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2003 April Report of the Auditor General of Canada Exhibit 3.2—The money-laundering process

2003 April Report of the Auditor General of Canada

April 2003 Report—Chapter 3

Exhibit 3.2—The money-laundering process

Money laundering is generally described as a three-stage process intended to make the profits or proceeds of crime appear legitimate.

1. In the initial or placement stage of money laundering, the launderer introduces the criminal proceeds into the financial system.

  • This might be done by breaking up large amounts of cash into less obvious smaller sums that are then deposited directly into a bank account. The criminal might put the money into other forms such as cheques or money orders that are then collected and deposited into accounts at another location.
  • It is at this stage that potential money laundering can be most easily detected.

2. After the funds have entered the financial system, the second—layering—stage takes place. In this phase, the launderer engages in a series of changes, or moves the funds several times to create distance from the source.

  • The funds might be used to buy and sell investments such as stocks and bonds. The launderer might wire the funds through a series of accounts at various banks around the world.
  • In some instances, the launderer might disguise the transfers as payments for goods or services. This would give them a legitimate appearance.

3. Having successfully processed the criminal proceeds through the first two phases of the money laundering process, the launderer then moves them to the third stage—integration—in which the funds re-enter the legitimate economy.

  • The launderer might choose to invest the funds in real estate, luxury assets, or business ventures.
  • At this third stage, it is very difficult to distinguish between legal and illegal funds.

 

Source: Based on information from the Financial Action Task Force on Money Laundering