What is Placement stage of Money Laundering
This blog sheds light on What is Placement stage of Money Laundering
- At this stage, illegal funds or assets are first brought into the financial system.
- This ‘placement’ makes the funds more liquid.
- For example, if cash is converted into a bank deposit, it becomes easier to transfer and manipulate.
- Money launderers place illegal funds using a variety of techniques, which include depositing cash into bank accounts and using cash to purchase assets.
- smurfing and structuring
- alternative remittance
- electronic transfer
- asset conversion
- bulk movement
- insurance purchase.
Smurfing and structuring
- Smurfing is a common placement technique. Cash from illegal sources is divided between ‘deposit specialists’ or ‘smurfs’ who make multiple deposits into multiple accounts (often using various aliases) at any number of financial institutions. In this way, money enters the financial system and is then available for layering. Suspicion is often avoided as it is difficult to detect any connection between the smurfs, deposits and accounts.
- Structuring involves splitting transactions into separate amounts under US$10,000 to avoid the transaction reporting requirements of the AML Act. Many money launderers rely on this placement technique because numerous deposits can be made without triggering the cash reporting requirements. However, it can backfire if an attentive financial institution notices a pattern of deposits just under the reportable threshold. This can lead to reporting such activity to under the suspicious activity provisions of these instruments. Structuring is a criminal offence itself, as well as an indicator of other potentially illegal activity.
- ‘Alternative remittance’ refers to funds transfer services usually provided within ethnic community groups and known by names particular to each culture. Generally such services accept cash, cheques or monetary instruments in one location and pay an equivalent amount to a beneficiary in another location. In some communities this form of money transfer is commonly known as hawala, hundi, chuyen tien, yok song geum, or pera padala.
Alternative remittance is a common placement technique.
- Onyancha brings a large sum of illegal cash to an alternative remittance provider. Larry specifies the identity and location of the recipient and the alternative remittance provider arranges for the funds to be sent overseas. Onyancha may or may not receive a receipt for the transaction.
- The recipient, Sukuma Wiki, goes to the counterpart of the alternative remittance provider in the overseas location. The counterpart provides the specified amount of cash (less any transfer charges) to Sukuma. Again, no documents may be involved.
- Electronic transfer is a common placement technique.
- Onyancha takes cash to an electronic funds transfer agency such as Western Union/M-Pesa/ZAP/YU-Cash etc and requests a transfer of funds to Sukuma Wiki in the Uganda.
- Sukuma Wiki goes to the Transfers branch in Uganda, presents her identification and collects the funds.
- In the money laundering context, this technique involves the transfer of money through electronic payment systems that do not require sending funds through formal bank accounts. This method is also known as wire transfer.
- Electronic transfers can be compared to alternative remittances in that both are person-to-person transfers that do not require sending funds through the formal banking system.
- Criminals make use of the electronic financial system because it enables the transfer of large denominations of money instantly locally or to offshore jurisdictions. This speedy disbursement of funds to and between foreign jurisdictions makes the transactions difficult to investigate and trace back to the source.
- Asset conversion is a common placement technique.
- Onyancha gives cash from his illegal operations to a trusted friend.
- The friend uses the cash to purchase diamonds from his friendly jeweller and hands these diamonds over to Onyancha.
- Asset conversion simply involves the purchase of goods. Illegal money is converted into other assets, such as real estate, diamonds, gold and vehicles, which can then be sold.
- Generally, money launderers prefer to purchase high-value items that are small and easy to sell or transport to another country. Often these assets will be purchased in the name of a friend to avert suspicion.
- Bulk movement is a common placement technique.
- Onyancha generates a large amount of cash from his illegal business in Kenya. He boxes a large stack of cash in Computer CPU’s.
- The cash and watermelons are transported across to the Tanzania as part of a larger export shipment of Computers.
- Bulk movement involves the physical transportation and smuggling of cash and monetary instruments, such as money orders and cheques.
- Often money launderers use their cash to purchase less bulky items such as jewellery and other expensive goods. The criterion is that the items must be of high value and small, making them physically easy to smuggle as well as relatively easy to reconvert into cash at the point of destination.
- Bulk shipments of illegally obtained funds (or goods acquired with the funds) are smuggled across borders concealed in private vehicles, commercial trucks and air and maritime cargo. They may also be carried by couriers travelling on commercial airlines, trains and buses. Further, they can also be sent through parcel delivery and express mail services.
- Gambling is a common placement technique.
- Fraudulent Onyancha and friends make periodic visits to a local club where they insert illegal money into gaming machines.
- After spending an evening enjoying the local band and night life, they cash out their money. This money can now be justified as ‘winnings’ from the local club.
- Gambling is used to launder money by inserting illegal money into gaming machines and cashed out as proceeds from gambling. Funds that appear to be winnings can easily be used to justify unusual spikes in income.
Other types of gambling techniques include:
- claiming gaming machine prizes/payouts whilst not being the legitimate prize-winner (that is, not the player who has accumulated the subject credits or turnover)
- exchanging cash for or purchased gaming prizes/payouts from legitimate prize winners
- exchanging cash for prize-winning cheques. This may be coordinated by ‘spotters’ who look for winners. They target problem gamblers who may want their winnings straight away and are willing to receive 95% of the face value of the ticket
Other types of gambling techniques include:
- exchanging cash for prize-winning gaming machine tickets.
- negotiating cash loans to other members/patrons for the purposes of gambling.
- engaging in activity that may otherwise be considered illegal or contrary to responsible gambling activities. For example, some machines pay a 98% return. Patrons may work in groups on networked machines, cover as many betting options as possible and win as a group.
- Insurance purchase is a common placement technique.
- Maembe Life Insurance sells life insurance products through a large number of independent agents including Twisted Spoon Insurance Brokers. Onyancha buys life insurance policies from Twisted Spoon Insurance Brokers.
- Onyancha later redeems these policies and requests that the funds be transferred to a bank account.
- Illegal money is used to buy insurance policies and instruments, which can be ‘cashed in’ at a later date. The end result is that the illegal funds have been legitimised by being ‘washed’ through a legitimate insurance business.
- ‘Single premium’ insurance products can be particularly vulnerable. They involve a single payment ‘up-front’ and the ability to immediately purchase a fully paid instrument. To a money launderer, these products are attractive because they:
- involve a one-time payment
- have a cash surrender value
- may be transferable
- Insurance is sold through many channels. Any of these channels may be tapped by money launderers to place illegal funds.
Other Unique Placement techniques
- School fees deposited in school bank account for relatives;
- ‘Chama’ contributions;
- Financing small businesses such as butcheries, kiosks business;
- Proceeds of corruption;
- Proceeds of violent crime.