What is Integration stage in Money Laundering
This blog sheds light on What is Integration stage in Money Laundering.
- Laundered funds are made available for activities such as investment in legitimate or illegitimate businesses, or spent to promote the criminal’s lifestyle. At this stage, the illegal money has achieved the appearance of legitimacy.
- It should be noted that not all money laundering transactions go through this three-stage process. Transactions designed to launder funds can also be effected in one or two stages, depending on the money laundering technique being used.
Integration is the third stage of the money laundering process, in which the illegal funds or assets are successfully cleansed and appear legitimate in the financial system, making them available for investment, saving or expenditure.
Integration techniques include:
- credit and debit cards
- corporate financing
- asset sales and purchases
- business recycling
- import/export transactions.
Credit and debit cards
- Credit and debit cards are efficient ways for money launderers to integrate illegal money into the financial system. By maintaining an account in an offshore jurisdiction through which payments are made, the criminals limit the financial trail that leads to their country of residence.
- In recent years, authorities have grown more attuned to the use of offshore credit cards as a money laundering technique. As a result, certain offshore jurisdictions now enable regulators to obtain from banks all records of transactions made by their credit card clients.
- Consultancy arrangements can cover a wide range of non-quantifiable services and are often used to integrate illegal funds into the legitimate financial system.
- The consultant might not even exist. For example, the criminal could actually be the consultant and the money is declared as income from services performed and can be used as legitimate funds.
- In many cases, the criminal will employ an actual consultant (e.g. accountant, lawyer or investment manager) to do some legitimate work. This could involve purchasing assets. Often, the criminal transfers funds to the consultant’s client account from where the consultant makes payments on behalf of the criminal.
- Corporate financing offers a flexible way to transfer money between companies. This technique is often used in sophisticated money laundering schemes.
- Onyancha sets up a shell corporation and a related bank account in an offshore jurisdiction. He also sets up a legitimate business in his country of residence.
- Using illegal money in the offshore account, the shell corporation makes a business loan to, or equity investment in, the legitimate business.
- Corporate financing is typically combined with a number of other techniques, including the use of offshore banks, consultants, complex financial arrangements, electronic funds transfers, shell corporations and actual businesses. This allows money launderers to integrate very large amounts of money into the legitimate financial system.
- Money launderers may also take a tax deduction on interest payments made by them in corporate financings!
- From appearances alone, such transactions are identical to legitimate corporate finance transactions. Financial service professionals serving legitimate businesses need to look closely to find peculiarities in their dealings, such as:
- large loans by unknown entities
- financing that appears inconsistent with the underlying business
- unexplained write-offs of debts.
Asset Sales and Purchases
- To integrate illegal funds into a legitimate financial system, money launderers often resort to actual or fictitious sales and purchases of assets.
- Onyancha sets up a shell corporation and a related bank account in an offshore jurisdiction. He also owns or controls a legitimate business or real estate asset in his country of residence.
- The shell corporation purchases the business or real estate at an inflated price. The earnings from this transaction are treated as legitimate profits.
- This technique can be used directly by the criminal or in combination with shell corporations, corporate financing and other sophisticated methods. The end result is that the criminal can treat the earnings from the transaction as legitimate profits from the sale of the assets.
- Business recycling is a common integration technique in which illegal funds are mixed with cash flow from a seemingly legitimate business.
- Onyancha owns or controls a legitimate, cash-intensive car wash business.
- Onyancha deposits illegal funds into the business. These funds are treated as revenue from the legitimate business.
- Legitimate businesses that also serve as conduits for money laundering are referred to as ‘front businesses’. Cash-intensive retail businesses are some of the most traditional methods of laundering money. This technique combines the different stages of the money laundering process.
- The principal requirement when using businesses as fronts is that they have high cash sales and/or high turnover. This way it becomes easy for criminals to merge illegal funds and difficult for the authorities to spot the scheme.
- An important indicator of front businesses is the relation between the size and nature of the business and the amount of revenue it generates. For example, if a newspaper stand starts making deposits into its bank account at $1 million a month, this should alert the bank to the possibility of illegal activity.
- Import/export transactions are a common integration technique used by money launderers, especially in order to move illegal funds between countries.
- Onyancha sets up an import company in a foreign country as well as an export company in his country of residence.
- The export company exports goods to the foreign import company. The import company remits illegal funds to pay for the goods on an over-invoiced basis.
- To bring ‘legal’ money into the criminal’s country of residence, the domestic trading company will export goods to the foreign trading company on an over-invoiced basis. The illegal funds are remitted and reported as export earnings. The transaction can work in the reverse direction as well.
- In many cases, there is no actual export of goods or only the export of fake goods. In such cases, the trading companies may also exist only on paper. Bankers may be able to spot these transactions if the underlying trade documentation is inadequate or the underlying pricing is incorrect.