Layering
The second stage of the classic money-laundering model - moving funds through a maze of transactions, jurisdictions and instruments to obscure their origin.
Definition
Layering is the second of the three classical money-laundering stages (placement, layering, integration). Once illicit funds enter the financial system at placement, layering builds distance between the funds and their criminal origin by moving them through chains of accounts, instruments, jurisdictions and corporate vehicles.
Note: in market-abuse terminology, "layering" refers to a completely different concept - see market manipulation.
Typical techniques
- Cross-border wire transfers through correspondent banking chains.
- Buying and selling financial instruments to break the audit trail.
- Loans secured by deposited funds - laundering through legitimate-looking debt.
- On-chain: mixers/tumblers, bridges, swaps via DEX, NFT wash transactions.
- Trade-based laundering with over- or under-invoiced shipments (see TBML).
Regulatory anchor
FATF Recommendations 10, 13 (correspondent banking) and 16 (wire transfers / Travel Rule). In the EU, AMLD6 expanded the criminal offence to include aiding and abetting, and the Travel Rule Regulation 2023/1113 closes the data-portability gap in crypto transfers.
Detection logic
Layering is best detected with network analysis, not point-rules:
- Build the directed graph of value flows from and to the customer.
- Compute path metrics - hop count, fan-in/fan-out, jurisdictional diversity.
- Compare observed graph to peer-group baseline.
- Score and prioritise.