Money laundering, which plagues the economies of almost every country in the world is a multi-fold process. The process involves using illegally acquired money and concealing the source of that money so that it appears to be legal. This seemingly non-complicated process has three levels or three steps of camouflaging. The most important activity that is the first domino of the process is acquiring money from illegal sources which won’t be recognised in the books. From this, emerges the need to launder money. The first problem that needs to be solved which also is the first step in the process. The problem with money acquired from illegal activities is that they are usually huge amounts, due to the nature of their source. They are also generally liquid in nature.

Placement

To avoid investigative authorities from tracing these huge amounts which are very easy to track, they are broken up into several smaller amounts. These smaller amounts are then pumped into the legal financial systems by way of investments and savings. This is called placement. Generally, capital markets and banks are chosen for this purpose. This process of ‘placement’ is identified as an enormous issue by financial investigators. To tackle this problem, around the world, including in India, banking regulators have made it mandatory for customers to fill ‘Know Your Customer’ details to make it possible for the bank to trace the source of the money and therefore, ascertain the fact whether the particular amount is legal. On a global scale, currency exchange is seen also as a viable alternative for the conversion of such money into meaningful and legal money. This has become more convenient because of the increasingly global outreach. To prevent this from happening, international regulatory bodies have set up certain vigorous standards but it hasn’t stopped a thriving black market to channelize this alternative to the ones who need it. Another way which has been used to place their illegally obtained is by investing in luxurious goods such as aesthetic artefacts or paintings. 

Layering

The second step in the process is called layering which is the creation of multiple steps of transactions. This makes it considerably more complex for authorities to trace the money. Layering can be done in two different ways, one of which is converting it into money instruments such as a money order after the stage of placement ends. The other way is to acquire assets and resell them which makes the tracing of original ownership and capital remains difficult and complex. Many opt to transfer this money into offshore bank accounts which hold these amounts as shell companies. Special Purpose Vehicles have emerged as another option for layering which can be acquired off-books and very easily available. They are held in a network of complex shell companies kept separate from their subsidiaries by Special Purpose Vehicles which make it quite convenient to conceal illegal money. 

Integration

The third and the final step in the process of money laundering is known as ‘integration’. In simple words, it is the step where the illegal money is reintroduced in the economy. This happens through banking channels which ensure that it can be circulated again in the economy. Opening up businesses in jurisdictions where laws on incorporation are lenient and do not concern themselves with the source of investments.