What are the three phases of money laundering?

Money laundering seems like the kind of thing that’s only a concern in blockbuster films. However, South Africa is in fact considered a hotspot for money laundering.

So, what does this actually entail, and what are the consequences of this illicit practice? JustMoney found out from a local business analyst.

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What is “money laundering” and how does it work?

According to Anusha Singh, senior business analyst at In2IT, money laundering is the process of making large amounts of money, which is generated by an illegitimate source such as drug trafficking or terrorist funding, appear as though it comes from a legitimate source.

“This is achieved by spreading the money through many bank accounts, transferring the money abroad, and investing it. The aim of this is to make it difficult for the authorities to track and trace the origin of the money,” says Singh.

She explains that one of the key factors in money laundering is that it’s an attempt to legitimise the proceeds of crime by funnelling it into legitimate financial institutions. For example, money laundering can be done in simple ways, such as paying off loans, buying properties, and even investments.

Singh says that money laundering goes through three phases:

• Placement: This is the process of physically placing cash received from illegal activities into the financial system.
• Layering: Layering is also referred to as structuring and is one of the most complex phases of money laundering. Here, the launderers start moving funds around into different accounts across various countries in smaller amounts.
• Integration: The final part of the money laundering process is to combine the illegally obtained money with legal money. This inherently makes the money look “legitimate”. At this point the money is no longer “dirty”.

Money laundering in South Africa

Singh says that South Africa has become one of the hotspots for money laundering due to its current drug problem, human trafficking rings, and demand for illicit diamonds.

She adds that most South African businesses are also still very cash intensive which makes it easy for money laundering to happen.

“Although South Africa has strengthened its Anti-Money Laundering (AML) regulations, we are still losing between $10 billion (over R167 billion) and $25 billion (over R419 billion) a year in illicit financial flows. This is due to fraudsters finding loopholes in the systems,” says Singh.

Singh believes that money laundering isn’t just plain money laundering. It also finances a lot of other crimes, which is why the South African Police Service (SAPS) and Financial Intelligence Centre (FIC), among many other authorities, are strengthening the AML regulations.

READ MORE: Are you blacklisted?

What are the penalties?

Singh explains that a person convicted of money laundering can be fined up to R100 million or sentenced to up to 30 years in jail. This applies to both an individual or a business, and is dependent on the extent of the crimes committed.

“For example, in 2019 a number of fines were imposed against local banks. These fines were enforced due to various non-compliance related issues,” says Singh.

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