Money laundering is the process of making illegally obtained money appear legitimate by disguising its criminal origin.
The Three Stages
1. Placement
Introducing illicit cash into the financial system:
- Cash deposits below reporting thresholds (structuring)
- Currency exchanges
- Cash-intensive businesses (restaurants, car washes)
- Gambling (buying chips with cash, cashing out “winnings”)
2. Layering
Creating complex transaction trails to obscure the source:
- Multiple transfers between accounts
- Shell companies and nominee owners
- Cross-border transactions
- Trade-based laundering (over/under invoicing)
3. Integration
Returning cleaned funds to the launderer as legitimate income:
- Real estate purchases
- Luxury goods
- Business investments
- Loan repayments
Scale of the Problem
- Estimated 2-5% of global GDP laundered annually
- $800 billion to $2 trillion per year
- Enables drug trafficking, terrorism, corruption, fraud
How KYB Fights Money Laundering
KYB targets laundering at multiple points:
| KYB Activity | Anti-Laundering Effect |
|---|---|
| UBO verification | Exposes true parties behind shell structures |
| Sanctions screening | Blocks known bad actors |
| PEP screening | Identifies corruption risk |
| Ongoing monitoring | Detects suspicious patterns |
Without knowing who truly controls a business, financial institutions cannot effectively prevent money laundering.
Related: AML | Shell Company | SAR | CTR