Layering is a crucial stage in money laundering where criminals disguise the source, nature, and ownership of illegally obtained funds. Money launderers achieve this by passing the illicit funds through a series of complex financial transactions, making it difficult for authorities to trace the origin of the money and connect it to criminal activity.
How Layering Works
Layering typically involves multiple transactions spread across various financial institutions and accounts. Common methods used by money launderers include:
- Smurfing: Dividing large sums of illicit cash into smaller deposits below reporting thresholds to avoid triggering bank alerts.
- Structuring: Splitting large transactions into smaller ones just below the reporting threshold, often using multiple people or accounts.
- Casinos: Converting dirty money into casino chips, then cashing out the chips, introducing an element of legitimacy.
- Shell Companies: Creating fake businesses to funnel illegal funds through seemingly legitimate transactions.
- Wire Transfers: Transferring funds between international accounts across different jurisdictions with weak AML regulations.
The Objective of Layering
The primary goal of layering in money laundering is to:
- Obscure the Origin of Funds: By moving the money through various financial channels, launderers aim to disconnect the funds from their criminal source.
- Create Layers of Separation: Each financial transaction adds another layer of separation between the initial source and the final destination of the laundered money.
- Appear Legitimate: The layering process aims to make the final form of the funds appear legitimate and earned through lawful means.
The Importance of Layering Detection
Anti-money laundering (AML) efforts focus heavily on detecting layering activities. Financial institutions and authorities employ various methods to identify suspicious transactions, including:
- Transaction Monitoring: Analyzing transaction patterns to detect unusual activity or large cash deposits/withdrawals.
- Customer Due Diligence (CDD): Verifying customer identities and understanding their business activities to assess money laundering risks.
- Sanctions Screening: Checking customers against sanctions lists to identify potential links to terrorist financing or other criminal activities.
Smile ID and AML Support
Smile ID's advanced AML Check solution offers comprehensive tools to help organisations detect and prevent layering activities. Our solution integrates automated KYC, KYB, and AML checks to streamline compliance with AML regulations:
- Facilitating Accurate Customer Identification: We ensure that businesses verify the legitimacy of their customers through robust identity verification processes.
- Enhanced Customer Due Diligence: Our tools authenticate identity documents and perform biometric verification, helping to identify and mitigate risks.
- Sanctions Screening: Our platform screens users against over 1,100 global and African sanctions, PEP, and adverse media watchlists, providing a thorough check in a few simple steps.
- Efficient Business Verification: With Smile ID, businesses can easily verify companies using only a business registration number, reducing paperwork and processing time.
- Real-Time Results: Our systems return identity verification results in an average of 2 seconds, allowing immediate assessment of user risk profiles.
- Seamless Integration: Our APIs and SDKs are designed for easy integration with existing infrastructure, ensuring smooth implementation across 54+ countries in Africa.
- User-Friendly Interface: Our solution includes image capture guides for clear document photos, even on older devices, and supports software versions as low as Android 4.4.
Conclusion
Layering is a critical technique used by money launderers. Understanding its methods and objectives empowers stakeholders within the financial system to identify suspicious activity and combat financial crime. Smile ID, through its AML Check solution, provides businesses with the tools necessary to meet AML requirements efficiently. By leveraging our comprehensive identity verification processes, organisations can strengthen their defences against money laundering and contribute to a safer, more transparent financial ecosystem. Book a free demo today to learn more about how Smile ID can enhance your AML compliance efforts.
