What is Layering stage in Money Laundering
This blog sheds light on What is Layering stage in Money Laundering
To conceal the illegal origin of the placed funds and thereby make them more useful, the funds must be moved, dispersed and disguised i.e. Layering.
At this stage, money launderers use many different techniques to layer the funds. These include using multiple banks and accounts, having professionals act as intermediaries and transacting through corporations and trusts. Funds may be shuttled through a web of many accounts, companies and countries in order to disguise their origins.
Funds can be hidden in the financial system through a web of complicated transactions using different techniques of layering including:
- electronic funds transfers
- offshore banks
- shell corporations
- walking accounts
Electronic Funds Transfers
- Typically, layers are created by moving money through electronic funds transfers into and out of domestic and offshore bank accounts of fictitious individuals and shell companies.
- Given the large number of electronic funds transfers daily and the sometimes limited information disclosed about each transfer, it is often difficult for authorities to distinguish between clean and dirty money.
- Offshore banks are banks that allow for the establishment of accounts from non-resident individuals and corporations. A number of countries have well-developed offshore banking sectors. In some cases, these banking sectors follow loose anti-money laundering regulations.
- Offshore banks are popular with money launderers (for layering funds), tax evaders and corrupt officials. Money launderers also like to keep funds in offshore banks because their fixed term deposit accounts provide interest income.
- Some offshore centres combine loose anti-money laundering procedures with strict bank secrecy rules. Criminals can easily maintain and transfer funds from banks in these centres because details of client activities are generally denied to third parties, including most law enforcement agencies.
- Using shell corporations is a common layering technique.
- Onyancha sets up Mama Mboga Trading Co. under the laws of Kenya.
- Mama Mboga Trading Co. opens bank accounts with various banks.
- Smurfs working for Onyancha transfer illegal funds to the Mama Mboga Trading Co. accounts.
- Mama Mboga Trading Co. transfers these funds to other accounts or invests them in securities.
- A shell corporation is a company that is formally established under applicable corporate laws but does not actually conduct a business. Instead, it is used to engage in fictitious transactions or hold accounts and assets to disguise the actual ownership of these accounts and assets.
- Sophisticated money launderers use a complex maze of shell corporations in different countries. Most money transfers take place through these shell corporations. At times, money is transferred through numbered accounts rather than through named accounts.
- To further avoid unwanted attention, money launderers build the transaction history of the shell corporation so that it looks as if it has been in business for a long time.
- In many countries (particularly offshore banking centres), the reporting and record-keeping requirements for corporations are quite minimal, which makes it easy to disguise ownership of the corporation.
- In a number of countries, ownership in corporations can be represented by ‘bearer shares’. In these corporations, the holder of the bearer share certificate is regarded as the owner of the shares. This makes it easy to disguise and transfer ownership.
- Using trusts is a common layering technique.
- Onyancha establishes a business trust by appointing a corporate trustee and drawing a deed of trust, which names Mwenyeji Trading Co. as a beneficiary.
- Onyancha transfers funds to the corporate trustee and under the deed of trust, Mwenyeji Trading Co. is empowered to directly use and invest the funds.
- Trusts are legal arrangements for holding funds or assets for a specified purpose. These funds or assets are managed by a trustee for the benefit of a specified beneficiary or beneficiaries.
- Trusts can act as layering tools because they enable the creation of false paper trails and transactions. Trusts are principally governed by a deed of trust drawn up by the person who establishes the trust. Trusts are more complex to use than corporations, but they are less regulated.
- The private nature of trusts makes them attractive to money launderers. Secrecy and anonymity rules help conceal the identity of the true owner or beneficiary of trust assets. Also, the presence of a corporate trustee provides an appearance of legitimacy.
- In addition, offshore trusts may contain a ‘flee clause’. This clause allows the trustee to shift the controlling jurisdiction of the trust if it is in danger because of war, civil unrest or, more likely, the activities of law enforcement officers or litigious investors and consumers.
- Using walking accounts is a common layering technique.
- Using shell corporations, Onyancha sets up three accounts with three different banks. He provides instructions to transfer all funds immediately on receipt to one or more of the other accounts.
- Smurfs deposit cash into the first account. Without the need for further action, the funds are ‘layered’ by being transferred to the third account.
- A walking account is an account for which the account holder has provided standing instructions that all funds be transferred immediately on receipt to one or more other accounts. By setting up a series of walking accounts, criminals can automatically create several layers as soon as any funds transfer occurs.
- The use of intermediaries is a common layering technique.
- Onyancha transfers funds to a special account for client funds maintained by the law firm called Shady Deals & Co. Advocates.
- Shady Deals & Co. Advocates establishes a shell corporation, Mwenyeji Trading Co. , which opens various bank accounts. Shady Deals & Co. Advocates now transfers Onyancha’s funds into these accounts.
- Lawyers, accountants and other professionals may be used as intermediaries between the illegal funds and the criminal. Professionals engage in transactions on behalf of a criminal client who remains anonymous. These transactions may include the use of shell corporations, fictitious records and complex paper trails.
- Many countries have realised that criminals are increasingly using non-financial professionals as intermediaries. To counter these activities, many countries have included non-financial professionals in new anti-money laundering legislation.