ACFCS Contributor Report: Modern Money Laundering: Evolving Beyond the Classic Three Stages

Introduction

The origins of modern money laundering trace back to the early 20th century, with organized crime figures seeking ways to disguise the illicit origins of their profits.

One of the most infamous early practitioners was Al Capone, whose Chicago-based criminal empire in the 1920s generated vast sums from bootlegging, gambling, and racketeering.

To conceal these proceeds, Capone and his associates purchased cash-intensive businesses—such as laundromats—through which they could blend illegal earnings with legitimate income, giving rise to the term “money laundering.”

Although Capone was ultimately convicted of tax evasion rather than money laundering, his methods highlighted the need for strategies to obscure the trail of illicit funds, laying the conceptual groundwork for what would later become recognized as the three classic stages of money laundering: placement, layering and integration.

Following in the next generation of organized crime leadership, Meyer Lansky, often referred to as the “Mob’s Accountant,” refined and expanded money laundering techniques into a sophisticated global operation.

Lansky recognized that foreign banks—especially in jurisdictions with strict secrecy laws—offered powerful tools for hiding and moving criminal proceeds.

He pioneered the use of offshore accounts in Switzerland and the Caribbean, shell corporations, and complex financial transactions to layer illicit funds and make them appear legitimate.

Lansky’s innovations moved money laundering from small-scale concealment into an international system of financial obfuscation, influencing both criminal enterprises and, eventually, the anti-money laundering (AML) laws designed to stop them.

Money laundering did not exist as a standalone federal crime in the United States until the Money Laundering Control Act of 1986, which made it illegal to knowingly engage in financial transactions involving the proceeds of certain unlawful activities.

Before this legislation, law enforcement typically prosecuted money laundering-related conduct under tax evasion, fraud, or conspiracy statutes.

The 1986 Act, codified primarily under 18 U.S.C. §§ 1956 and 1957, not only criminalized the act of money laundering itself but also gave federal authorities greater investigative and forfeiture powers.

Around the same time, law enforcement training and investigative frameworks began using a three-stage model of money laundering crafted by academics to describe the process of disguising illicit funds:

1. 1. Placement – Introducing illicit funds into the financial system, often through cash deposits, purchases of monetary instruments, or the use of legitimate cash-intensive businesses.
   2. Layering – Moving and obscuring the trail of funds through multiple transactions, transfers between accounts, conversion to different forms, or international movement to jurisdictions with bank secrecy laws.
   3. Integration – Reintroducing the laundered funds into the legitimate economy through investments, property purchases, or other transactions that make the money appear legally earned.

While the three-stage model remains a foundational teaching tool, modern money laundering methods often blur or bypass these stages entirely due to technological advancements and globalized financial systems.

More precisely, cleansing illicit value is less a sequence where one section must build upon the other, but more a selection of blocks that can take many forms – arranged and re-arranged to create the most complexity, opacity and anonymity.

However, in practice, it no longer reflects the sophistication, speed, and technological wizardry at play – in the real and virtual worlds – when it comes to modern multi-channel, multi-sector and multi-jurisdictional money laundering operations.

The financial system today is global, digital, and interconnected, enabling criminals to move illicit value in ways that circumvent the linear structure of the old model.

Modern money laundering is fluid, multi-directional, and often indistinguishable from everyday transactions and legitimate commerce until deep forensic analysis is applied.

Limitations of the Classic Model

The classic placement–layering–integration model assumes:

• A primarily cash-based criminal economy.
• Sequential steps that occur in a linear order.
• Reliance on the formal banking system as the primary money laundering channel.

These assumptions no longer hold. Modern schemes often:

• Begin without cash (e.g., cryptocurrency, illicit online earnings, trading goods and services).
• Use multiple jurisdictions to exploit regulatory mismatches.
• Integrate illicit funds at the earliest possible stage through legitimate-looking transactions.
• Utilize both regulated and unregulated sectors to blur detection thresholds.

In other words, the classic model is insufficient as a sole analytical lens for law enforcement, regulators, and AML investigators.

The Modern Elements of Money Laundering

To better align with current typologies, major money laundering investigations, and emerging threats, I propose these elements are an overlapping framework that enhances the classic money laundering frame of the three stages.

Unlike the old model, these elements are more fluid and are non-linear and can occur simultaneously.

Acquisition & Access

In the context of fraud and money laundering, Acquisition & Access refers to the initial start point where criminals first obtain illicit assets or sensitive information and then secure the ability to use or control them.

Acquisition involves obtaining control of proceeds from criminal activity, such as embezzled funds, stolen credit card data, or money generated from predicate offenses like drug trafficking, corruption, or cybercrime.

Access refers to the ability to deploy or manipulate these assets, often through methods like using stolen banking credentials, leveraging shell company accounts, or transferring funds through cryptocurrency wallets.

This concept is valuable in understanding criminal typologies because the individuals who acquire illicit assets are not always the same as those who have the access to move or conceal them.

Recognizing these distinctions helps investigators trace the flow of illicit value through both the fraud scheme and the money laundering process.

It also broadens the traditional placement-layering-integration model by identifying an earlier operational stage that focuses on how criminals gain both possession and functional control over illicit funds or assets.

Criminals acquire control over illicit value through:

• Fraud, corruption, cybercrime, trafficking, sanctions evasion, tax evasion, or ransomware
• Assets may originate as digital currency, prepaid instruments, high-value goods, or even accounting entries in manipulated ledgers.

Initial Integration (Front-loading)  

In fraud and money laundering, Initial Integration (front-loading) refers to a tactic where illicit funds are introduced into the legitimate economy immediately after acquisition, often disguised as legitimate revenue or capital from the outset.

Instead of the classic three-stage approach where funds move from placement to layering to integration, front-loading skips much of the layering process by embedding illicit proceeds directly into legitimate-appearing transactions at the start.

For example, a criminal might funnel fraud proceeds into a business and record them as sales revenue, inject them as startup capital in a front company, or use them to pre-pay contracts or leases.

This creates the illusion that the funds have a lawful origin from the very moment they enter the system, making tracing more difficult and reducing the need for complex money laundering steps later.

Illicit proceeds are blended with legitimate activity at the outset to establish a façade of legitimacy.

• Shell companies, nominee directors, and complicit professionals (lawyers, accountants, trust managers) act as immediate entry points.
• Transactions are structured to appear as normal business income or asset purchases.

Example: A real estate developer inflates invoices for subcontractor services, funding the overpayment with illicit proceeds disguised as capital contributions.

Dispersal & Conversion

In fraud and money laundering, Dispersal and Conversion describe distinct but often sequential tactics used to move and transform illicit funds, so they are harder to trace and easier to use.

Dispersal refers to breaking up large amounts of illicit funds into smaller transactions, accounts, or assets to reduce detection risk and complicate tracing.

This can involve sending funds to multiple bank accounts, distributing them among co-conspirators or “money mules,” wiring smaller amounts to different jurisdictions, or using layered transfers through intermediaries.

The objective is to fragment the money trail so that investigators face multiple, disconnected paths rather than a single obvious flow of funds.

Conversion is the act of changing illicit funds into a different form or asset class to disguise their origin and facilitate further money laundering.

Examples include converting cash into cryptocurrency, purchasing high-value goods (art, gold, vehicles), exchanging currency into different denominations, or moving from digital assets back to fiat currency.

Conversion often follows dispersal, as fragmented funds are then transformed into assets that are easier to integrate into legitimate transactions or store long term without attracting attention.

Value is moved rapidly to obscure its origin, often before law enforcement or compliance systems detect it.

• Cross-border transfers via multiple correspondent banks.
• Cryptocurrency swaps, including use of privacy coins and mixers.
• Trade-Based Money Laundering (TBML) using over/under-invoicing, phantom shipments, and falsified customs documentation.

Example: Funds from corruption are wired to a shell in Hong Kong, used to “purchase” goods from a shell in Dubai, then resold on paper to another entity in Switzerland—no goods ever move

Recycling & Legitimation 

In the fraud and money laundering context, Recycling and Legitimation can be understood as interconnected stages focused on reusing illicit value and transforming it into funds that appear clean.

Recycling is the repeated movement or reinvestment of illicit funds through multiple transactions, accounts, or jurisdictions to further distance them from their criminal origin.

This may involve converting funds into different forms (cash, securities, cryptocurrency), reintroducing them into new schemes, or routing them through additional shell companies and intermediaries.

The goal is to obscure the audit trail, making the funds’ origin increasingly difficult to trace while keeping them in circulation for ongoing criminal or money laundering activity.

Legitimation is the process of giving illicit assets the appearance of lawful origin so they can be used openly without raising suspicion.

This can include channeling funds into legitimate businesses, purchasing high-value assets, or investing in financial instruments that generate credible-looking returns.

By embedding the proceeds within the legitimate economy, criminals create a plausible story for the source of wealth, making detection and confiscation more difficult. Together, recycling and legitimation extend beyond the basic layering stage, representing a strategic blend of concealment and normalization.

The disguised proceeds are reinjected into the economy, sometimes multiple times, in a cycle of re-legitimization.

• Investments in securities, real estate, luxury goods, or high-value art.
• Formation of legitimate businesses that generate actual revenue streams.
• Strategic philanthropy or political donations to gain social capital.

Example: Proceeds from drug trafficking are used to buy high-end condos in multiple cities, later sold for clean profits.

Preservation and Masking

In money laundering, Preservation and Masking represents the long-term phase in which illicit wealth—once initially concealed—is maintained, protected, and continually disguised to prevent detection, seizure, or forfeiture.

Preservation focuses on safeguarding the value of illicit assets over time, often through offshore trusts, layered corporate entities, or conversion into stable and appreciating forms such as real estate, fine art, precious metals, or diversified investment portfolios held across multiple jurisdictions.

Masking involves hiding the true ownership and illicit origins of these assets indefinitely through complex legal structures, nominee shareholders, ongoing layering of transactions, and the creation of plausible legitimate explanations for the wealth.

This stage often relies on professional intermediaries such as lawyers, accountants, or trust managers to act as fronts, making the illicit funds appear legitimate.

Because preservation and masking can span years or even decades, illicit wealth becomes deeply embedded in the legitimate economy, rendering it extremely difficult for forensic accountants and investigators to trace, disrupt, or recover.

In short: it’s playing the long game – hoping and even counting on that physical and digital records tying assets back to flesh and blood humans get lost, shredded or simply disappear.

Maintaining and protecting assets the modern money launder could use:

1. Offshore Trusts & Foundations – Using jurisdictions with strong secrecy laws to shield assets from scrutiny.
2. Layered Corporate Structures – Multiple shell companies across different countries to obscure asset ownership.
3. Conversion to Stable Assets – Purchasing real estate, fine art, precious metals, luxury goods, or other appreciating assets.
4. Diversification Across Jurisdictions – Spreading assets globally to reduce vulnerability to a single government’s seizure powers. Some countries are also corrupt and don’t have strong rule of AML or corporate transparency laws, and as a bonus don’t have information sharing agreements or legal treaties with countries like the U.S.
5. Private Banking & Wealth Management – Using discreet, relationship-based banking services for asset custody.
6. Long-term Investments – Holding securities, private equity stakes, or venture capital positions for years to legitimize funds.
7. Family Offices – Establishing private wealth management entities that handle both illicit and legitimate holdings.

Masking the ownership and origins of the illicit proceeds the money launder could use:

1. Nominee Shareholders & Directors – Appointing third parties to legally represent ownership.
2. Bearer Shares – Using unregistered share certificates where possession equals ownership (still available in some jurisdictions).
3. Continuous Layering – Periodically moving assets through new accounts or entities to disrupt audit trails.
4. Trade-Based Transactions – Falsifying invoices, shipping records, or valuations to disguise transfers of value.
5. False Documentation – Creating fraudulent contracts, loan agreements, or inheritance claims to explain asset origins.
6. Professional Intermediaries – Leveraging lawyers, accountants, and trust company operators as “fronts” for asset control.
7. Charitable or Political Contributions – Using philanthropy or campaign donations to embed illicit funds into legitimate social channels.
8. Mixing with Legitimate Revenue – Commingling illegal proceeds with legal business income so they are indistinguishable.

Example: A trust in the British Virgin Islands holds shares in a Panamanian corporation, which owns a London property purchased with illicit funds—beneficial ownership is shielded behind layers of nominees.

Some Notable Cases

Real-world examples show why the classic three-stage model is too limited and why a refreshed, retooled and modernized framework is essential.

Each case highlights how one or more elements manifest in practice:

New FinCEN Advisory: A Fresh Example of Modern Laundering Elements

The new FinCEN Advisory FIN-2025-A003 is a must read for everyone who has a stake in fighting financial crime – whether they are in the public or private sectors.

The advisory details how Chinese Money Laundering Networks (CMLNs) appear to bypass the classic “three stages” and instead function more as a global settlement system. The latest FinCEN Advisory (FIN-2025-A003) highlights Chinese Money Laundering Networks (CMLNs) as professionalized, decentralized systems that launder Mexican cartel drug proceeds.

These networks demonstrate nearly all the modern elements simultaneously, underscoring the limitations of the classic model.

• Acquisition & Access: Cartel-generated USD becomes the raw illicit value. Rather than smuggling cash back to Mexico, CMLNs acquire it in the U.S. at a discount.
• Initial Integration (Front-loading): CMLNs immediately match cartel dollars with Chinese nationals seeking to circumvent PRC capital controls. This arbitrage turns illicit drug money into legitimate-seeming RMB at the outset.
• Dispersal & Conversion: Value is moved through mirror transactions (USD→MXN→RMB) without physical cross-border transfer. Additional conversion occurs via luxury goods, “daigou” networks, real estate escrow, or even cryptocurrency.
• Recycling & Legitimation: Cartel proceeds become indistinguishable from Chinese clients’ legitimate overseas investments, re-entering global markets under a veneer of lawful commerce.
• Preservation & Masking: Layered corporate entities, third-party “money mule” accounts, and real estate holdings safeguard value and obscure ultimate beneficial ownership.

This typology illustrates how capital-control arbitrage and professional networks drive laundering today—not sequential layering. Mirror swaps, underground banking, and trade-based laundering act less like stages and more like interchangeable elements of a global settlement system.