CHAPTER 2

DESCRIPTION OF MONEY LAUNDERING

Section 2.1.  Money Laundering is a process intended to mask the benefits derived from serious offenses or criminal conduct as described under the Act, so that they appear to have originated from a legitimate source.

Section 2.2.  Generally, the process of money laundering comprises three stages, during which there may be numerous transactions that could alert a Regulated Intermediary to the money laundering activity:

(a)  Placement  -  the physical disposal of cash proceeds derived from illegal activity.

(b)  Layering - separating illicit proceeds from their source by creating complex layers of financial transactions designed to disguise the audit trail and provide anonymity.

(c)  Integration  -   the provision of apparent legitimacy to criminally derived wealth.  If the layering process has succeeded, integration schemes place the laundered proceeds back into the economy in such a way that they re-enter the financial system appearing to be normal business funds.

Section 2.3.  Because of the nature of the business relationships entered into by and among clients and the Regulated Intermediaries, which are no longer predominantly cash-based, they are less conducive to the initial placement of criminally derived funds than other financial industries such as banking. Most payments are made by way of checks from another financial institution and it can therefore be assumed that the first stage of money laundering has already been achieved.  Nevertheless, the purchases by cash is not unknown and the risk of the business being used at the placement stage cannot be ignored. The business of these Regulated Intermediaries are most likely to be used at the second stage of money laundering i.e. the layering process, as they provide a potential avenue which may allow a dramatic alteration of the form of funds – from cash in hand to cash on deposit, from money in whatever form to an entirely different asset such as securities, investment contracts, pension plans, insurance policies, stock certificates, pre-need plans, bearer and other negotiable instruments. Investment transactions incorporate an added attraction to the launderer in that the alternative asset is normally highly liquid.  The ability to liquidate investment portfolios containing both lawful and illicit proceeds, whilst concealing the criminal source of the latter, combined with the huge variety of investments available, and the ease of transfer between them, offers the sophisticated criminal launderer an ideal route to effective integration into the legitimate economy.  Due diligence must, therefore, be exercised to prevent the use of these Regulated Intermediaries as instruments for money laundering.

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