What Are The Three Stages of Money Laundering and How to Combat it?

UAE has been known for the competitive advantages that it has provided to businesses. Businesses around the world are looking up to the UAE in order to set up their businesses. This increase in competition and business operations also results in an increase in the risk of fraud and malpractice. One such potential fraud is the money laundering to which multiple businesses in the UAE are exposed. It is high time now to understand the concept of money laundering and the indications that can assist businesses in detecting the presence of money laundering risks.

As a team of experts, it is our responsibility to enrich the clients and the business owners regarding multiple money laundering risks and the ways to combat them. This blog highlights the different stages of money laundering that are to be kept in mind and the various ways through which it can be combatted.

A Peek Into The Money Laundering Process

Money laundering is the process by which the criminals try to hide or conceal the true origin of the funds generated by the illegal means. The criminals may control the movements and the transfer of funds, which can be depicted as the funds earned through legit sources.

As a part of compliance with the AML laws of the UAE, the entities in the UAE are required to get a clear understanding of the money laundering process and the possible risks that the businesses would face.

You can also read: How to Apply for a VARA License For New Firms in the UAE?

Stages of Money Laundering

The stages of money laundering include the processes through which the criminal may attempt to launder the illegal money they have generated. There are 3 stages, which include placement, integration, and layering:

Stage 1: Placement

This is the first stage in the money laundering where the criminal injects the illegal funds into the financial system. These funds are broken down into small amounts and then invested in other assets or financial instruments, through which these are then shown as clean money.

Example:

An example of the placement process in money laundering may include the repayment of any debts or loans with the illegal money.

The processing of illegal money through businesses creating fake invoices and converting it to legal funds.

The further examples may include the purchase of assets such as real- estate, high-value assets, or any other asset that would be easier to conceal.

Stage 2: Layering

The money laundering process does not only include the placement stage, but it is also followed by the layering stage, whereby the funds that are placed are then moved around in the financial system with the motive of creating a legitimate history of the source of funds and disguising it.

Example:

An example of a layering process may include the transfer of money from one account to another and continuing this process, whereby making it a complex set of transactions, making it impossible to track and detect the actual source of illegal funds.

Other examples also include the channelling of funds through businesses that are owned by the criminals. The funds are used for the operations of the business, or they may be stated as loans for the purpose of businesses, which might be dummy businesses.

Another potential way of layering includes the cryptocurrency transactions, whereby the true origin of funds is hidden, the identity of the transferor, and the recipient might be anonymous.

Stage 3: Integration

The final process of the money laundering includes the integration stage. In this stage, the money that is placed and layered through various transactions re-enters the economy, which is now clean, and the tracing of the origin of the funds in this stage would be complex and difficult.

Example:

An example of integration might include the accumulation of the small amounts of illegal funds and transferring back to a legitimate bank account of the criminals.

Further, it might also include the creation of fake payroll, including employee details who do not even exist, through which the funds can be paid to the account linked to such names and hence can be used as legitimate funds.

How Should You Combat Money Laundering?

There are various strategies and policies that the businesses in the UAE can implement in order to reduce the risk of money laundering and detect fraud beforehand. Some of the common strategies include:

• Implementing an AML compliance program
• Training the employee regarding the money laundering risk and procedures for avoiding such risks
• Streamlined communication must be implemented whereby there is a transparent operating system in the businesses, enhancing the reporting of each activity.
• Ensuring compliance with the AML-CFT laws is yet another way through which the risks of money laundering can be mitigated.
• Hiring professionals for auditing and accounting needs, whereby the suspicious transactions and possible money laundering instances can be evaluated.

Combatting Money Laundering with CDA

Being one of the leading accounting firms in UAE, CDA considers itself a personalized service provider eagerly looking up to understand your requirements and serve accordingly. We can assist your businesses in the UAE to understand the possible risk of money laundering and implement strategic solutions that reduce the loopholes in the business. Our team can provide guidance related to the compliance of the AML-CFT laws and avoiding any circumstances of the penalties or fines. To explore more about CDA’s custom-tailored services, contact our team now.