ASK MAT: At my 2025 AML training refresher, I was taught about placement, layering, and integration. Is this still correct in 2025?

ASK MAT –

• At my 2025 AML training refresher, I was taught about placement, layering, and integration. Is this still correct in 2025?
• The trainer said,
• "The truth remains: criminal proceeds will always be placed, layered, and integrated.
• What changes are the channels, not the fundamentals."

MAT SAYS:-

• Thank you for a great question. You are correct in questioning what you have been told.
• For over 20 years, I have been testing this long-standing but flawed thinking
• The traditional model of money laundering, “placement, layering, and integration”, dates back more than 30 years.
• The traditional model:
• Assumes a linear process in which criminal proceeds, typically cash, are introduced into the financial system, obscured through transactions, and reintegrated as "clean" funds.
• It is only a valuable heuristic for certain crimes, but doesn't universally apply to all financial crimes, especially when considering fraud-based crimes or non-cash proceeds.
• Fails to account for the complexity of certain fraud-based crimes (tax evasion) and modern financial crimes, where technology, non-cash proceeds, and systemic integration blur or eliminate the traditional stages.
• Your trainer's statement
• Oversimplifies money laundering by assuming all criminal proceeds follow the placement-layering-integration framework.
• Some crimes (further details below) generate proceeds already within the system or involve fraud-based advantages that skip these stages.
• Concerning your trainer's comments about what he sees as being true, my view is:-
• THE FUNDAMENTALS, NOT JUST THE CHANNELS, CAN CHANGE DEPENDING ON THE CRIME AND CONTEXT.
• Below is an analysis of my reasoning and the statement’s limitations

MAT’S ANALYSIS OF MY REASONING AND THE STATEMENT’S LIMITATIONS

1. Fraud-Based Crimes and Pecuniary Advantage:
1. Many financial crimes, like fraud, don’t always generate "proceeds" from tangible funds requiring placement. For example, in investment fraud or Ponzi schemes, the pecuniary advantage might involve misappropriated funds already within the legitimate financial system.
2. The criminal benefit is derived directly from manipulating existing assets, bypassing the need for placement or layering.
3. The "proceeds" are effectively integrated from the outset, as they’re already in bank accounts or financial instruments perceived as legitimate.
2. Proceeds Already in the System:
1. Some criminal proceeds are generated within the financial system (e.g., through wire fraud, insider trading, or embezzlement).
2. These funds don’t require placement because they’re already in legitimate accounts or digital ledgers.
3. Layering might occur to obscure the trail, but the traditional three-stage model doesn’t fully capture these scenarios, where the crime and its proceeds are inherently digital or systemic.
3. Non-Traditional Proceeds:
1. Crimes like ransomware, where payments are made in cryptocurrency, or trade-based money laundering, where value is transferred through inflated invoices or fake transactions, challenge the classic model.
2. Cryptocurrencies, for instance, can be transferred directly between wallets, with integration occurring through conversion to fiat or spending without traditional banking channels.
3. The "channels" (e.g., blockchain) may change the fundamentals of how proceeds are handled, contrary to the statement’s claim.
4. Evolving Channels and Fundamentals:
1. The statement asserts that only the channels change, not the fundamentals.
2. However, new technologies and financial systems (e.g., decentralised finance, NFTS, or cross-border digital wallets) can alter the mechanics of money laundering so significantly that the traditional stages become irrelevant.
3. For instance, in some cases, integration can precede layering, or all stages can occur simultaneously in a single transaction, undermining the idea of fixed fundamentals.
5. Predicate Offences and Context:
1. The statement overlooks the diversity of predicate offences (crimes generating proceeds).
2. Drug trafficking might align with the placement-layering-integration model due to cash-heavy proceeds.
3. HOWEVER, cybercrimes, corruption, or tax evasion often involve funds that are either already in the system or don’t follow this linear path.
4. The nature of the crime dictates whether the three-stage model applies, making the statement’s universality questionable.

CONCLUSION

• The statement oversimplifies money laundering by assuming all criminal proceeds follow the placement-layering-integration framework.
• Some crimes generate proceeds already within the system or involve fraud-based advantages that skip these stages—is accurate.
• The model is a useful heuristic for certain crimes.
• Still, it fails to account for the complexity of modern financial crimes, where technology, non-cash proceeds, and systemic integration blur or eliminate the traditional stages.
• THE FUNDAMENTALS, NOT JUST THE CHANNELS, CAN CHANGE DEPENDING ON THE CRIME AND CONTEXT.

MY CHALLENGE TO YOU, YOUR TRAINER, YOUR FIRM

• Let us think differently about financial crimes; in doing so, we may stop the problem.