Layering in AML refers to the stage of money laundering where illicit funds are deliberately moved or transformed in an attempt to obscure their origin. This process aims to distance the funds from their criminal source, making it more difficult for investigators and regulators to trace.

From a compliance perspective, layering represents one of the highest-risk stages of money laundering, because it is designed to exploit weaknesses in financial systems. Regulators expect firms to have monitoring, reporting, and screening systems in place to identify signs of layering.

Layering In AML

In anti-money laundering (AML) compliance, layering is the stage where criminals try to disguise illicit funds by moving them through complex transactions. For financial institutions, the focus is on detecting patterns that suggest layering, such as unusual transfers, inconsistent account behaviour, or rapid movement of funds.

The FFIEC BSA/AML Manual notes that funds transfers may be involved in the layering stage and emphasizes that “an effective risk-based suspicious activity monitoring and reporting system … should be sufficient to detect suspicious trends and patterns typically associated with money laundering.”

Why Layering Poses A Compliance Challenge

Layering increases complexity in financial crime investigations because it deliberately introduces multiple barriers between illicit funds and their origin.

The UK Financial Conduct Authority (FCA) requires firms to establish systems and controls capable of detecting and reporting suspicious activity, including patterns that may indicate layering.

If undetected, layering can:

• Conceal illicit proceeds within legitimate financial channels

• Increase exposure to regulatory and reputational risks

• Lead to penalties for institutions that fail to detect suspicious activity

Detecting And Preventing Layering In AML Compliance

Financial institutions use a combination of monitoring, screening, and investigative tools to identify layering risks.

Transaction Monitoring

Systems such as FacctGuard for Transaction Monitoring detect unusual movement of funds, high-frequency transfers, or transactions inconsistent with customer profiles.

Payment Screening

FacctShield for Payment Screening identifies transactions linked to high-risk jurisdictions or sanctioned entities, reducing layering opportunities.

Watchlist And Customer Screening

FacctView for Customer Screening and FacctList for Watchlist Management ensure counterparties are screened against sanctions, PEP, and adverse media lists to detect high-risk activity.

Alert Adjudication

Alert Adjudication enables compliance teams to investigate suspicious cases, escalating layering-related risks to regulators where required.

Layering In Practice: Compliance Perspective

Layering is not about how money launderers operate, but how compliance teams and regulators detect suspicious behaviour.

For example:

• Unusual transaction flows - Customers moving funds through multiple accounts without clear purpose.

• Complex payment chains - Payments routed through multiple intermediaries or jurisdictions.

• Rapid movement of funds - Transfers inconsistent with stated business activities.

By focusing on these red flags, compliance teams can escalate suspicious activity to regulators, strengthening financial system integrity.

The Future Of Detecting Layering In AML

Future compliance frameworks will make layering detection more proactive, driven by:

• AI and machine learning to uncover hidden patterns across global transactions.

• Graph analytics to identify networks and links across layered accounts and entities.

• Real-time monitoring to prevent layering in instant payment systems.

• International cooperation to detect layering across borders.

As FATF and FCA emphasize digital transformation, firms that fail to adopt advanced analytics risk falling behind regulatory expectations.

Strengthen Your AML Framework Against Layering Risks

Layering is a high-risk stage of money laundering that requires strong compliance measures. By integrating advanced monitoring and screening tools, institutions can reduce exposure and meet regulatory expectations.

Contact Us Today To Strengthen Your AML Compliance Framework