A politically Exposed Person with millions of dollars in a briefcase enters the bank premises, using his influential power and exploiting the weaker Banks’ AML regulations to make a quick transaction without any trail paper, screening, and KYC process that is how the money laundering at the first stage of money laundering is done a placement, where criminals begin their journey to disguise illicit funds as legitimate wealth.
But the real question is what allows them to engage in money laundering without raising any red flags. And what are the loopholes that will enable financial criminals to move between .8 billion dollars and 2 trillion dollars every year and make a real dent in the global economicfinancial system?
What is placement in money laundering, the loopholes in the AML regulationss, and red flags of placement will be the main areas this blog will explore.
Is Placement in Money Laundering the Start of the Real Threat?
Every crime has a place where it starts at the first stage. One can say that money laundering crimes start when the criminal action the money through corruption, fraud, and embezzlement.
However, the official stage of money laundering starts when the criminal tries to introduce the money into the financial system. Placement, and yes this is the stage where the real threat of money laundering is begun.
If the robust and comprehensive AML KYC process is implemented comprehensively, the real threat could be thwarted at the early stage of money laundering.
Red Flags in the Placement Stage of Money Laundering
If the real threat by the financial institutions is detected at the early stage, the real threat could be halted. However, knowing what the red flags could be one step ahead of money laundering.
- Unusual Cash Transactions:
Criminals often try those tactics that are less detected. Therefore, they often try to inject their illegally obtained money into the financial system.
One great way is to deposit the cash in multiple transactions. Like depositing and withdrawing cash under the threshold to avoid detection and successfully infusing the illicit funds into the legal system. This approach is also known as the smurfing or structuring technique,
- High-Value Asset Purchases:
Another major red flag of placement in money laundering is buying expensive real estate, luxury cars, or investing in artwork, which is also a major hub of money laundering for criminals. Therefore, if a person buys and sells expensive real estate property, is buying and selling expensive real estate property, it means he is trying to hide his illicit funds under these transactions.
- Third-Party Payments
Another red flag of placement is the making of payments to a person who has nothing to do with these payments and will ultimately get no benefits from such transactions. So, if a person is sending a lot of money to a person who has no family, or business relation with the receiver, it is a sign that the
- Frequent International Transfers
The frequent transactions to jurisdictions that are listed by the FATF and other regulatory bodies as the prone areas for money laundering mean, the person is somehow trying to infuse the money into the global financial system with some illicit means. Therefore, if an organization sees a rapid, unexplained transfer of funds to such jurisdiction and does not align with any client or business, mean placement is being done.
Next Steps to Prevent Red Flags from Turning into Money Laundering Activities
Red flags alerts are not enough to combat the chances of money laundering, the real effort starts as soon as you differentiate between the legal and illegal transactions at the stage of placement in money laundering.
Report Suspicious Activity
As soon as your compliance officer sees the red flags, these transactions must be filed under the suspicious activity report with the relevant financial authority or regulatory body. This will help your organization to ensure that you are active in combating the money laundering activities at every stage of the money laundering.
Freeze or Delay Transactions
If the transaction generates red flags and poses a real threat to money laundering, the financial institutions must delay or freeze such suspicious transactions or prevent the further movement of such transactions. Until the transaction is declared as a legitimate transaction, do not let this happen.
Conduct Enhanced Due Diligence (EDD)
Perform a deeper investigation into the client or transaction. This may include verifying the source of funds, requesting additional documentation, and reassessing the business relationship.
Consult Legal or Compliance Experts
To ensure the organization is complying with the AML regulations, a business must take appropriate action against such ref flags to avoid any legal penalties or fines.
Are you dealing with a high number of AML red flags?
If your business faces a higher rate of red flags it could be due to your compliance program weakness that raised the higher rate of false positives, but on the other side, it could also be a sign of money laundering at the placement stage of money laundering.