The 3 stages of money laundering

If you’re in the property, accounting or corporate services industries, you’ll have heard the term ‘money laundering’ a lot recently.  However, before you can look at AML compliance, you first need to understand the stages of money laundering.  Whether you work in real estate, law, accounting, financial services or high-value goods, your business could unintentionally become part of a laundering scheme. 

At its core, money laundering typically follows three distinct phases: placement, layering and integration. These three stages of money laundering are designed to disguise the origin of illicit funds and make them appear legitimate.

Understanding the 3 money laundering stages helps businesses recognise potential red flags and apply appropriate safeguards under the AML/CTF Act.

Why should businesses be aware of the stages of Money Laundering?

Many businesses assume money laundering only occurs in criminal environments. In reality, criminals depend heavily on legitimate businesses to move and disguise funds. Property transactions, legal structures, financial accounts and high-value purchases can all be used to conceal illicit money. For example:

• Real estate purchases can convert illicit cash into property assets
• Law firms can establish corporate structures that obscure ownership
• Accountants may assist with complex trust arrangements
• Dealers in luxury goods may accept large payments for portable assets

Understanding the stages of money laundering helps businesses recognise when normal transactions may actually form part of a larger laundering process. This awareness is becoming increasingly important in Australia as Tranche 2 AML reforms expand obligations to more industries from July 2026.

If you’re unfamiliar with how the regulatory framework operates, our overview of the AML/CTF Act explains how these obligations apply to businesses.

Stage 1: Placement

What is it?

Placement is the first of the three stages of money laundering. This is where illicit funds first enter the financial system. Criminals need to move illegal proceeds away from their original source (whether that comes from drug trafficking, fraud, corruption or other criminal activity).

Placement is often the most vulnerable stage of the process because the money is still directly linked to the crime.

Why is it effective?

Placement works because criminals use legitimate transactions to disguise the origin of funds. By introducing money through ordinary financial channels or asset purchases, the funds begin to appear less suspicious. The goal is to move the money away from its criminal origin and into systems where it can be further disguised.

Common methods of Placement

Placement can occur through a variety of methods, including:

• Depositing cash into bank accounts in small amounts
• Purchasing high-value goods such as vehicles or jewellery
• Buying into property transactions
• Using third parties to conduct financial transactions
• Converting cash into gambling chips or digital credits

Many of these transactions involve legitimate businesses that are unaware they are facilitating the first stage of laundering.

Red flags for Placement

Businesses should watch for signs such as:

• Unusually large cash transactions
• Clients reluctant to provide identification information
• Payments made by unrelated third parties
• Transactions that do not align with a client’s financial profile

These indicators do not necessarily mean criminal activity is occurring, but they should prompt closer scrutiny.

Real life example of Placement

A criminal may use illicit funds to purchase a residential property through a third party. Once the funds are used in a legitimate transaction, they become harder to trace back to their criminal origin. This is one reason why real estate transactions are frequently associated with money laundering risks.

Stage 2: Layering

What is it?

Layering is the second stage of the stages of money laundering and is often the most complex. At this point, criminals move funds through multiple transactions to create distance between the money and its criminal source. The objective is to obscure the audit trail.

Why is it effective?

Layering works by creating complexity. The more transactions, accounts and entities involved, the harder it becomes for investigators to trace the money back to its origin. Professional services can unknowingly become part of this stage, particularly when assisting with legitimate financial or legal structures.

Common methods of Layering

Common layering techniques include:

• Transferring funds between multiple bank accounts
• Moving money across international jurisdictions
• Establishing shell companies or trusts
• Rapid buying and selling of assets such as property
• Complex corporate ownership structures

Each step appears legitimate on its own, but the pattern can reveal laundering activity.

Red flags for Layering

Possible warning signs for laying include:

• Complex ownership structures with no clear purpose
• Frequent movement of funds between accounts
• Transactions involving offshore entities without obvious justification
• Rapid asset transfers or back-to-back property sales

These patterns can indicate attempts to obscure the origin of funds.

Real life example of Layering

A criminal purchases a property through a company. Shortly after the purchase, they sell it to another entity they control, and then transfer the sale proceeds through multiple international accounts. Each transaction appears legitimate individually, but collectively they form part of a layering strategy.

Stage 3: Integration

What is it?

Integration is the final stage of the three stages of money laundering. At this point, the funds have been sufficiently disguised and can re-enter the legitimate economy appearing clean. This stage allows criminals to enjoy the proceeds of crime without attracting suspicion.

Why is it effective?

Once funds reach the integration stage, they often appear indistinguishable from legitimate income. The money may now exist as property assets, business profits or investment returns. Because the audit trail has been obscured during layering, tracing the origin becomes significantly more difficult.

Common methods of Integration

Integration may involve:

• Rental income from property investments
• Profits from legitimate businesses
• Sale proceeds from previously layered assets
• Dividends from investment portfolios

The funds now appear to originate from legitimate financial activity.

Red flags for Integration

Indicators may include:

• Clients acquiring assets inconsistent with their financial history
• Complex investment structures with unclear purpose
• Sudden increases in wealth without a clear explanation

These signs may suggest previously laundered funds are being integrated into the economy.

Real life example of Integration

A criminal who initially used illicit funds to purchase property leases out their property and now receives legitimate rental income. Over time, that income appears entirely legitimate, effectively integrating the original criminal funds into the financial system.

Why understanding the stages of Money Laundering matters for businesses

For most businesses, money laundering does not appear as obvious criminal activity. It often looks like ordinary transactions that fit within everyday operations. However, understanding the stages of money laundering allows businesses to recognise when transactions may not align with expected client behaviour. This awareness is particularly important as Australia expands AML obligations to additional industries.

If you want a broader explanation of how criminals use legitimate businesses in laundering schemes, our article on how money laundering works and how businesses get caught in the middle explores this in more detail.

Learn more about AML compliance

Understanding the 3 money laundering stages is an important first step in protecting your business from becoming involved in financial crime. The next step is ensuring you have the right processes, monitoring and documentation in place to meet regulatory expectations under Australia’s AML/CTF framework.

If you’d like to learn more about how technology can support AML compliance, you can explore the easyAML platform features and see how businesses are building structured AML programs, managing monitoring requirements and preparing for Tranche 2 reforms.

Learn more about the platform on our website: https://easyaml.com/platform/ 

Frequently Asked Questions

What are the stages of money laundering?

The stages of money laundering are placement, layering and integration. These three phases allow criminals to move illicit funds into the financial system, disguise their origin and ultimately reintroduce them as legitimate income.

What are the three stages of money laundering?

The three stages of money laundering are placement (introducing illegal funds), layering (moving funds to obscure their origin) and integration (returning the money to the economy as legitimate wealth).

Why do criminals use multiple stages to launder money?

Each stage helps distance the money from its criminal origin. By the time funds reach the integration stage, it can be extremely difficult for authorities to trace the original source.

How can businesses identify money laundering risks?

Businesses can reduce risk by conducting proper customer due diligence, understanding beneficial ownership, monitoring unusual transactions and maintaining records in line with AML/CTF obligations.