laundering rules and regulations, and he helps companies comply with legal requirements. Pathik also helps companies generate value from their IT investments.