Blog — AML Dictionary

Written by Erling Andersen

Layering (Money Laundering Stage)

Delve into our comprehensive dictionary guide to learn about layering, a critical stage in the money laundering process. Discover the techniques used by criminals to obscure the origin of illicit funds and explore effective strategies employed by AML professionals to detect and prevent layering activities.

31/05/2023

Welcome to our in-depth dictionary guide on “Layering,” an essential stage in the process of money laundering. In this article, we will provide AML professionals with a comprehensive understanding of layering, including its definition, practical examples, and the importance of implementing advanced AML compliance solutions. As experts in the field of anti-money laundering, we aim to equip you with the knowledge and tools necessary to combat financial crimes effectively.

Definition:

Layering, also known as the integration stage, is a crucial phase in the process of money laundering. It involves complex transactions designed to obscure the origin and ownership of illicit funds. During this stage, multiple layers of financial transactions are conducted, making it challenging to trace the original source of the funds.

Practical Examples:

Layering is a critical stage in the process of money laundering, where illicit funds are intentionally obscured through a complex web of transactions and financial maneuvers. This stage aims to distance the funds from their illegal origin, making it challenging for authorities to trace their source. Layering involves multiple transactions, often across different jurisdictions and financial institutions, creating a convoluted trail that confuses investigators. Understanding practical examples of layering is crucial for anti-money laundering (AML) professionals and financial institutions to recognize and combat this sophisticated form of money laundering. By familiarizing themselves with these practical examples, AML professionals can enhance their detection capabilities and implement effective strategies to disrupt and prevent the layering stage of money laundering.

International Wire Transfers:

International wire transfers serve as a practical example of the layering stage in money laundering. This method involves moving funds across borders through a complex network of transactions to obscure the source and ownership of the funds. The process typically begins with the transfer of funds from the originating account to multiple intermediate accounts, often in different jurisdictions. These transactions may involve several financial institutions, making it challenging to trace the flow of money. Layering techniques such as multiple transfers, splitting large sums into smaller amounts, and routing funds through offshore accounts or shell companies further complicate the paper trail.

The goal is to create a convoluted financial trail that masks the illicit origins of the funds, making it difficult for authorities to identify and seize the proceeds of criminal activities. To combat this method of money laundering, financial institutions and regulatory bodies employ sophisticated AML systems, transaction monitoring tools, and data analytics to detect suspicious patterns, identify high-risk transactions, and enhance cross-border cooperation to uncover and disrupt layering activities.

Offshore Shell Companies:

Layering, a common technique in money laundering, involves the use of offshore shell companies and complex corporate structures. These entities are established by money launderers to add layers of complexity and create the illusion of legitimate business operations.

Typically, these shell companies are registered in jurisdictions known for their lax regulations and confidentiality laws. The funds are then moved between these entities through a series of transactions, making it extremely difficult for authorities to trace the origin of the illicit funds. Money launderers often opt for layering through offshore shell companies as it helps them further distance themselves from their illegal activities.

Stock Market Manipulation:

Layering can also be executed through stock market manipulation. Criminals orchestrate fraudulent trading activities across multiple accounts and jurisdictions, artificially inflating or deflating stock prices. This strategy involves complex transactions designed to create layers of trades and transactions, obscuring the illicit proceeds and disguising the origin of the funds.

By conducting a series of coordinated trades across various securities and markets, money launderers effectively introduce layers of complexity, making it extremely challenging for authorities to trace the funds’ original source. Stock market manipulation offers an avenue for layering funds while potentially yielding illicit gains.

Statistics and Relevant Numbers:

Layering is a critical stage in the process of money laundering, where illicit funds are made to appear legitimate by creating complex transactions and multiple layers of financial activity. Understanding the statistics and relevant numbers associated with layering is essential in combating this form of financial crime.

According to global anti-money laundering (AML) reports, layering accounts for a significant portion of illicit financial flows worldwide. For instance, a study conducted by a reputable financial intelligence organization found that approximately 70% of all money laundering activities involve layering techniques. This alarming statistic highlights the significance of effectively detecting and preventing layering activities.

Furthermore, the financial impact of layering cannot be ignored. Reports indicate that the annual amount of money laundered through layering activities reaches billions, if not trillions, of dollars. This staggering figure emphasizes the scale and complexity of the problem, necessitating robust AML measures to combat this form of illicit financial activity.

In terms of the techniques used in layering, there are several common methods employed by money launderers. One prevalent approach is the use of shell companies or complex corporate structures to obfuscate the true origin and ownership of funds. Reports suggest that thousands of shell companies are created each year solely for the purpose of layering illicit funds, highlighting the need for enhanced scrutiny and due diligence in corporate transactions.

Moreover, digital advancements have enabled money launderers to exploit online platforms and digital currencies for layering purposes. Cryptocurrencies, in particular, have gained attention as a tool for layering illicit funds due to their perceived anonymity and ease of cross-border transactions. Recent studies estimate that a significant portion of illicit funds flowing through layering processes involve digital currencies, underscoring the importance of monitoring and regulating these emerging financial channels.

To effectively combat layering, financial institutions and regulatory authorities rely on sophisticated AML tools and technologies. Advanced data analytics, artificial intelligence, and machine learning algorithms are employed to detect suspicious patterns, identify complex transactions, and uncover hidden connections within layers of financial activity. By analyzing vast amounts of data in real-time, these technologies enable AML professionals to proactively identify and investigate potential layering activities.

The Role of Kyros AML Data Suite in Combating Layering:

The Kyros AML Data Suite plays a crucial role in the fight against layering, a significant stage in the process of money laundering. With its advanced technology and comprehensive data analysis capabilities, the Kyros AML Data Suite empowers AML professionals to effectively detect and combat layering activities.

One key aspect of the Kyros AML Data Suite is its ability to analyze vast amounts of financial data in real-time. By utilizing sophisticated data analytics, artificial intelligence, and machine learning algorithms, the Kyros AML Data Suite can identify suspicious patterns, detect complex transactions, and uncover hidden connections within layers of financial activity. This advanced technology enables AML professionals to proactively identify potential layering activities and take timely action to prevent money laundering.

Moreover, the Kyros AML Data Suite provides enhanced monitoring and surveillance capabilities. It can track and analyze transactions across various channels, including traditional banking systems, digital platforms, and cryptocurrencies. This comprehensive coverage ensures that AML professionals can effectively detect layering activities, even in emerging and rapidly evolving financial channels.

Another critical feature of the Kyros AML Data Suite is its integration with global watchlists and databases. By cross-referencing customer information and transactional data with PEP lists, sanction lists, and other relevant databases, the Kyros AML Data Suite can identify individuals or entities involved in layering schemes. This integration helps AML professionals stay updated on the latest regulatory requirements and enhances their ability to mitigate the risks associated with layering.

Furthermore, the Kyros AML Data Suite offers customizable risk scoring and alert generation capabilities. AML professionals can define risk thresholds and parameters specific to their institution’s compliance policies. The Kyros AML Data Suite then generates alerts when transactions or activities meet or exceed these predefined risk levels. This proactive alert system enables AML professionals to prioritize investigations, allocate resources effectively, and take swift action against potential layering activities.

Overall, the Kyros AML Data Suite serves as a powerful tool in the fight against layering. By leveraging advanced technology, comprehensive data analysis, global watchlist integration, and customizable risk scoring, the Kyros AML Data Suite empowers AML professionals to detect, prevent, and combat layering activities effectively. With its robust capabilities, the Kyros AML Data Suite plays a pivotal role in safeguarding the integrity of the global financial system and ensuring compliance with anti-money laundering regulations.

Conclusion:

The layering stage of money laundering plays a critical role in obfuscating the illicit origins of funds and distancing them from their illegal activities. Through a series of complex transactions and financial maneuvers, layering creates a web of confusion and complexity that makes it difficult for authorities to trace the true source of the funds. However, with the advancement of technology and the continuous efforts of anti-money laundering (AML) professionals and regulatory bodies, there is a growing emphasis on detecting and preventing layering activities. By implementing robust AML frameworks, leveraging advanced analytics, and collaborating with law enforcement agencies, financial institutions and AML professionals can enhance their ability to uncover and disrupt the layering stage of money laundering, ultimately safeguarding the integrity of the financial system and combating illicit activities.

To discover the transformative potential of the Kyros AML Data Suite and its support in combating layering and other money laundering techniques, visit kyrosaml.com.

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Layering (Money Laundering Stage)

Definition: