The Third Stage of Money Laundering

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Criminals shouldn’t be able to spend money they didn’t legally earn. However, they have—and continue to—come up with various complex ways of making it look like illicit funds came from legitimate sources. This is a crime known as money laundering, and it’s often thought of as having three main stages: placement, layering, and integration.

Here, we’ll discuss integration in money laundering: the third and final stage of the crime. We’ll explain what it is, why criminals do it, and some of the different ways they carry it out. We’ll then talk about why it’s difficult to detect and what financial institutions can do to keep money laundering from getting to this point.

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What is Integration in Money Laundering?

Integration is the third stage of money laundering, in which the fraudster funnels the 'clean' money back into their accounts so they can spend it freely. At this point, the money has been layered sufficiently that the fraudster believes the funds can no longer be tied to the illegal activity from which it was generated.

What’s the Purpose of Integration in Money Laundering?

The integration stage of money laundering allows fraudsters to move the proceeds back to their account so they can freely spend it. Typically, once the money is at this stage, the fraudsters feel enough layering has occurred to hide the source of origin of the illicit funds, and the funds can no longer be easily tied to criminal activity.

Methods of Integration in Money Laundering

Through the layering stage of money laundering, fraudsters have made it significantly tough to trace their illegal funds back to crime. So money laundering’s integration stage is where fraudsters spend their illicit money on things they want—or to fund further criminal activity—without worrying if anyone will dig too deeply into where the money came from.

They still don’t want to look too suspicious to AML teams, law enforcement, financial regulators, or government bodies, though. So they will often integrate the illegal money through a series of limited-value transactions that would be conceivably ordinary for an individual or business.

Here are some examples of integration in money laundering.

Returning Money to Central Accounts

After sufficiently structuring it, fraudsters can send the ill-gotten money back to their legitimate accounts in several ways. They can use simple electronic funds transfers or more sophisticated financial instruments like money orders or wire transfers.

If they have invested in foreign financial products, they may sell these off for foreign currency. Then they can convert the foreign currency back into legitimate domestic currency. Or they may just transfer the illicit money from foreign accounts back into their domestic accounts.

Purchasing and Reselling High-End Assets

Once fraudsters have built up a long enough transaction history for their illegal money to make it look legitimate, they may spend the money on luxury items. These include real estate, jewelry, vehicles, or artwork.

Adept fraudsters will shop in countries and markets where there are lighter AML regulations, acquiring high-value assets that they can later sell for cash. In particular, they look for assets that are likely to retain their value, so they can be sold again if needed for another money laundering scheme.

During the placement or layering stages, fraudsters may have purchased these types of assets as well. The integration step may be where they sell these assets to earn legitimate cash. Meanwhile, the buyers remain unaware that the assets were initially bought fraudulently.

Business-Related Scams

Like with the layering stage, criminals can use fake businesses to reintegrate illicit money into the economy in ways that avoid raising suspicions. For example, they could commit payroll fraud by creating a fake business and then setting themselves up as fake employees. This makes it seem as if they are getting paid salaries for work, but they are really just paying themselves with the illegal money while attempting to make it look legitimate.

A variation of this is if the fake business the fraudsters set up offers private loans. Fraudsters can pose as customers and take out loans from the business, but never pay them back. Again, this is just a way for the fraudster to take their shares of the illicit funds in a way that appears to be a legitimate transaction.

Criminals can also invest in genuine companies with the illicit money. Then, when it comes time for them to get paid dividends as shareholders, they receive legitimate money in return.

Casino Exchange

Gambling is another common way for criminals to integrate laundered funds. They use the illegal cash to buy casino chips or credit, play a few games—trying not to lose too much money—then convert what they have left into legitimate money.

Life Insurance Fraud

This is a more long-term—but still rather common—method of integrating laundered money. Fraudsters use criminal proceeds to purchase and pay premiums on life insurance policies for family members and associates. The crooks then cash out the policies for legitimate funds.

How to Identify Integration in Money Laundering

Money laundering integration is difficult to detect for at least two reasons. The first is that the placement and layering phases of money laundering have likely built up a significant transaction history for the illicit funds. This already makes it a lot of work to provably trace them back to any criminal activity.

The second reason is that criminals are often still careful when integrating money back into the economy. They will do it with limited-value transactions that look reasonable for an individual or small business to make. It’s hard to tell these are part of a money laundering scheme unless there are noticeable inconsistencies between a person or company’s physical assets and their intangible ones (for example, income sources and investments).

The integration stage is the least effective stage for catching money laundering, as it’s the most challenging to detect. It’s important for organizations to use transaction monitoring solutions that look for abnormal transactions that have no legitimate basis, unique payment methods that stand out from the norm, and other anomalies that may signal money laundering integration.

That being said, the best way to stop money laundering is actually to intercede at the placement or layering stages. Here are some ways of doing that.

Identity Verification and Authentication for Individuals and Businesses

A financial institution should have strong Know Your Customer (KYC) and Know Your Business (KYB) protocols that are able to accurately identify and authenticate clients. This includes not just individual persons, but also any businesses they represent—including the people who own those businesses.

Criminals will often use fake, stolen, or synthetic identities to carry out financial crimes, including money laundering. This lets them avoid illegal transactions being traced back to them by pinning them on another person—even if that person doesn’t actually exist. Having robust identity verification and authentication processes should be able to catch red flags that a person isn’t who they claim to be, and is trying to avoid accountability for things like placing or structuring money for laundering.

Remember, though, criminals will often use businesses as fronts for money laundering operations. So it’s also important to know how to check if a business is genuine and operating legitimately. That includes checking who is ultimately responsible for the business, and whether or not they are who they say they are.

Customer Due Diligence (CDD) and Enhanced Due Diligence (EDD)

Customer Due Diligence—or CDD—checks a client’s public profile, financial history, administrative influence, criminal record, and so on for indicators that they were, are, or could easily become engaged in shady activity.

If the client is sufficiently high-risk or meets certain criteria, a financial institution will turn to Enhanced Due Diligence (or EDD). This constitutes a deeper dive into the client’s past, looking at things such as their relationships with other FIs, other businesses, and certain high-risk people for evidence of illegal activity.

CDD is especially important when AML professionals suspect money laundering is being carried out across multiple jurisdictions. They can look at relevant sanctions lists and other financial watchlists to see if a client is listed (or from a listed jurisdiction), or is dealing with a listed person, business, or jurisdiction. This can indicate the client is involved in money laundering and may be trying to do so through a high-risk country that has inadequate AML protections.

Monitoring Transactions and Other Financial Activities

As mentioned above, it’s difficult to spot laundered money being integrated into the regular economy unless its transaction history has been followed from the start. That’s why it’s also important for a financial institution to be vigilant in monitoring financial moves for unusual characteristics or patterns.

Case management tools can come in handy during this process. If a client (or group of clients) exhibits odd financial behavior, AML investigators can use link analysis visualizations to look at what other entities and transactions might be related. This can help them spot potential money laundering schemes and take action before they become too complex or difficult to trace.

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Cut Off the Money Laundering Integration Before It Happens with Unit21’s AML Infrastructure

Once money laundering gets to the integration stage, it’s very difficult to do anything about it. The key to stopping it lies in catching it during an earlier stage. Unit21’s AML monitoring tools can help with this by scanning and analyzing transactions for suspicious entities, activities, and patterns. This lets an AML team build up evidence to prove money laundering is happening before tracing the money’s path gets too complicated, and investigations wind up at a dead end.

Book a demo with us today to see how we can make AML efforts easier.