The financial sector is the most critical area that can either make or break an economy’s regulatory framework. However, this sector is most sensitive to money laundering and related criminal attempts. For this reason, the total number of financial breaches between 2019 to 2023 rose by more than 330%. One of the major factors behind these illicit operations is the layering of illegally acquired money in financial institutions, which leads to money laundering operations. Layering in money laundering is the critical stage for imposters as it deals with the introduction of illegal funds into legitimate financial structures.
Impact of Layering in Money Laundering – A Brief Overview
Layering in money laundering is the second stage, which is concerned with the illegal movement of unauthorized funds from one bank account to another. Money launderers facilitate layering through multiple transactional practices, which are targeted at the manipulation of financial and transactional practices.
Over the recent few years, money launderers have been focusing on intensifying the layering operations as it complicates the detection of the funds and their original sources. Moreover, imposters have been exploiting various financial institutions and platforms for the facilitation of money laundering practices.
Common Tactics Utilized During Layering Process in Money Laundering
Due to the evolution of digital financial practices, layering in money laundering has been carried out through various techniques. These techniques exploit an economy’s financial structure, and some of these illicit tactics are discussed below:
- The most prevalent layering in money laundering tactics is the exploitation of transactional activities. These measures focus on extensive forex trading and international transaction activities.
- Examples of layering in money laundering are most prominently observed through shell and offshore company transactions. These almost non-existent and unregistered companies facilitate the layering as these companies are rarely screened during transactional monitoring operations.
- The normalization of digital banking operations has stimulated the transfer of illicit funds globally while exploiting virtual banking platforms.
Red Flags Signaling the Presence of Layering Stage in Money Laundering
To identify and combat the risks associated with the facilitation of layering in money laundering, it is necessary to identify all the red flags and scenarios that highlight its presence. Layering in money laundering is often concerned with the frequent transactional patterns conducted by illicit and high-profile entities.
Additionally, when a large volume of minute transactions are carried out in short time frames, it refers to the proceeding of layered money laundering operations. Moreover, organizations must extensively investigate the transactional pattern of customers across different countries.
Variations Involved in Different Methods of Layering in Money Laundering
Money laundering layering is not a static process. Rather, it can be facilitated in multiple ways and formats. For instance, imposters find it convenient to structure large monetary sums into smaller amounts to avoid regulatory repercussions. Money launderers are also involved in currency exchanging procedures, which ensure the mitigation of illicit fund detection through screening operations.
Not only that, layering in money laundering is conducted through trading as well. Trade-based money laundering is associated with the layering stage, as the imposters misrepresent their funds to combat identification operations.
AML Process Necessary to Detect and Prevent Second Phase of Money Laundering
Layering in money laundering is very exploitative in nature, as it expands ways for imposters to transform their illegal activities into legitimate operations. Therefore, a detailed anti-money laundering screening process is critical to detect and combat these illegal practices. For this reason, organizations must focus on the following guidelines:
- Verification of all the potential customers during new account registration procedures allows businesses to identify potential criminals in real time.
- The due diligence process ensures an extensive screening against sanction lists, which enhances the identification of individuals and organizations involved in money laundering operations.
- The real time transaction monitoring and its continuous updation help organizations regulate their financial activities.
Changing Trends Related to Layering in AML
Due to the rise in e-commerce and online banking operations, the need to incorporate effective AML solutions has increased due to changing financial trends and patterns. Not only that, virtual currency transactions and online educational practices have enabled imposters to exploit their financial operations.
These changing financial trends cause businesses to integrate automated screening and biometric identification procedures. The incorporation of these measures ensures a thorough analysis of entities involved in money laundering activities. The automated transaction screening operations effectively stimulate the screening of unauthorized financial concerns.
Wrapping It Up
Layering in money laundering is the second stage through which the imposters transform illicit financial funds into legitimate accounts through various techniques and tactics. These operations exploit the overall economic and financial stability. Therefore, the implementation of an effective anti-money laundering operation is critical for restricting the impact of money launderers. Additionally, the detection and prevention of layering in money laundering is necessary to regulate financial and monetary operations. The adaptation of effective AML practices is needed to adapt to the changing regulatory environment.
