In anti-money laundering (AML) efforts, the placement phase is the initial stage of money laundering. It involves introducing “dirty money” (illicitly obtained funds) into the legitimate financial system. Criminals use various means, such as small deposits, to obscure the source of the funds and make them appear legitimate.
Understanding the Placement Phase
The placement phase is the first stage of the money laundering cycle, where illicit funds—usually derived from predicate crimes such as fraud, corruption, drug trafficking, or tax evasion—are introduced into the legitimate financial system. Because this phase deals with large volumes of unclean cash or equivalent assets, it is often the riskiest and most vulnerable to detection.
Criminals must overcome the challenge of physically placing money into circulation while avoiding detection by law enforcement and financial institutions’ anti-money laundering (AML) systems.
Common Placement Techniques
Money launderers use various tactics to obscure the origins of illegal funds during the placement phase. Common methods include:
Structuring (Smurfing): Breaking down large amounts of cash into smaller deposits to evade regulatory reporting thresholds (e.g., deposits under $10,000 in the U.S.).
Cash-Intensive Businesses: Using legitimate businesses (like restaurants, casinos, or car washes) that naturally deal in large volumes of cash to co-mingle illicit funds with legitimate revenues.
Currency Smuggling: Physically transporting cash across borders and depositing it in foreign financial institutions with less stringent controls.
Trade-Based Laundering: Using over- or under-invoicing of goods and services in international trade to disguise illicit payments as legitimate transactions.
Casino and Gambling Channels: Converting cash into chips, placing minimal or no bets, and then cashing out the chips as “winnings.”
Prepaid Cards and Vouchers: Loading illicit cash onto gift cards, prepaid debit cards, or digital wallets, which can then be used or transferred more easily.
Detection and Red Flags
Financial institutions must be vigilant in identifying suspicious behavior associated with placement. Some common red flags include:
Unusually large cash deposits inconsistent with the customer’s profile or business operations.
Multiple cash deposits made on the same day across different branches or accounts.
Deposits followed by immediate withdrawals or international wire transfers.
Reluctance to provide documentation for large or frequent deposits.
Use of third-party individuals or intermediaries to make deposits on behalf of the account holder.
Advanced AML systems equipped with transaction monitoring, customer risk profiling, and behavioral analytics can help detect these patterns in real time.
Regulatory and Compliance Considerations
Anti-money laundering regulations globally—including those aligned with FATF Recommendations, EU AML Directives, FinCEN rules, and BSA/AML regulations in the U.S.—require institutions to monitor for activity that may indicate placement.
Key compliance actions include:
Customer Due Diligence (CDD): Understanding the source of funds and the expected nature of transactions.
Currency Transaction Reporting (CTR): Filing mandatory reports for large cash transactions above certain thresholds.
Suspicious Activity Reports (SARs): Filing reports when transactions show indicators of placement without a legitimate explanation.
Failure to detect or report suspicious placement activity can result in significant regulatory penalties, criminal liability, and reputational harm.
The Importance of Early Intervention
Because the placement phase is the point where illicit funds first enter the financial system, effective controls at this stage are critical. Detecting and disrupting placement activities early prevents the funds from being layered and integrated—subsequent stages where tracing the money becomes increasingly difficult.
Financial institutions, law enforcement agencies, and regulators must work together, sharing intelligence and enhancing monitoring capabilities, to block money laundering at its origin.
