Compliance Ninja

Once criminals have accumulated large sums of illicit cash, they face the challenge of money laundering, so “cleaning” it. They want to use it without law enforcement noticing. It usually has three stages: placement, layering, and integration. Criminals mix, move, and change physical banknotes in several ways. Compliance teams need to know these methods to spot suspicious activity early.

The Three Stages of Cash Laundering

Placement is when dirty cash first enters the financial system or a business. Criminals often use a cash-intensive business as a front of their operations like a bar, casino, car wash, or a restaurant. For example, a pizzeria owner might report EUR 10 000 in daily sales when they only serve 50 customers. In truth, much of that cash comes from illegal drug sales. The extra banknotes then look like pizza revenue.

Sometimes, criminals hire “straw men,” or nominees, to open bank accounts or businesses under their names. The criminals pay these nominees a small fee, and they deposit and withdraw cash to make it seem legitimate. Once the cash sits in a bank account, criminals move to the layering stage.

Layering hides the cash’s original source. Criminals break large deposits into many smaller ones, each under a EUR 10 000 threshold. They spread these deposits across different branches and accounts, often using different names. This is called “smurfing.” Dozens of people may each deposit EUR 9 900 in cash over a few days.

See more about structuring and smurfing in the article: Structuring in Money Laundering Explained: Techniques, Red Flags and Controls.

This is of course done because each layer pushes the money further from the original crime, and that is the whole purpose of money laundering. 

Integration is the final phase. Here, laundered money flows back into the economy as legitimate funds. This can be done in a number of ways. Real estate is a common target. A criminal might buy an office building or apartment complex with cash. Months later, they sell it and receive an electronic transfer of “clean” money. 

Casinos also help with integration. Criminals buy chips with cash. After minimal play, they cash out the chips for a check or wire transfer. The casino then appears as the source of funds. Read more about this in the article: AML Risks in Casinos and Betting Sites

You can find out more about different methods of placement, layering and integration – beyond only cash – in our Introduction to Anti-Money Laundering course.

Designing AML Controls for Cash Laundering

Because these methods depend on handling large volumes of cash, compliance teams can set up simple AML Compliance Cash Controls to stop laundering at every stage:

Identify Cash Placement Attempts

It’s vital to watch for customers whose business usually does little cash work but suddenly deposits large stacks of banknotes. Doing extra AML Cash checks on them and comparing a business’s claimed cash sales to industry norms might be necessary. If a small café says it took EUR 100 000 in cash last week, that is unlikely. Remember, verify any “loan” or “inheritance” documents by looking for official court filings. Don’t just accept unsigned notes.

Catch Cash Layering and Structuring

Set transaction rules to flag repeated deposits just below the reporting limit. If the same person or a group of linked people keeps depositing EUR 9 900 or even EUR 9 000, it could be smurfing. Watch out for customers who hold multiple accounts under different names and then move all the cash into a single account before wiring it overseas. Keep an eye on frequent currency exchanges, especially when someone converts local money to U.S. dollars or euros without a clear reason, such as travel or trade.

Prevent Integration of Illicit Cash

Look closely at cash purchases of high-value assets. If someone buys real estate entirely with cash, ask for proof of their savings or a valid inheritance document. While dealing with gambling, check large cash buy-ins carefully. If the player barely gambles and cashes out quickly, that may be a red flag. When it comes to precious metals or jewelry bought with cash, it might be necessary to require proof of where the money came from. 

“By mastering placement, layering, and integration, AML compliance teams turn cash money laundering vulnerabilities into powerful detection tools.”

A strong cooperation with law enforcement and other financial institutions is vital when it comes to Cash in Compliance and AML. Sharing new laundering tactics in a key. You should let the authorities know that maybe criminals are now paying taxi drivers to carry envelopes of cash. If one bank notices a strange pattern, tell others so they can update their rules. 

Front line staff should be also trained regularly to spot odd cash behavior. These might include uncounted notes handed over in messy bundles, customers asking to split a transaction among several tellers, or people in non-cash businesses showing up with large, high-denomination bills. By understanding how criminals place, layer, and integrate banknotes, compliance teams can step in at each phase. Clear rules, smart monitoring, and constant staff vigilance turn cash from a “clean getaway” into a flashing red warning sign.

If you want to know more about role cash plays in Anti-Money Laudering Compliance, you should read our other article: Why Criminals Rely on Cash and What It Means for AML Compliance .