The second phase of the classic three-step money laundering process between placement and integration, layering involves distancing illegal proceeds from their source by creating complex levels of financial transactions designed to disguise the audit trail and to provide anonymity.
Defined by the 2001 Basel Customer Due Diligence for Banks Paper as the possibility that lawsuits, adverse judgments or contracts that cannot be enforced may disrupt or harm a financial institution. In addition, banks can suffer administrative or criminal penalties imposed by the government. A court case involving a bank may have graver implications for the institution than just the legal costs. Banks will be unable to protect themselves effectively from such legal risks if they do not practice due diligence in identifying customers and understanding and managing their exposure to money laundering.
Letter of Credit
A credit instrument issued by a bank that guarantees payments on behalf of its customer to a third party when certain conditions are met. Letters of Credit (L/Cs) are commonly used to finance exports. Exporters want assurance that the ultimate buyer of its goods will make payment, and this is given by the buyer’s purchase of a bank letter of credit. The L/C is then forwarded to a correspondent bank in the city in which the payment is to be made. The L/C is drawn on when the goods are loaded for shipping, received at the importation point, clear customs and are delivered. L/Cs can be used to facilitate money laundering by transferring money from a country with lax exchange controls, thus assisting in creating the illusion that an import transaction is involved. L/Cs can also serve as a façade when laundering money through the manipulation of import and export prices. Another laundering use for L/Cs is in conjunction with wire transfers to bolster the legitimate appearance of non- existent trade transactions.
Letter Rogatory
See Commission Rogatoire.
Loan Back Method of Money Laundering
With a loan-back, the criminal puts the illicit funds in an offshore entity that he owns and then “loans” them back to himself or a company he owns. This technique works because it is hard to determine who actually controls offshore accounts in some countries. This process allows the launderer to “clean” illicit money and to generate tax benefits by deducting purported interest payments.
Service offered by banks to companies in which the company receives payments by mail to a post office box and the bank picks up the payments several times a day, deposits them into the company’s account, and notifies the company of the deposits. The service enables the company to put the money to work as soon as it is received, but the amounts must be large in order for the value obtained to exceed the cost of the service. In the insurance industry there is also widespread use of “lock boxes” for payment of life insurance and annuities products.