What are the 3 stages of money laundering?

Money laundering is a global challenge that fuels organised crime, corruption, tax evasion, and terrorism. The United Nations Office on Drugs and Crime (UNODC) estimates that less than 1% of illicit financial flows are detected or confiscated, illustrating the scale and sophistication of today’s laundering networks.

Understanding the 3 stages of laundering is essential not only for banks and fintech firms, but also for insurers, crypto platforms, professional service providers, and anyone subject to anti-money laundering (AML) regulation.

Today, our team will answer "What are the 3 stages of money laundering?". We'll give an overview of the common methods used in each stage, the different risks, and how to prevent money laundering.

What are the 3 stages of money laundering?

Money laundering typically progresses through three phases:

1. Placement: introducing illicit funds into the financial system

2. Layering: obscuring the origin through multiple movements and transactions

3. Integration: reintroducing the funds as seemingly legitimate wealth

Each stage requires a different compliance lens.

Stage 1: Placement

Placement is the stage where illicit funds enter the system.

It's the riskiest phase for criminals because it requires converting physical cash or illicit proceeds into a format that enters the regulated financial system. This is where detection is most likely.

Common placement tactics include:

• Depositing cash into bank accounts or money service businesses;

• Using cash-intensive businesses such as restaurants, nightclubs, or casinos;

• Purchasing high-value goods such as vehicles, jewellery, or precious metals;

• Structuring large sums into smaller deposits to evade threshold reporting (“smurfing”);

• Using money mules, a common money laundering scheme, or complicit third parties;

• Trade-based laundering (over-/under-invoicing, phantom shipments).

Trade-based money laundering (TBML) is recognised by FATF as one of the most complex and significant laundering channels globally.

While not quantified at “80 percent”, FATF warns that TBML is widely used due to its ability to disguise illicit funds within legitimate international trade.

Red flags at the placement

Financial institutions should watch for:

• Structuring deposits just below reporting thresholds;

• Customers with no clear source of funds or suspicious cash activity;

• High-volume cash deposits inconsistent with business profile;

• Businesses with unclear ownership or no legitimate operational footprint;

• Unusual use of DNFBPs (lawyers, real estate agents, dealers in precious metals).

Strong CDD, beneficial ownership verification, and transaction monitoring are essential at this stage.

Stage 2: Layering

Layering is the most sophisticated stage involving a series of transactions designed to break the audit trail and distance funds from their criminal source.

This phase often includes cross-border transfers and complex structuring.

Layering techniques include:

• Rapid electronic transfers between multiple accounts and jurisdictions

• Use of shell companies, offshore entities, or trusts;

• Professional money laundering networks (PMLNs);

• Purchasing and selling financial instruments, commodities, or artwork

• Cryptoasset layering through mixers, tumblers, or cross-chain bridges;

• Trade misinvoicing and false documentation;

• Converting cash to digital assets and vice versa;

• Use of nominee directors or straw men.

Our expertise and experience show us that digital banking, instant payments, and crypto have significantly accelerated layering velocity.

Funds can move through dozens of accounts in minutes, making detection challenging.

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Why layering is hard to detect

FATF and EU AMLD6 highlight that layering often exploits:

• Weak beneficial ownership registers

• Jurisdictions with limited AML supervision

• Gatekeepers such as lawyers, accountants, and corporate service providers

• Fragmented monitoring systems within financial institutions

Machine learning, behavioural analytics, and network graphing can help identify hidden relationships, but human oversight remains critical.

Stage 3: Integration

Integration in money laundering is the point at which laundered money re-enters the legitimate economy.

At this stage, funds appear to originate from lawful activity, making detection extremely challenging.

Common integration channels include:

• Purchasing real estate, commercial property, or luxury assets;

• Investing in legitimate businesses or start-ups;

• Using front companies with real operational turnover;

• Creating intra-group loans or financing arrangements;

• Mixing illicit funds with legitimate business revenue;

• Participating in financial markets or private equity;

• Funding charitable or community organisations to mask origins.

Integration often looks indistinguishable from genuine economic activity, which is why ongoing monitoring (FATF Recommendation 10) and enhanced due diligence for high-risk relationships are essential.

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How companies detect and prevent money laundering

The role of financial institutions and legal and regulatory frameworks

Financial institutions, fintech firms, crypto platforms, insurers and DNFBPs serve as the first line of defence.

AML programmes must meet regulatory expectations under frameworks such as:

• FATF Recommendations

• US Bank Secrecy Act & USA PATRIOT Act

• EU AMLD6 & upcoming EU AML Authority (AMLA)

• CBUAE AML Rulebook (2023)

• SAMA AML/CFT Regulations

• UK Money Laundering Regulations (MLR 2017 + amendments)

A compliant AML programme typically includes:

• Governance and oversight: Board responsibility and MLRO accountability;

• Risk assessment: Enterprise-wide and customer-level;

• CDD/EDD: Verification of identity, beneficial ownership, and source of funds.

• Ongoing monitoring: Risk-based transaction monitoring and sanctions screening;

• Suspicious Activity Reporting (SAR/STR): To the FIU.

• Training: Regular staff AML training;

• Independent audit: Testing effectiveness of controls;

• Record-keeping: Retention for 5–10 years depending on jurisdiction.

Institutions that treat AML as a strategic function, not a box-ticking exercise, are significantly more resilient to financial crime.

Read also: The best sanctions screening software

How technology strengthens AML

AML has shifted from manual reviews to intelligence-driven systems.

Regulators increasingly expect institutions to adopt technology that improves accuracy and reduces risk.

Modern AML tools support:

• AI and pattern recognition: Identifies unusual patterns not detectable by rules-based systems.

• Machine learning for anomaly detection: Learns from historical cases and flags emerging typologies.

• Advanced sanctions and PEP screening: Uses fuzzy matching, NLP and phonetic algorithms to reduce false positives.

• Blockchain analytics: Tracks crypto transactions, identifies mixing patterns and risk scores wallets.

• Entity resolution and identity graphing: Links customer records, devices, geolocation and behaviour to reveal interconnected risks.

• Perpetual KYC: Continuously updates customer risk profiles instead of relying on periodic reviews.

Why azakaw is the perfect choice for your business

At azakaw is an end-to-end solution that prevents money laundering and financial crimes.

It's one of the most comprehensive AI-driven platforms, and it integrates:

• onboarding checks

• transaction monitoring

• sanctions screening

• adverse media screening

• real-time risk scoring

• real-time ID verification

• customised non-coded onboarding workflows

  
  

It results in a unified compliance ecosystem designed by practitioners who have worked inside banks, regulators, and financial intelligence units.

Technology is essential, but it does not replace human judgment. The best AML outcomes combine automation with experienced compliance professionals.

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FAQs

What is placement vs layering vs integration?

Placement is injecting illegal money into the financial system, layering is the process of moving illegal funds through multiple transactions in order to conceal their source, and integration is the process of returning the money to the criminal in a way that appears to be legitimate.

Conclusion

To combat financial illegal activities effectively, organisations must understand the three stages of money laundering and apply a risk-based approach across each one.

Strong onboarding, continuous monitoring, accurate data, trained staff, and modern technology form the foundation of an effective AML programme.

Across our work with banks, fintechs, crypto providers, and high-risk industries, we have seen that the strongest defences come from vigilance, innovation, and collaboration.

By aligning with global AML standards, investing in smart technology, and protecting the integrity of financial systems, institutions can reduce financial crime and build lasting trust.

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