Money laundering is a concept that refers to the integration of money or goods into the legal, economic system coming from illegal means, although appearing legal and introduced through different methods (Tondini, 2006).
Money laundering process
Money laundering has different phases before getting integrated and finally deposited as part of the legal, financial system. Their names might vary according to different expert jurists, but almost everyone indicates three main stages – placement, stratification or transformation, and integration or investment of funds (Tondini, 2006). Thus, the procedure through which money laundering is done is the following:
- Placement Stage: it is the first step within the money laundry process. Here the illegal funds are being introduced into the economic system (Tondini, 2006). It is considered the most complicated stage (Brot, 2002), and it is usually done by agents outside the criminal organization. In this stage, cash funds are deposited in different easy bank accounts with several names; money is also converted to metals or precious stones. Other businesses that might laundry money are casinos, restaurants, hotels, night businesses.
- Stratification or transformation Stage: in this stage, it gets more difficult to detect the laundering. Money is transferred from one bank account into another, from one business into another, or direct to tax havens – both in cash and electronic means – this way makes it difficult to control and finding its origin (Brot, 2002). The objective of this second stage is to acquire assets and transform them as if they were legal (Tondini, 2006). Here it is worth mentioning that money is moved very fast. It normally ends up in an offshore deposit or tax haven for the money to circulate within different countries and institutions. According to the Financial Action Task Force on Money Laundering (FATF), the most important means in the transferring of money is by electronic means.
- Integration or Investment Stage: This last stage is the most difficult to detect in practice. Illicit activities are already part of the economy and appear legal; thus, they become normal (Tondini, 2006). Once the launderers reach this stage, it is very difficult to notice legal funds from illegal funds, for they are mixed.