Understanding the 3 Stages of Money Laundering: Placement, Layering, Integration

Money laundering is a core concern in the fight against financial crime. An article by Europol states that up to 5% of our global GDP may be attributed directly to money laundering. To effectively detect and prevent it, compliance teams must understand the mechanics of how illicit funds are moved through the financial system. This process typically unfolds in three key stages: placement, layering, and integration.

In this article, we’ll break down each stage of the 3 stages of money laundering, illustrate how they work in real-world cases, and explain how financial institutions can identify red flags at each point. This foundational concept is central to designing effective anti-money laundering compliance programs and supports related topics.

What Are the 3 Stages of Money Laundering?

Money laundering transforms illegal proceeds into seemingly legitimate assets. This is done to conceal the criminal origin of the funds and allow the offender to benefit from them without raising suspicion. (See also: What Is Money Laundering and How Does It Work?) 

The process generally follows three stages:

1. Placement – introducing illicit funds into the financial system
   
   
2. Layering – obscuring the origin through complex transactions
   
   
3. Integration – making the funds appear legally earned
   
   

Each stage serves a specific purpose and presents distinct compliance challenges.

Stage 1: Placement

Placement is the first step, where illegally obtained cash or assets are introduced into the financial system. This is often the riskiest phase for criminals, as it involves moving large amounts of money into circulation—often in physical cash form—where the source can be most easily traced.

Common Placement Methods

1. Structuring Deposits (Smurfing)

Criminals break down large sums of illicit cash into smaller, less conspicuous amounts—typically just below the legal reporting threshold (e.g., $10,000 in many jurisdictions). These smaller amounts are then deposited into one or multiple bank accounts over time to avoid triggering Suspicious Transaction Reports (STRs). This method, known as smurfing, often involves the use of multiple individuals ("smurfs") to make the deposits, further reducing detection risk.

2. Using Shell Companies or Cash-Intensive Businesses

Shell companies—entities with no real operations—can be used to funnel cash into the financial system under the guise of legitimate business revenue. Similarly, cash-intensive businesses such as restaurants, car washes, nightclubs, or parking garages are ideal for mixing dirty money with legitimate takings. These businesses provide a plausible explanation for large volumes of cash without raising immediate suspicion.(Also see: Sanctions Evasion Using Shell Companies)

3. Purchasing Foreign Currency or Traveler’s Cheques

Illicit cash is converted into more mobile or anonymous instruments such as foreign currency, traveler’s cheques, or prepaid cards. These can then be transported across borders or used to facilitate the next stage of money laundering. These methods are especially popular for criminals seeking to move value without drawing attention to large bank transfers.

4. Depositing Small Amounts into Different Accounts Across Multiple Banks

Spreading small deposits across numerous banks and accounts—sometimes across different jurisdictions—helps reduce transaction visibility. This method, often part of a larger structuring scheme, adds complexity to the money trail, making it harder for financial institutions and regulators to connect the dots and identify suspicious activity.

5. Using Casinos to Convert Cash into Chips and Back

Casinos are commonly exploited during the placement stage. Criminals buy chips with cash, engage in minimal or no gambling, and then cash out with a casino-issued cheque or funds transfer. The transaction now appears to originate from legitimate gaming winnings, giving the funds an air of credibility and helping to mask their illicit origin.

Red Flags for Placement Activities

1. Frequent Deposits Just Below Reporting Thresholds

Repeated cash deposits just under the threshold for mandatory reporting (e.g., $9,900 instead of $10,000) suggest structuring. Especially suspicious are patterns of deposits across multiple branches or accounts with no clear business justification.

2. Sudden Spikes in Cash Deposits for Individuals or Small Businesses

A significant increase in the volume or frequency of cash deposits—particularly when inconsistent with known customer activity—may signal illicit activity. For example, a café averaging £2,000 in daily deposits suddenly banking £10,000 regularly without a business expansion raises concern.

3. Customers Reluctant to Disclose the Source of Funds

Individuals who avoid or resist questions about where their money comes from, or who provide vague or inconsistent explanations, may be attempting to conceal illegal origins. A lack of documentation to support their claims is another key red flag.

4. Use of Third Parties to Deposit Funds

When customers frequently send others to deposit cash on their behalf—especially individuals not formally associated with the account or business—it may indicate an attempt to distance themselves from suspicious transactions. This is often observed in smurfing operations.

Placement often intersects with Customer Due Diligence (CDD) efforts. Strong onboarding procedures, transaction monitoring, and Know Your Customer (KYC) checks are key to identifying suspicious activity early.

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Stage 2: Layering

Layering involves separating illicit money from its source by executing a series of complex transactions. The goal is to make the money trail so convoluted that authorities cannot trace it back to its criminal origin.

Common Layering Techniques

1. Wire Transfers Between Multiple Accounts in Different Jurisdictions

Funds are transferred between numerous bank accounts across different countries—especially those with strict bank secrecy laws or weak AML enforcement. These cross-border movements make it difficult for investigators to follow the trail and establish a direct link to the original criminal source. Often, the transactions are deliberately complex, routed through multiple layers of accounts in quick succession to obfuscate origin and ownership. (See also: FATF High-Risk Jurisdictions)

2. Rapid Movement of Funds Through Crypto Exchanges or Fintech Platforms

Cryptocurrencies and digital payment services offer speed, anonymity, and global reach—making them ideal tools for layering. Criminals may convert illicit funds into cryptocurrency, then split, mix, and route it through multiple wallets or crypto exchanges, including those with lax Know Your Customer (KYC) protocols. Some use decentralized finance (DeFi) platforms or privacy coins (e.g. Monero) to make tracing nearly impossible.

3. Purchasing High-Value Assets Like Art, Real Estate, or Luxury Goods

Criminals often use laundered funds to buy expensive, easily tradable assets—such as real estate, fine art, watches, yachts, or luxury cars—which can later be sold or held as stores of value. These items serve not only as investments but also as tools to convert illicit funds into legitimate-looking wealth. Art and collectibles are especially attractive due to limited regulation, subjective valuations, and opaque ownership transfers.

4. Use of Offshore Shell Companies to Create Transaction Opacity

Shell companies and trusts registered in offshore secrecy jurisdictions allow criminals to layer transactions while concealing beneficial ownership. Funds are moved between such entities under the guise of loans, royalties, consultancy services, or licensing fees, making it difficult to distinguish legitimate business from laundering. These entities often have nominee directors and lack real operations, adding further distance from the origin of funds.

5. Trading in Stocks or Derivatives to Blur the Paper Trail

Sophisticated criminals may use securities markets to further layer funds. By buying and selling shares, bonds, or derivatives—especially in illiquid or volatile markets—they can make money appear to have been gained through legitimate investment activity. These trades can involve multiple jurisdictions, brokerage accounts, and complex instruments, masking the source of funds under a veil of financial activity.

Red Flags for Layering Activities

1. Transfers to or from High-Risk Jurisdictions with Weak AML Regulations

Frequent transactions involving countries identified by FATF as non-cooperative or lacking in AML controls should be closely scrutinized. These jurisdictions are often exploited to delay or prevent detection and are a common feature in layering schemes.

2. Transactions Inconsistent with the Customer’s Known Profile or Business

A customer operating a modest local business suddenly engaging in high-frequency international wire transfers or dealing in luxury goods is a red flag. Activity that doesn’t align with the stated source of income, business purpose, or financial history often indicates laundering or suspicious layering attempts.

3. High Volume of Transfers with No Clear Economic Rationale

When funds are moved rapidly between unrelated parties or across multiple accounts without an apparent commercial or personal justification, it suggests an attempt to obscure the origin of funds. A lack of supporting documentation or vague explanations further increases the suspicion.

4. Repeated Round-Dollar Transactions in Short Timeframes

A pattern of identical or round-number transfers (e.g., $5,000, $10,000) between entities in quick succession, particularly across multiple institutions or borders, is a hallmark of layering. These transactions are often designed to appear routine but are unusual in volume and frequency.

Layering is where criminals rely heavily on global networks of shell companies and facilitators. In many cases, the Vancouver Model—a form of integrated money laundering involving real estate, casinos, and illicit networks—is a textbook example of how layering can evolve into sophisticated criminal infrastructure.

Stage 3: Integration

Integration is the final stage, where laundered funds re-enter the legitimate economy. By this point, the funds appear to originate from legal activities and can be used freely by the criminal without attracting scrutiny.

Common Integration Strategies

1. Purchasing Businesses or Real Estate as a “Clean” Investment

Once illicit funds have been layered and appear legitimate, criminals often funnel the money into the purchase of legitimate businesses, such as restaurants, construction firms, or car dealerships. These businesses not only offer cover for ongoing laundering via cash transactions, but also allow launderers to earn legitimate revenue streams that make dirty money appear clean. Similarly, real estate—especially in markets with weak oversight—is a popular target for integrating funds due to its high value, asset appreciation, and potential for rental income. (See also: AML Guide For Real Estate)

2. Issuing Fake Invoices Through Legitimate-Looking Companies

Criminals often set up or acquire companies that issue fake invoices for non-existent services or goods. These transactions create a paper trail that legitimizes incoming funds, making them appear as payments for business activities. This technique is particularly effective when the company has real operations and clients, as it becomes harder for regulators to distinguish fraudulent transactions from legitimate ones.

3. Making Loans to Oneself or Associates Using Front Companies

Another integration tactic involves creating fictitious loan agreements between shell or front companies and individuals or associates. The launderer then repays the “loan” to themselves, with interest, under the guise of servicing a legitimate financial obligation. These arrangements often involve offshore entities or complex legal documentation to mask connections between the parties involved.

4. Channelling Money Through Charities or NGOs 

Illicit funds can also be funneled through non-profits, charities, or NGOs, especially those with limited financial oversight. Donations made through shell entities can be routed to accounts controlled by the launderer or their associates. Because charitable organizations often enjoy public trust and lighter regulation, they can be used to cleanse dirty money under the pretext of altruistic giving or foreign aid.

5. Investing in Crypto Assets or High-Value Collectibles

With the growing popularity of cryptocurrencies, criminals are increasingly using digital assets to store and grow wealth obtained through illicit means. These assets are easily moved across borders, often anonymously, and can appreciate significantly in value. Similarly, art, rare wines, luxury watches, and classic cars are attractive because they can be bought with minimal scrutiny, stored discreetly, and later sold or traded to realize legitimate-looking gains.

Red Flags for Integration Activities

1. Purchase of Assets Inconsistent With Known Income Levels

When individuals or businesses with modest declared income make high-value purchases—such as luxury real estate, exotic cars, or expensive jewellery—it raises serious red flags. This discrepancy often indicates the presence of undeclared, and potentially illicit, income being integrated into the legitimate economy.

2. Complex Ownership Structures Involving Trusts or Offshore Entities

A web of interconnected companies, trusts, or nominee owners, especially across multiple jurisdictions, is a common method used to hide beneficial ownership. These structures are designed to add layers of complexity and reduce transparency, making it harder for financial institutions and regulators to determine the true source and control of funds.

3. Use of Professional Intermediaries to Obscure Control

Lawyers, accountants, and other professional service providers are sometimes used—knowingly or unknowingly—to set up trusts, draft loan agreements, or manage corporate structures that distance the launderer from the assets. The frequent use of such intermediaries, especially in the absence of a clear legal or commercial rationale, should raise suspicion.

4. Sudden Ability to Fund Large Projects or Investments

A business or individual that unexpectedly gains the financial means to undertake large-scale projects, acquisitions, or expansions—without any identifiable source of capital or financial history to support it—may be using laundered funds. This is especially concerning when accompanied by vague explanations or inconsistent financial disclosures.

Once funds are integrated, recovering them becomes significantly harder. That’s why early detection during the placement and layering stages is vital for effective financial crime prevention.

Real-World Example: How the 3 Stages Work Together

The Vancouver Model has become a notorious case study in how transnational crime syndicates exploit systemic loopholes to launder illicit funds through the financial systems of liberal democracies. First exposed in British Columbia, Canada, the model is named after the city where it flourished—but its tactics are far from local. By weaving together underground banking, casinos, and high-end real estate, this method exemplifies all three classic stages of money laundering: placement, layering, and integration.

Stage 1: Placement – From the Streets to the Tables

Every laundering operation begins with getting dirty money into the financial system—and in the Vancouver Model, casinos play a starring role. Here, criminal organizations—primarily involved in drug trafficking—deliver large amounts of cash (often in $20 bills, favored in street-level drug sales) to casinos.

Instead of gambling the money themselves, these criminal groups often “loan” the cash to wealthy foreign nationals, typically Chinese high rollers seeking to bypass China’s capital export restrictions. These individuals buy chips, play briefly, and then cash out for a casino-issued cheque, which appears to be legitimate gambling winnings. This simple transaction completes the placement stage and moves the money into the regulated financial system.

Stage 2: Layering – Smoke, Mirrors, and Cross-Border Transfers

Once the money is inside the system, the next goal is to sever the connection between the funds and their criminal origin. In the Vancouver Model, this is achieved through a combination of casino cash-outs and informal underground banking systems, many of which operate out of China.

Launderers often transfer funds through a network of shell companies, fake invoices, and cross-border money movements. The Chinese underground banks play a crucial role here: a client in Canada deposits criminal funds, and a counterpart in China releases an equivalent amount in RMB to the high roller’s family or business—no formal international transfer ever occurs, making it nearly impossible to trace.

This multi-layered web of transactions and offshore actors forms a highly effective barrier for law enforcement and regulators trying to follow the money trail.

Stage 3: Integration – Turning Dirty Money into Clean Assets

The final stage of money laundering is integration—when laundered funds re-enter the legitimate economy under the guise of lawful income. In the Vancouver Model, this often takes the form of high-end real estate purchases in Vancouver’s booming property market, as well as investments in luxury goods, cars, and private education.

Because the funds now originate from what appears to be legitimate gambling or business earnings, they can be used freely. In some cases, these assets are held long-term, generating further wealth and embedding the proceeds of crime permanently into the legal economy.

A Global Wake-Up Call

What makes the Vancouver Model particularly dangerous is how deeply it implicates legal and financial institutions. Casinos, real estate agents, lawyers, and even banks can become unwitting participants in a global laundering network. The model has triggered multiple investigations and public inquiries in Canada, including the Cullen Commission, which has called for tighter AML enforcement and regulatory reform.

Yet the techniques seen in the Vancouver Model are not unique to British Columbia. They are adaptable, mobile, and increasingly used by sophisticated crime groups around the world.

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How Compliance Teams Can Detect the 3 Stages

Each stage of money laundering leaves behind telltale signs—provided the institution has the right systems in place to detect them.

Best Practices:

• Perform robust risk-based due diligence at onboarding (especially for high-risk customers or industries)
  
  
• Continuously monitor transactions and customer behavior, especially during high-risk events (e.g., sudden cash inflows)
  
  
• Train frontline staff to recognize red flags tied to each stage
  
  
• Use dynamic case management tools that can link transactions, accounts, and entities
  
  
• Collaborate with other financial institutions and regulators to share intelligence
  
  

Integrating these practices into your Three Lines of Defence model helps ensure that AML efforts are systematic, auditable, and enforceable across teams.

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Key Takeaways

• The money laundering process typically unfolds in three stages: placement, layering, and integration.
  
  
• Each stage poses different risks and requires tailored compliance controls.
  
  
• Red flags tied to transaction behavior, customer profiles, and asset ownership can signal laundering attempts.
  
  
• Financial institutions must design systems that detect suspicious activity across all stages—especially before integration occurs.
  
  
• These foundational concepts form the bedrock of effective AML compliance and help institutions align with global regulations.
  
  

Final Thoughts

Money laundering may evolve in complexity, but the three-stage model remains a useful framework for understanding how criminals move illicit funds. For compliance professionals, this knowledge is essential—not just for detection, but for prevention.

Whether you’re updating your training, building detection models, or conducting internal audits, understanding the 3 stages of money laundering is critical to protecting your institution and your customers.

At sanctions.io, we’re committed to helping financial institutions enhance their AML workflows and meet the highest standards of compliance. Explore more of our resources or reach out for a demo of our intelligent compliance tools.

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