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GFN Visual Series

The 3 Phases of Money Laundering

A visual breakdown of placement, layering, and integration — and the control points that matter for AML teams.

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The 3 Phases of the Money Laundering Cycle

Understanding money laundering requires more than knowing the terms — it requires seeing the architecture behind the movement of illicit funds.

This visual breaks down the full laundering cycle into three core stages:
Placement → Layering → Integration.

Below is the complete explanatory guide that accompanies the infographic.

Overview of the Money-Laundering Process

Money laundering always starts the same way: with a crime that generates illicit proceeds.
The goal of laundering is to make these funds appear legitimate.

Although in practice the phases can overlap or repeat, the didactic model follows four conceptual stages:

  1. Generation of illicit proceeds
  2. Placement
  3. Layering
  4. Integration

Phase 0 — Generation of Illicit Proceeds (Predicate Offense)

This is the origin point.
The criminal earns money illegally — no laundering yet, just dirty money.

Common Predicate Offenses

  • Drug trafficking, human trafficking, arms trafficking
  • Corruption, bribery, embezzlement
  • Fraud (credit card, loan, insurance, e-commerce, investment scams)
  • Cybercrime (ransomware, phishing, BEC campaigns)
  • Tax evasion, smuggling, pyramid schemes

How the Funds Typically Look

  • Cash
  • Deposited into mule accounts
  • Received in crypto or alternative assets

At this stage, the funds have no plausible legitimate explanation.
Trying to use them directly would immediately raise suspicion — which is why laundering exists:
to attach a credible, fabricated story to the money.

Phase 1 — Placement

Goal: Move illicit funds — usually cash or off-book assets — into the formal financial system.

Think of it as:

“How do I turn suspicious cash into account balances at banks, fintechs, PSPs, exchanges, or MSBs?”

Typical Placement Techniques

1. Structuring / Smurfing

  • Many small deposits under reporting thresholds
  • Performed by multiple people (“smurfs”)
  • Individually harmless; collectively suspicious

2. Cash-Intensive Businesses

  • Bars, restaurants, parking lots, car washes, nightclubs
  • Illegal cash mixed with real daily revenue
  • Appears as ordinary business income

3. Purchase of Financial Instruments

  • Money orders, prepaid cards, traveler’s checks, gift cards
  • Cash is converted into bankable instruments

4. MSBs, FX Houses, Remittances

  • Cash converted into foreign currency
  • Sent abroad via small transfers or shell companies

5. Crypto as an Entry Point

  • Buying crypto via P2P, OTC, or Bitcoin ATMs
  • Once converted, funds move in a different oversight environment

Visual Pattern

Illicit source → cash → entry channels → bank/fintech/PSP/exchange
Multiple small inputs converge into fewer accounts.

Phase 2 — Layering

Goal: Break the link between the illicit origin and the funds now inside the system.

This is where the criminal:

“Builds a maze of transactions designed to obscure the trail.”

How Layering Works

1. Chains of Transfers

Rapid movements across:

  • Personal accounts
  • Mule accounts
  • Shell companies
  • Multiple institutions
  • Several countries

2. Shell Companies & Offshores

Fake or minimal-activity entities used to justify:

  • Consulting fees
  • Marketing payments
  • Service invoices
  • Import/export contracts

Paperwork looks legitimate; services are fictitious.

3. Mixing with Legitimate Business Activity

Funds disguised as:

  • Supplier payments
  • Intercompany loans
  • Reimbursements
  • Dividends

4. Jurisdiction Hopping

Transfers routed through:

  • Tax havens
  • Secrecy jurisdictions
  • Weakly supervised markets

Often: Country A → Country B → Country C
(A = origin, B = intermediary, C = “clean” destination)

5. Crypto in Layering

  • Mixers and tumblers
  • Multi-cryptocurrency conversions
  • Exchange-to-exchange movements

Visual Pattern

A network of arrows, fragmented funds, repeated transfers, cross-border paths — a designed maze.

Phase 3 — Integration

Goal: Reintroduce laundered funds into the economy as if they were fully legitimate, enabling:

  • Real estate purchases
  • Luxury spending
  • Investments
  • Declared income
  • Lifestyle upgrades

Here the money:

“Returns to the criminal with a clean backstory.”

Main Integration Strategies

1. Acquisition of High-Value Assets

  • Real estate
  • Luxury vehicles, yachts, aircraft
  • Art, jewelry, watches
    Often via proxies, trusts, or holding companies.

2. Investing in Legitimate Businesses

Opening or acquiring actual companies:

  • Restaurants
  • Retail shops
  • Construction firms
  • Farms
  • Startups

Capital appears as standard investment.

3. Loan-Back Schemes

  • Criminal sends funds offshore
  • Offshore entity “lends” the funds back
  • Now the money has documentation, terms, and legitimacy

4. Clean Income Streams

  • Salary
  • Bonuses
  • Dividends
  • Profit shares

All originating from a supposedly legal business.

5. Personal Use

Paying for:

  • Tuition
  • Travel
  • Renovations
  • Events and weddings

Supported by a narrative of “legitimate” income.

Visual Pattern

After the maze of layering, flows converge into:
Clean companies → legitimate assets → personal use.

Note on AI-Assisted Visual Creation

Our infographics use AI in the creation process, and we continuously refine our visuals.
If you notice anything that can be improved or clarified, please let us know — your feedback helps strengthen the FinCrime community.

This infographic was created with the support of AI. We continuously refine our visuals — if you notice anything that can be improved, please let us know.