Bringing the money into financial system

As the dirty money is purely in the form of cash, the very first step is to bring it into the legitimate financial system. Here, banks play a major role either willingly or unwillingly. If they are willing, (as is the case in cobra post revelations) they will guide you how to do that. Otherwise, dirty money is deposited in different anonymous bank accounts in small chunks so as to make it appear a low value transaction. As low value transaction is not reported, dirty money enters the banking system safely. This process is technically termed as placement.

Hiding the source

In this step, money is made to move in such a way that it get's untraceable. It is hopped through many accounts (local/overseas), changing the currency, buying financial products or costly items like gold, etc. Basic objective is to make the transactions complex so that reverse engineering gets difficult. Technically, this process is called layering.

Receiving the money back in legitimate form

The money hopped and invested in previous step is recovered via sell transaction or overseas transfer into local accounts which is now invested in some local company. This local company is supposed to have full involvement in the whole process and more often than not promoted by the launderers themselves. This step is the final one and is termed as integration. Now, the dirty money is clean enough to be used with confidence and without fear of getting caught.

The author Bimlesh Singh is a financial advisor. He holds a Bachelor's degree from IIT and is a CFA Level 2 candidate. He can be reached at [email protected]

Courtesy:investmentyogi