Anti-money laundering and combating the financing of terrorism

Money Laundering

Money laundering is the process of illegally concealing the origin of money obtained from illicit activities, making them appear to have originated from legitimate sources.

An act of laundering money (money laundering) is determined in the international convention (United Nations Convention against Transnational Organized Crime, Palermo, 2000) as below:

  1. The conversion or transfer of property, knowing that such property is the proceeds of crime, to conceal or disguise the illicit origin of the property or of helping any person who is involved in the commission of the predicate offense to evade the legal consequences of his or her action;
  2. The concealment or disguise of the true nature, source, location, disposition, movement, or ownership of or rights concerning property, knowing that such property is the proceeds of crime;
  3. The acquisition, possession, or use of property, knowing, at the time of receipt, that such property is the proceeds of crime;
  4. Participation in, association with, or conspiracy to commit, attempts to commit, and aiding, abetting, facilitating, and counseling the commission of any of the offenses established by this article.

According to the Financial Action Task Force (FATF) Recommendations, countries should apply the crime of money laundering to all serious offenses, with a view to including the widest range of predicate offenses. Predicate offenses include but are not limited: to participation in organized crime, fraud, drug trafficking, corruption, bribery, and tax crimes.

The following figure shows the three steps of money laundering:

  1. Placement. The placement is the initial step in which illicit funds are introduced into the legitimate financial system. Illegal funds are transferred or collected. The proceeds of crime can be deposited into the financial system in the form of cash, bank accounts, virtual assets, etc.
  2. Layering. After placing illegal funds in the financial system, the layering stage is  the origin of the funds is concealed by transferring and converting them using various techniques. Techniques used in the layering stage include  making non-cash transfers, depositing in bank accounts, converting into a loan or payment for goods, dividing, combining, transferring between banks, transferring between countries, converting cryptocurrency to another, transferring from one blockchain to another, etc.
  3. Integration: In the final stage, criminals return illicit money to themselves. The laundered funds integrated into the financial system, criminals are received in the accounts of shell companies or relatives which can be used for any purpose. Common methods include purchasing high-value items such as real estate, art, or investing in businesses, dividends, and payment of non-existent employees.

The following figure shows the stages of money laundering