Money laundering aims to conceal the origin of funds gained through illicit means, such as fraud, corruption, or drug trafficking. Money laundering can have severe consequences for the economy in the long run.
Due to these consequences, regulated industries have to comply with money laundering regulations in an aim to prevent money laundering from happening. To aid with this compliance, we’ve compiled a list of the seven most common money laundering schemes criminals use.
1. Smurfing and Structuring
These can be seen as the most common method of money laundering because it can also be the easiest. Criminals split a large transaction into smaller chunks, so they don’t appear suspicious.
This works because institutions need to report any transaction over the value of £10,000, so, for example, the criminals can make five £4,000 from different accounts into a single account without raising any red flags, rather than depositing a single £20,000 transaction.
For more information about Smurfing and Structuring, check out our previous post: Money Laundering Techniques To Look Out For.
2. Gambling
There’s no argument that a lot of money is moved through casinos (both physical and online) and that this movement of money can leave them vulnerable to money laundering.
Take the example of playing poker. Two associates sit at the same table as strangers, and one loses on purpose, the funds are transferred to the other associate as “legitimate” winnings.
3. Reselling assets
As the saying goes, cash is king. Criminals often look to purchase big-ticket items with cash before quickly reselling them so they have the money in their bank account through a legitimate transaction.
Typically, real estate and luxury vehicles are used for this scheme because their value doesn’t diminish as quickly as other items.
4. Cryptocurrency
What happens in a cashless society where cash is no longer king? Criminals can exploit the anonymity of cryptocurrency to send their funds between accounts.
At the time of writing, there isn’t a uniform way that cryptocurrencies are regulated, making it an easy target for criminals looking to integrate their funds into the legitimate banking system.
5. Trade-based
At its heart, trade-based money laundering takes place when the buyer and seller of goods falsely price the goods during international transactions. This can look like criminals over-valuing shipments so the excess of funds can be transferred into legitimate accounts.
Trade-based money laundering relies on the complexity of international laws and regulations, which allow for the manipulation of invoices and the value of goods to give it the appearance of being legitimate.
6. Shell companies
Shell companies exist only on paper and are typically in countries where there are lax laws and regulations. These companies have no assets and no real operations, however, they often “buy” and “sell” services from other shell companies owned within the same criminal network.
This layering of transactions disguises the origin of the money and makes it difficult for authorities to trace the source.
7. Round-tripping
Round-tripping can combine some of the methods already mentioned and is where the money is sent on a “trip” between various accounts, shell companies and businesses. When the money arrives back in the origin account, or another account owned by the originator, it now appears as though the funds have a legitimate origin.
The more complex the trip, the easier it is for investigators to miss a step and lose the trail completely.
What this means for you
Money laundering schemes are constantly evolving to stay one-step-ahead of investigators and compliance officers. Regulated businesses need to stay on top of their AML practices and customer due diligence. In particular, pay attention to:
- Unusual transaction patterns
- Large amounts of cash or wire transfers
- Transactions from countries with weak AML laws
- Transactions involving high-risk products or industries
- Frequent, unexplained changes to accounts or beneficiaries