What are the three stages of money laundering?
Placement, layering and integration: what each stage is for, the techniques typical of layering and integration, and how to tell the stages apart in a scenario.
By the ExamPass CY editorial teamLast reviewed 5 min read
Topic 2 of 7 · all topics in this chapter
Short answer
Money laundering is usually described in three stages. Placement brings criminal proceeds, often cash, into the financial system. Layering moves them through a chain of transfers, accounts, products and countries to break the audit trail. Integration returns the money to the legitimate economy, for example as property, luxury goods or a stake in a business, where it looks clean. A real scheme may skip, combine or repeat stages, but the classic model runs placement, then layering, then integration.
The three stages at a glance
| Stage | What happens · typical examples |
|---|---|
| 1. Placement | Criminal cash or assets enter the financial system for the first time: structuring, smurfing, cash smuggling, mixing cash into a cash business's takings |
| 2. Layering | The trail is broken: wire transfers between accounts and countries, turning deposited cash into monetary instruments, rapid trading in securities or fund units, currency deals, chains of shell companies |
| 3. Integration | The money comes back looking legitimate: real estate, art, antiques, jewellery, expensive cars, investment in a business, joint ventures |
| Why integration is hard to detect | Clean and criminal money now look alike; the usual warning sign is wealth or spending that does not fit the person's known business or income |
Source: FATF description of the money laundering process; the laundering offences are in Law 188(I)/2007, Article 4, as amended up to 2026.
Why is laundering split into three stages?
Each stage solves a different problem for the launderer. Criminal proceeds usually start as cash or assets that cannot be explained, so the first problem is getting them into a bank, a casino or a business without raising questions. That is placement, described in What happens at the placement stage?
Once the money is inside the system, the second problem is that it can still be traced back to where it entered. Layering deals with that by piling up transactions until the path is too long and complicated to follow. The third problem is using the money, and integration solves it by giving the funds a believable legitimate origin.
Terms used in this note
- Audit trail
- The record of where money came from and where it went, which investigators follow to link funds to a crime.
- Monetary instrument
- A payment document that can be bought and passed on, such as a bank draft, cashier's cheque or money order.
- Shell company
- A company with no real business activity, staff or premises, used to hold assets or move money on behalf of others.
What happens during layering?
Layering distances the proceeds from their source. The launderer moves the money repeatedly so that investigators cannot connect the funds that were placed with the person who finally benefits. The goal is to hide the trail of transactions, where the money came from and who really owns it, without drawing attention.
Typical layering transactions are wire transfers from one account to another and from one country to another, converting cash already deposited into monetary instruments such as bank drafts, buying and selling shares or bonds in quick succession, investing in fund units or insurance-based investment products, and buying and selling foreign currencies.
Electronic transfers are among the most common layering tools because they are fast and cross borders easily, whether made at an ATM, by phone, by computer or at a payment terminal. Networks of shell companies are another: a company in one country owns or pays companies and accounts in others, often in jurisdictions whose secrecy rules hide the beneficial owners, and large sums circulate around the network until the trail is lost.
What happens during integration?
Integration is the final stage. The money re-enters the legitimate economy with an apparently lawful origin, and the beneficiary now appears to hold clean funds. Typical examples are buying real estate, buying high-value goods such as art, antiques, jewellery or expensive cars, investing in a legitimate business, especially a cash-intensive one, and entering financial arrangements or joint ventures.
At this point it is very hard to tell legal money from criminal money. The usual warning sign is a mismatch: a person or company whose assets, spending or investments are out of line with its known, legitimate business. Integrated assets remain criminal property in law, so a firm that acquires, holds or handles them while knowing, or when it ought to know, where they came from can still commit an offence.
How do you tell which stage a scenario describes?
Ask two questions: where is the money now, and what is this act doing to it? If criminal cash is entering a bank, casino or business for the first time, it is placement. If money already in the system is being moved or converted to obscure its path, it is layering. If it is being spent or invested so that it looks like lawful wealth, it is integration.
Watch the business trap. Mixing criminal cash into the daily takings of a restaurant or café is placement, because that is how the cash first enters the system. Buying or investing in the restaurant with money that already looks clean is integration.
How to think about it
Picture the money's journey: in, around, out. Placement is the point of entry, layering is the travel designed to lose anyone following, and integration is the arrival back in the everyday economy with a clean appearance. For any technique in a question, ask whether it gets dirty cash in, hides where money that is already inside came from, or lets it be enjoyed as lawful wealth.
Common mistakes
Treating structuring or smurfing as stages. They are placement techniques. The three stages are placement, layering and integration.
Putting the stages in the wrong order. Placement comes first, layering second and integration last.
Filing every cash-related act under placement. Converting cash that has already been deposited into monetary instruments is layering.
Confusing investing in a business with mixing cash into it. Blending criminal cash with a business's takings is placement; buying or investing in the business is integration.
Assuming integrated money is no longer a problem. It is still criminal property, and handling it with knowledge, or when one ought to know, remains an offence.
Legal references
- The Prevention and Suppression of Money Laundering and Terrorist Financing Law of 2007 (Law 188(I)/2007), consolidated Greek text on CyLaw (amendments up to Law 25(I)/2026) (opens in a new tab)
Article 4: laundering offences, including acquiring, holding and using criminal property
- CySEC Directive for the Prevention and Suppression of Money Laundering and Terrorist Financing, as amended (opens in a new tab)
- FATF Recommendations (opens in a new tab)
Practise this topic
Test what you just read
The Chapter 2 pack has 87 exam-style questions, 9 of them on this topic. Every question has a hint before you answer and a full explanation after.
Or revise the numbers first with 18 free Chapter 2 flashcards →