Money Laundering and Terrorist Financing Risks
Think in risk drivers, not labels
The three classic stages - placement, layering, integration - describe a cash-based laundering model, not a universal law. Wire fraud proceeds never touch cash and may skip placement entirely; some schemes never reach integration. Questions reward candidates who can identify which stage a fact pattern shows, not who can recite definitions.
Typologies worth recognizing on sight: structuring/smurfing, trade-based laundering (over- and under-invoicing, phantom shipments, carousel trade), shell and shelf companies, funnel accounts, third-party payment processors, virtual assets and mixers, real estate, casinos, and precious metals. Terrorist financing has a different profile: amounts are often small, funds may be entirely legitimate in origin, and the objective is availability for use rather than hiding provenance. Monitoring tuned only to cash placement will miss it.
Risk factors cluster into four buckets - customer, country/geography, product or service, and channel/delivery. Risk is cumulative, not averaged: a politically exposed person in a cash-intensive business, banking through an offshore intermediary in a jurisdiction with weak supervision, sits at the top of the scale even if each factor alone looks tolerable. This is the basis of the risk-based approach endorsed by the FATF.
Worked example (rule of thumb): deposits of $9,400, $9,600 and $9,200 over six days at three branches of the same bank. Any single item is unremarkable; together they evidence deliberate avoidance of a reporting threshold. Ask first whether the activity fits the customer's documented expected profile, then whether the pattern is explainable by ordinary commerce. If not, it is a structuring indicator regardless of the amounts involved.
Trap: "All laundering involves three sequential stages" and "small amounts cannot be terrorist financing" are both false.