Money Laundering
The three-stage model
Money laundering is the process of disguising the origin of criminal proceeds. The classic model is placement (introducing cash into the financial system), layering (obscuring the trail through transfers, shell companies or conversions) and integration (reintroducing funds as apparently legitimate). Predicate offenses vary by jurisdiction and include fraud, drug trafficking, corruption and tax evasion. Typologies to recognize: structuring/smurfing to avoid thresholds; trade-based money laundering through over- or under-invoicing; shell and front companies; round-tripping; mule and funnel accounts; real estate, casinos and virtual assets; and informal value transfer such as hawala.
Traps
Questions often imply all three stages must occur in order. They need not-stages can overlap, and a fraud proceeding wired abroad may never involve a cash placement. Structuring is a crime even when the underlying funds are legitimate. Beneficial ownership is a frequent weak point: a nominee director is not the beneficial owner. De-risking is a risk-management response, not a compliance solution.
Worked example
An importer of electronics declares goods at twice their market value and pays the overseas supplier the inflated amount; the supplier refunds the excess to a third-country account. This is trade-based laundering via over-invoicing. The red flag is a mismatch between the stated trade and the value, volume or shipping route.
Rule of thumb: money laundering analysis follows the source of funds; terrorist financing analysis follows the destination and intended use.