Series 7: 13.2.2.1. Money Laundering

13.2.2.1. Money Laundering

Money laundering is the process of transforming illegally gained funds into seemingly legitimate funds. It is commonly achieved in three steps. Placement is the depositing of funds in financial institutions or the conversion of cash into negotiable instruments, such as cashier’s checks and money orders. Cash may be routed through “front” operations like a check-cashing service or jewelry store. Layering is the wire transfer of funds through a series of accounts in an attempt to hide the funds’ true origins. This often involves transferring funds to banks in countries like the Cayman Islands or Switzerland, which provide protection with strict bank secrecy laws. Once there, funds can be moved through “shell” corporations that exist only for laundering purposes. Integration is the movement of layered funds, no longer traceable to their criminal origins, back into the legitimate financial world.

The Bank Secrecy Act (1970) and the USA PATRIOT Act (2001) address money laundering by requiring financial institutions to keep or report the following:

• Monetary Instrument Log (MIL)—a record of cash purchases of negotiable instrum