Money launderers use the following three stages to hide their illicit funds: placement, layering, and integration, costing the global economy $800 billion to $2 trillion annually. The integration step of money laundering is the third and final stage.
This is what the article will cover:
- What Is Integration in Money Laundering?
- Real Estate Example of Integration in Money Laundering
- Trade-Based Example of Integration in Money Laundering
- Other Examples of Integration in Money Laundering
- Cryptocurrencies and the Integration Stage of Money Laundering
What Is Integration in Money Laundering?
Integration in money laundering is when criminals introduce illegally obtained funds into the economy through seemingly legitimate transactions - making the dirty money appear clean.
But it's important to remember this: The money is still not clean.
However, the dirty cash has now reached the end of the money laundering process, whereupon in initial inspection or investigation, it would ostensibly originate from lawful origins. At this step, crime syndicates usually feel confident that all bases are covered - and they can spend their money in the legitimate financial system exactly how they please.
There are two reasons for this:
- The mitigation of suspicion
- The successful layering of dirty money
Let's expand on the two points. First, the integration stage of money laundering is about mitigating the suspicion risk.
If requested, criminals can easily produce lawful, genuine invoices and receipts (obtained in the integration step) proving where the money came from. And at first glance, everything seems in order.
But what happens if persistent investigators or compliance officers seek further clarity on the source of the funds? Well, the criminals could still feel relaxed. Why? Because the money trail may lead to a shell company in a jurisdiction with strict Ultimate Beneficial Owner (UBO) laws (a common tactic in the layering stage). It's a dead end.
And the reality is this: Although there is suspicion, illegal activity must be proved, and a vast amount of money launderers get away with it. They are then free to spend their ill-gotten gains in the legitimate financial system.
The following sections will examine various tangible scenarios of the integration stage in money laundering.
Real Estate Example of Integration in Money Laundering
First, let's look at a more straightforward way money launderers integrate dirty money into the legitimate economy - through real estate. And we can analyze a simple example to get started.
Imagine this scenario:
- A bank has an active money-laundering criminal in its books
- The criminal receives $250,000 in their account
- The bank's AML transactional screening software detects this suspicious activity and raises a red flag
- The bank asks its client to provide documentation to verify the source of the funds
And is the criminal worried? Maybe not.
The criminal informs the bank that he sold an apartment he owns - and provides all the legal and correct documentation for the legitimate property sale. Of course, the bank doesn't know how the criminal purchased the apartment.
But what if the bank asks for further evidence of the source of funds? What if they submit a Suspicious Activity Report (SAR) to a regulatory body? Again, the criminal may feel that everything is under control.
Because of effective layering (the previous stage), all investigative routes lead to a dead end - such as a shell company in a jurisdiction with stringent privacy laws.
Learn more about real estate and money laundering in sanctions.io's AML Guide for the Real Estate Industry.
Trade-Based Example of Integration in Money Laundering
Now let's dig a little deeper and analyze a more complicated example of the integration stage of money laundering.
In this three-part series of blog posts covering the placement, layering, and integration stage of money laundering, we have examined the HSBC money laundering scandal. Between 2006-2010, the Mexican arm of HSBC became the 'bank of choice' for drug cartels - including Colombian traffickers.
In the placement stage, in a significant compliance breach, traffickers used custom-made boxes that perfectly fitted the dimensions of the tellers' windows at Mexico HSBC branches when depositing undetected dirty cash into accounts. The illicit funds were then wired to businesses in the trafficker's network in the US (and elsewhere) and went through the layering process - where it eventually found its way to Colombia.
But what happened next?
In the case of the Colombian drug traffickers, a strategy they used to clean and integrate the dirty cash was Trade-Based Money Laundering (TBML) - a type of money laundering that involves the use of international trade transactions to move money across borders (in this example, expensive consumer goods like televisions and washing machines).
And this happened next: After the layering stage (complicated trade transactions), the money launderers exported the consumer goods to Colombia, reselling them to wholesalers to generate clean cash. The dirty money was then integrated back into the financial system through Colombian banks - with the appearance of legitimate transactions (import & sale of consumer goods), significantly reducing suspicion.
The money launderers integrated the illicit funds successfully. And they thought they had got away with it. But what later caught them was an extensive and highly-public investigation into HSBC that resulted in a $1.92 billion fine by US authorities.
Other Examples of Integration in Money Laundering
Let's now examine some other ways money launderers integrate illicit cash into the legitimate economy:
Money launderers use legal casinos to clean their ill-gotten gains by converting large amounts of funds into chips, playing games, and then cashing out with clean money (and genuine receipts). Here is an example from the sanctions.io blog.
Investing in Legitimate Businesses
Crime syndicates can invest illegally-gained money into regular, law-abiding businesses. The company dividends appear clean on initial inspection.
Through Life Insurance Products
The life insurance sector is rife with nefarious long-game money laundering schemes. Criminals pay premiums with illicit money. They then cash out and integrate the illegal funds when associates or family members pass away (it's also possible to cash out a life insurance policy before death.)
Learn more in sanctions.io's AML Guide for the Insurance Industry.
Purchasing High-Value Assets
This works in the same way as purchasing real estate and later selling it. High-value assets may include expensive jewelry, sports cars, yachts, and pricey artwork.
Cryptocurrencies and the Integration Stage of Money Laundering
Crypto money laundering is growing significantly in the underworld. And in 2022, $23.8 billion in digital currency was transferred through illicit addresses.
In sanctions.io's post about the placement stage of money laundering, we discussed how criminals exchange dirty money (literally bags full of dollars) for crypto using, for example, Bitcoin ATMs with weaker compliance and unregulated crypto exchanges. And in the layering stage, money launderers use complicated methods such as crypto mixing, privacy coins, and chain-hopping to create dead-ends in the dirty money trail.
But how is illegal money then integrated into the legitimate economy as fiat currency?
As crypto is now ubiquitous in today's financial world (even the UK's central bank is considering the case for a digital pound), criminals are applying the same methods as with fiat currency for integrating illegal funds, such as:
- Purchasing real estate (and other high-value products) with crypto
- Investing in legitimate businesses with crypto
- Using online crypto casinos
In all the examples above, money launderers can then receive fiat currency. For example:
- By selling an asset originally bought with crypto
- Receiving fiat currency dividends from a business investment paid with crypto
- Cashing out from crypto casinos (and then exchanging to a fiat currency)
As with non-crypto integration stage money laundering, the same applies: Criminals can produce seemingly legitimate transactions proving the source of funds - mitigating suspicion. And successful layering techniques mean that dirty money trails often lead to a dead-end.
Learn More about Money Laundering
You can learn about the three stages of money laundering and what businesses should do to combat money laundering on the sanctions.io blog.
To find out more about ways to detect and prevent money laundering within your organization, contact sanctions.io for an obligation-free discussion. We enable intelligent AI-powered sanctions, PEP, and criminal watchlist screening for your AML, KYC & trade compliance screening needs.