The Stages of Money Laundering: Integration

Integration is the last step in the money laundering process, in which criminals introduce laundered money into the economy through a series of transactions which appear to be legitimate. From money transfers to casino schemes and more, launderers have ways of spending their money while remaining under the radar. Detecting and stopping money laundering is much more difficult once it reaches the integration stage, but there are still some signs investigators and law enforcement can look out for.

Introduction

The ultimate goal of the money launderer is to “wash” their illicit funds so that they can either be spent or deposited without drawing suspicion. This is the final step in the laundering process and is called integration. In this final article of our three-part series (which began with Placement and Layering), we’ll explore what integration is, common methods that criminals use to conduct it, and the red flags compliance professionals can look out for to try to stop it.

What is Integration?

Integration happens when money launderers funnel laundered funds into their financial accounts in order to finally spend them freely. At this point, they’re pretty confident that the money has been layered thoroughly enough to obfuscate its true origins. If any law enforcement agencies try tracing the money back to criminal sources, they’ll quickly find themselves thrown off by a tangled web of legitimate, complex transactions.

Methods Used to Conduct Integration

Criminals often spend a great deal of time and effort laundering their money, and that doesn’t end with integration. Having taken great pains to hide the illegal origins of their cash, they are just as careful about placing it back in the financial system. In order to integrate their funds while remaining as inconspicuous as possible, they conduct a number of different types of transactions that wouldn’t seem out of the ordinary for the average person.

• Money transfers to primary accounts. During the layering process, criminals will often move funds across multiple jurisdictions through complex networks of international money transfers. When they’re ready to move that money back into their primary accounts, they’ll do so through either electronic funds transfers, money orders, or wire transfers. This is especially true if they have transferred the money to foreign accounts as part of the laundering process, and now want it available to spend domestically.

• Casino schemes. Historically a popular target for facilitating money laundering and financial crime, the gaming industry has cracked down significantly on illicit activity in recent years. However, launderers still use casinos to integrate their dirty cash, albeit carefully, by using a method called chip walking.
  Chip walking occurs when the criminal comes to the casino with a large amount of cash, buys chips, and then walks around from table to table making it appear as though they intend to gamble. They then cash the chips that they hardly used and the money is returned to them via casino checks or wire transfers.
  Another common casino-based integration technique is called bill stuffing. The launderer puts their dirty cash into a slot machine, plays a few spins, cashes out, and then takes the cash-out ticket to the casino cage to receive either cash or a casino check.

• Reselling high-value assets. In the layering stage, launderers often purchase high-value assets such as real estate, cars, or art in order to further complicate the transaction history of their money. In the integration stage, they’re ready to sell those assets – which have been chosen because of their ability to retain value – to put money back in their pocket. The purchaser of the resold asset is unaware that they’re buying assets that were purchased illegitimately.
• Shady business dealings. Launderers use both real and fake businesses to integrate dirty money into the economy under the guise of being legitimate business transactions. They sometimes set up fake businesses (complete with fake employees!) and then pay themselves. This is known as payroll fraud. They may also use the company to issue fake loans to themselves, which they of course never pay back. Some criminals even invest in real businesses with their illicit funds, and then get paid legitimate money when they receive dividends as shareholders.

How to Detect and Prevent Integration

By the time a money launderer has reached the integration stage, it’s very difficult for law enforcement or AML investigators to detect. This is due in large part to the obfuscation that occurs during layering, which is then compounded by further transactions made during the final stage of money laundering. And as mentioned above, launderers are careful to spend in ways that won’t attract attention when integrating cash, making it even harder to tell if the transactions are legit or part of a laundering scheme.

It’s best if money laundering is stopped during either placement or layering, but there are still signs to look out for during integration that could indicate that it’s happening.

• Income source vs. asset discrepancies: A launderer makes a certain amount on paper, but owns a number of properties or high-value assets they shouldn’t be able to afford with their income. They might be integrating cash off the record to make these purchases, so investigators should keep an eye out and look into obvious inconsistencies in income versus assets.

• Transaction monitoring: Financial institutions should ensure that their transaction monitoring systems look out for transactions that stray from a customer’s typical behaviors, are abnormally large, utilize payment methods that are unusual, etc. Investigators can then look into whether the customer’s transactions are linked to any people or entities that may create cause for concern and warrant a closer look.
• Know your customer (KYC), customer due diligence (CDD) and know your business (KYB): The unfortunate reality of integration is that once it’s begun, it’s incredibly difficult to detect and stop. It’s much easier to get ahead of it during the earlier stages of money laundering. Having strong KYC, CDD, and KYB procedures is critical for financial institutions to ensure they’re doing business with reputable customers and businesses (especially since launderers often hide behind fake companies). Thorough, regular checks of customer and business backgrounds and activity will decrease the likelihood of potential money laundering activity going unnoticed. And if launderers know that a particular financial institution conducts rigorous identity and financial activity reviews, they may be less likely to try to use that institution to facilitate their crimes.

Wrap Up

Money laundering is a pervasive scheme, and its sheer complexity can overwhelm even the most seasoned compliance and law enforcement professionals. Integration in particular is the most difficult step of the process to address once it’s begun. But financial institutions that create robust, thorough KYC, CDD, and KYB processes can make it much easier to reveal evidence of money laundering well before it reaches its final stage. Being proactive, rather than reactive, is the key to interrupting money laundering’s progression into integration.