Money money laundering, legally referred to as money laundering, encompasses the processes used to conceal the criminal origin of property or income, to falsely justify its source, or to facilitate its investment, concealment, or conversion.
For professionals subject to AML-CFT, understanding these mechanisms is essential for identifying atypical transactions, analyzing alerts, and fulfilling their reporting obligations.
In this guide, AP Solutions IO outlines the three classic phases of money laundering, the main types of money laundering to which organizations may be exposed, and the operational measures that can improve detection.
In a nutshell: How does money laundering work?
Money laundering is generally described in terms of three classic phases. The Investment refers to the introduction of illicit funds into economic or financial systems. Thelayering involves a series of transfers and transactions designed to make them harder to trace. Theintegration then allows the funds to be reintroduced into the economy under the guise of legitimacy.
This model makes it easier to analyze money laundering patterns, even though not all transactions necessarily follow these three steps in sequence or in their entirety.
Detection relies primarily on up-to-date knowledge of the customer, risk-based transaction monitoring, and a structured procedure for analyzing unusual transactions.
What is money laundering?
Money laundering is intended to conceal the criminal origin of funds, income, or property in order to make them appear legitimate.
In particular, it can be done through:
- a false statement regarding the source of property or income;
- an operation involving the investment of funds derived from a crime;
- a series of transfers intended to make them harder to trace;
- concealment of the true ownership of the assets;
- the conversion of funds into assets or seemingly legitimate investments.
Money laundering, therefore, is not limited to cash. It can involve bank transfers, real estate, vehicles, works of art, luxury goods, precious metals, financial securities, or cryptoassets.
What is the difference between money laundering and terrorist financing?
Money money laundering is primarily intended to conceal the criminal origin of assets or income. The terrorist financing involves the collection, provision, or use of funds intended to finance terrorist activities.
The source of the funds is a key difference. The funds used to finance terrorism may come from a legal activity, whereas money laundering involves assets or income derived from a crime or offense.
Detection methods may, however, overlap. Know Your Customer (KYC) procedures, transaction flow analysis, individual screening, and transaction monitoring all help identify both categories of risk.
Two Complementary Analytical Approaches
In a money laundering case, the analysis generally seeks to understand the origin of the funds, the transformations they have undergone, and the individuals who actually benefit from them.
In a case involving the financing of terrorism, the focus is more on the destination of the funds, the beneficiaries, the networks involved, and the purpose of the transactions. The amounts may be small, and the financial flows may, when viewed in isolation, appear ordinary.
Which professionals are subject to AML-CFT requirements AML-CFT
AML-CFT obligations AML-CFT apply to all organizations that handle financial transactions. They apply to entities and professions expressly subject to the Monetary and Financial Code.
This scope includes, in particular:
- banks and credit institutions;
- insurance companies and certain mutual insurance organizations;
- asset management firms and investment professionals;
- cryptoasset service providers;
- real estate professionals;
- certified public accountants and auditors;
- attorneys, notaries, and other relevant legal professionals;
- gaming and betting operators;
- professionals involved in the trade of certain valuable goods;
- The world of soccer also makes an appearance on this list with the AMLR.
Their access to data on customers, Beneficial Owners transactions gives them a key role in detecting suspicious transactions.
The required measures must be proportionate to their business activities, their customer base, the products they offer, the channels they use, and the geographic areas in which they operate.
The three classic phases of a money-laundering scheme
The traditional model identifies three phases: placement, stacking, and integration. This framework helps compliance teams understand the objective of each stage and identify potential detection points.
Phase 1: Investment of Funds
Money laundering involves introducing funds of illicit origin into economic or financial systems.
In particular, it can take the form of:
- of fractional deposits;
- purchases of goods that are easily resold;
- payments made by multiple intermediaries;
- the use of activities that regularly involve handling species;
- the use of organizations whose monitoring systems are inadequate.
The investment phase can be particularly vulnerable to detection, as the funds are still close to their illicit source.
Deposits that are inconsistent with the reported business activity, successive deposits without economic justification, or the unusual use of multiple accounts may, in particular, require a thorough analysis.
Phase 2: Operation Stacking
Layering, also known as layering in English, involves transferring, distributing, or converting funds through a series of transactions.
The goal is to make it more difficult to trace their history and to gradually distance these individuals from their criminal past.
This phase may involve, among other things:
- successive transfers between several accounts;
- shell companies;
- cross-border operations;
- conversions between different asset classes;
- loans between related companies;
- invoices without a clear economic justification;
- jurisdictions that pose high risks in terms of financial transparency or international cooperation.
The more transactions and intermediaries there are, the more complex it can become to identify the source of the funds and their beneficial owner.
Phase 3: Integration into the formal economy
Money laundering involves reintroducing funds into the economy under the guise of legitimate activity.
The assets may appear to come from a business activity, an investment, a real estate transaction, or a loan repayment.
This phase may take the following forms, among others:
- a real estate investment;
- the acquisition of a company;
- an artificial commercial transaction;
- an asset-backed loan whose origin is difficult to justify;
- the resale of goods acquired with illicit funds.
Detection can become more complex when a transaction appears to be part of ordinary economic activity. In such cases, the analysis must place the financial flows within the broader context of the business relationship.
What are the main types of money laundering?
The methods used vary depending on the sector, the financial products, and the tools available. However, certain patterns regularly emerge in risk analyses and monitoring systems.
Identifying them helps compliance teams refine their detection scenarios, documentation controls, and analysis procedures.
Money Laundering Through Real Estate
Real estate can be used because of the large sums involved, the variety of parties involved, and the complexity of certain arrangements.
There are several factors that may require special attention:
- insufficient documentation regarding the source of the funds;
- unwarranted involvement by companies or intermediaries;
- a rapid succession of purchases and resales;
- a significant difference between the declared price and the apparent economic value of the goods;
- a detention system that is difficult to understand;
- funding from several jurisdictions.
A real estate transaction financed by cash flows that are difficult to justify must be subject to a thorough analysis. When such a transaction is particularly complex, involves an unusually high amount, or appears to lack an economic justification or a lawful purpose, a enhanced review of the transaction must be conducted.
The findings of this review may then lead to a reassessment of the risk level associated with the business relationship.
Luxury Goods, Jewelry, and Valuables
Luxury goods, gemstones, precious metals, watches, and jewelry have several characteristics that may attract money laundering networks.
They can be valuable, relatively easy to transport, and easy to resell in various markets. The estimated value of certain items may also vary depending on their rarity, condition, or the terms of the transaction.
In particular, professionals must assess the consistency between the customer’s profile, the value of the property, the method of payment used, and the identity of the actual beneficiary of the transaction.
Our analysis focusing on luxury goods and money laundering highlights the main areas of risk associated with high-value assets and international channels.
Shell Companies and International Arrangements
Holding structures that span multiple levels and jurisdictions can make it difficult to identify the beneficial owner.
For example, a company may be owned by a second entity, which is itself controlled by a third entity registered in another country.
The complexity of a legal structure does not in itself constitute evidence of money laundering. However, it does become a significant risk factor when it lacks any clear economic justification, prevents the identification of the beneficial owner, or involves high-risk jurisdictions.
The analysis should therefore focus on:
- the economic rationale behind the structure;
- the identities of the persons exercising actual control;
- the relationships between the various entities;
- the financial flows between them;
- the relevant courts;
- consistency between the transactions and the reported business activity.
Cryptoassets
Cryptoassets pose specific risks related to the speed of transfers, their cross-border nature, and the pseudonymous nature of certain transactions.
Transactions recorded on a blockchain can be technically traceable. However, identifying the individuals who control the addresses or wallets may require additional verification.
Risk factors may include, among others:
- the use of inadequately regulated platforms;
- the use of services designed to pool or segment assets;
- successive transfers between several portfolios;
- operations involving sensitive jurisdictions;
- quick conversions between multiple cryptoassets;
- inconsistencies between the volumes processed and the customer profile.
The cryptoasset service providers, or PSCA, are subject to the AML-CFT obligations AML-CFT to their activities. As of July 1, 2026, providers wishing to offer these services in France must hold the authorization required by the MiCA regulation.
How to Detect Money Laundering: Key Operational Measures
Detection relies on three complementary components: reliable and regularly updated customer information, appropriate monitoring of transactions, and a structured procedure for analyzing atypical transactions.
These components must work together. Insufficient customer knowledge limits the ability to determine whether a transaction is consistent with the expected profile. Transaction monitoring that is not adequately supported by KYC data also risks generating numerous irrelevant alerts.
Up-to-date customer insights
KYC, or Know Your Customer, is not limited to the checks performed when establishing a business relationship.
It includes, in particular:
- customer identification;
- verification of his identity;
- identification of the beneficial owner;
- an understanding of its operations;
- an analysis of the purpose and nature of the business relationship;
- regular updates to the information;
- a comparison between the actual results and the expected profile.
The quality of KYC data directly affects the relevance of monitoring scenarios and the teams’ ability to assess an alert.
Continuous monitoring of transactions
Transactional monitoring analyzes transactions based on criteria and scenarios tailored to the organization's risks.
These scenarios may include, among other things:
- an unusual amount;
- an abnormal frequency;
- a rapid succession of transfers;
- an inconsistency with the client's business;
- exposure to a sensitive geographic area;
- unjustified interference by a third party;
- a sudden change in transactional behavior.
Due diligence must be exercised throughout the entire duration of the business relationship. Depending on the identified risks, some controls may be carried out before the transaction is executed, and others after it is completed.
Regulations do not systematically require real-time analysis of all transactions. However, this capability can improve the system’s responsiveness in certain scenarios, activities, or transaction volumes.
Detect Unusual Transactions with AP Monitoring
AP Monitoring is the transactional monitoring solution developed by AP Solutions IO.
It allows you to configure detection scenarios, identify atypical operations, prioritize alerts, and retain the information needed to analyze them.
Itsaugmented intelligence engine is based on a Glass Box approach designed to make detection rules, the criteria used, and the results more transparent and traceable.
In particular, the solution can help:
- tailor the scenarios to the organization's specific risks;
- process transactions in real time when necessary;
- prioritize alerts based on their level of relevance;
- reduce the workload associated with low-priority alerts;
- document analyses and decisions;
- facilitate integration with existing IT, CRM, and KYC systems.
More broadly, AP Solutions IO’s solutions can reduce false positives by up to 98%, depending on use cases, available data, and the configurations implemented.
The tool helps structure the detection and handling of alerts. The final assessment and the decisions made remain the responsibility of the regulated entity and authorized personnel.
From the Alert to the Report of a Suspected Case
An alert generated by a tool does not automatically constitute a suspicion. It must be analyzed, taking into account the customer’s profile, the available information, the context of the transaction, and any supporting documentation provided.
When a professional knows, suspects, or has good reason to suspect that funds are derived from a crime falling within the scope of the law or that they are linked to terrorist financing, the professional must file a suspicion report to Tracfin.
The professional is not required to prove that an offense has been committed or to gather the evidence typically required in a criminal investigation. However, the professional must document the reasoning behind the decision and retain the evidence that led to it.
The declaration is generally made prior to the execution of the transaction, subject to the exceptions provided for in the regulations. Its existence and content are confidential and must not be disclosed to the client concerned.
Our guide to reporting suspected cases and common pitfalls to avoid outlines the main steps of the process as well as key considerations for professionals filing reports.
Asset Freezing and AML-CFT Two Distinct Mechanisms
Transaction monitoring and the reporting of suspicious activity must be distinguished from measures to asset freezes.
The freezing of assets is based on the existence of a person, organization, or entity that is subject to a national, European, or international measure. It results in a prohibition on making funds or economic resources available to that person, organization, or entity.
The relevant organizations must have procedures in place to identify the designated individuals and implement the measures without delay.
The process for handling an alert related to an asset freeze does not, therefore, follow exactly the same logic as an analysis of a suspected money laundering case. Our article on the definition of asset freezing and its operational implications provides a clearer distinction between these obligations.
Integrating detection into the compliance framework in a sustainable manner
An understanding of money laundering mechanisms must be reflected in procedures, monitoring scenarios, tools, and team organization.
The effectiveness of the system depends on the organization’s ability to:
- have reliable customer data;
- regularly update KYC information;
- identify inconsistent operations;
- prioritize alerts;
- analyze situations within a reasonable timeframe;
- document the decisions made;
- report suspected cases when the conditions are met;
- Revise the scenarios as risks change.
When monitoring still relies on rigid rules, scattered manual processes, or alerts that aren't properly prioritized, consulting with an AP Solutions IO expert allows you to assess existing scenarios, the volumes to be processed, and how well AP Monitoring integrates with the organization’s information system.
