What Is Placement in Money Laundering?

19 March 2025

A man in a suit and glasses sits at a desk, focused on his laptop, with a professional demeanor.

Money laundering remains a significant concern for law firms in the UK, as criminals around the world seek to exploit legal services to legitimise illicit funds. In 2023/2024 alone, the SRA submitted 23 suspicious activity reports through the course of its own work, performed 237 proactive inspections, and brought enforcement action against 78 firms and individuals - representing the persistence of this issue.

The process of money laundering is typically divided into three stages: placement, layering, and integration. This article focuses on the first stage - placement - where illicit funds are first introduced into the legitimate financial system. Understanding the methods and challenges associated with placement is essential for law firms to implement effective anti-money laundering (AML) measures and prevent the misuse of their services.

The Three Stages of Money Laundering

1. Placement

This is the first stage where illicit money is introduced into the financial system. Money launderers attempt to distance cash from its illegal origins by placing it into a range of financial systems or assets. Examples of how this is achieved include:

Smurfing (splitting large sums into smaller deposits).
Using cash-intensive businesses, such as casinos.
Buying high-value assets, including real estate or luxury goods.

2. Layering

This involves separating the illicit funds from their original source by moving them through a series of complex financial transactions. This stage aims to confuse legal professionals by creating layers of transactions that make it harder to trace the origins of the money. Examples of layering include:

Transferring funds between multiple bank accounts, including international accounts.
Using shell companies to hide the true ownership of funds.
Mixing illicit funds with legitimate business operations.

3. Integration

In this final stage, the illicit money is integrated into the legitimate economy. At this point, the funds are made to appear lawful, allowing criminals to use or enjoy their proceeds without any suspicion. Methods of integration include:

Purchasing high-end consumer goods or luxury items.
Creating complex financial products to disguise the illicit origin of funds.
Investing in legitimate businesses or real estate.

Common Methods of Placement in Money Laundering

Let’s take a deeper look into the methods and techniques that criminals use to place illegal funds into the financial system:

Smurfing: One of the most common techniques, smurfing involves depositing small amounts of money into several bank accounts to avoid the reporting threshold.
Sham Litigation: Engaging in fake legal proceedings or disputes, where money is "paid" as a settlement or damages but is, in fact, a method to introduce illicit funds.
Cash-Intensive Businesses: Using businesses that deal with large amounts of cash, such as bars, casinos, and car dealerships, to mix illicit funds with legitimate revenue.
Cross-Border Money Transfers: Using international wire transfers or remittances to send illicit money to different jurisdictions, making it harder to trace.
Currency Exchange: Converting large amounts of illicit currency into other currencies at exchange stations or through money transfer services to further obscure the source.
Real Estate Transactions: Purchasing property with illicit funds, either through direct purchases or by over- or under-valuing properties to justify the transactions.
Gambling: Using casinos or gambling establishments to place illicit funds, often by purchasing chips, betting, and then cashing out, thus cleaning the money.
Gift Cards: Purchasing large quantities of gift cards for popular retailers, using illicit funds, and then selling or redeeming them.

How Can Law Firms Identify Placement?

Legal professionals have a duty of care to ensure they’re following firm-wide AML policies, as well as guidance outlined by the Legal Sector Affinity Group (LSAG) and the SRA. Identifying potential money laundering during the placement stage can prevent illicit funds from being utilised by criminals, so solicitors face a great deal of pressure to perform as expected.

To achieve this, each solicitor must undertake “Know Your Customer” (KYC) checks, which aim to verify the identity of clients at the start of (and during) new business relationships. One of the biggest components of KYC is Customer Due Diligence (CDD), which assesses a client’s true identity and their risk of involvement in money laundering or other financial crimes, such as terrorist financing.

Identifying Red Flags

For solicitors to be able to detect the placement of illegal funds, there are numerous red flags which can often raise concerns. These won’t always indicate illegal activity, so it is important to take a risk-based approach for each client. The common warning signs include:

Unusually large cash deposits inconsistent with a client's profile or business activities.
Frequent cash deposits just below reporting thresholds to avoid detection.
Reluctance to provide information about the source of funds.
Use of third parties to make cash deposits with no apparent business connection.
Frequent buying and selling of assets with minimal or no financial loss.
Large cash deposits followed by immediate wire transfers to offshore accounts.
Frequent purchases of gift cards, money orders, or prepaid debit cards in large amounts.
Legal disputes that seem fabricated, where settlements are unusually large or unjustified.

Using Technology

Emerging digital technology assists legal professionals in the detection of money laundering, particularly at the initial placement stage. Known as electronic Know Your Customer (eKYC), and sometimes referred to as “RegTech” by the Financial Conduct Authority (FCA), these processes use traditional KYC checks via software to streamline processes. This makes the screening of clients more secure and efficient, creating smoother onboarding.

eKYC uses several different technology-based verification methods to identify and assess each client, including:

Biometric data
Two-factor authentication (2FA)
Multi-factor authentication (MFA)
Document recognition
Digital breadcrumbs
Database scanning

Involving Greater Scrutiny

For clients, instructions, or situations of an elevated risk profile, such as politically exposed persons (PEPs) or those from high-risk nations, a greater level of scrutiny may be required. To achieve this, solicitors will conduct extended checks - known as Enhanced Due Diligence (EDD) - that look deeper into the client’s sources of wealth and business relationships. To continue the business relationship, closer ongoing monitoring will be undertaken, and approval from senior managers may be required.

Knowing Your Reporting Obligations

In the event that potential money laundering is detected, it is important you know your reporting obligations. Every relevant member of your team should be trained for these scenarios - negligence of this could potentially be costly for you and your firm.

If you suspect that a transaction involves criminal property or money laundering, you are legally required to file a Suspicious Activity Report (SAR) with the National Crime Agency (NCA) - this can be completed through your firm’s designated Money Laundering Reporting Officer (MLRO).

SARs must be submitted as soon as suspicious activity is detected, and transactions should not proceed if doing so would risk committing an offence under the Proceeds of Crime Act 2002 (POCA).

Challenges in Detecting Placement

We appreciate that the above can be easier said than done - criminals are continually finding inventive and seemingly legitimate ways to exploit weaknesses and place illicit funds into the financial system. Here are some of the most common challenges firms face when detecting placement:

Cross-Border Transactions: Funds move across jurisdictions with varying or weak AML laws, making tracking much more difficult.
Rising Use of Cryptocurrencies: Anonymous, unregulated cryptocurrency transactions hinder transparency.
Lack of Awareness or Training in AML Procedures: Inadequately trained staff may miss red flags or fail to report suspicious activity.
Limited Transparency: Shell companies, intermediaries, and money laundering mules can obscure the ownership of funds and assets.
Reduced Resources: Many firms lack the funding, staff, and technology for effective AML compliance.
Sophisticated Criminal Tactics: AI, deepfakes, and automated transactions outpace many outdated detection strategies.

The Legal Consequences of Non-Compliance

The potential consequences of breaking AML compliance regulations are incredibly costly - for both the firm and the individual(s) involved. In recent times, the SRA have handed out substantial punishments and sanctions for AML non-compliance; the type of fine which sends a shiver down the spine of every firm manager.

For example, in February 2024, Bracknell-based legal firm Fairbrother & Darlow were fined £16,052.80 by the SRA for wrongly declaring that they were compliant with the Money Laundering Regulations (MLR) 2027. The SRA determined that the firm demonstrated “reckless” behaviour and “failed to have proper regard to the SRA's guidance and warning notices.” Faults found included four “in-scope” files that had no client/matter risk assessments, lacking a compliant firm-wide risk assessment (FWRA) or policies, controls & procedures (PCPs), and taking longer than reasonably necessary to address areas of non-compliance.

Our AML Training Can Help Your Firm Maintain Compliance

At PDA Legal, our AML training services are designed to help each firm learn about the red flags of money laundering, recognising and reporting suspicious behaviour, and the expected KYC requirements.

For a fully bespoke, in-depth training course that adds value and doesn’t just tick boxes, please contact us today to book your free consultation.