Money laundering schemes: common

criminal strategies
Money laundering is a crime that involves concealing the origins of money
obtained through illegal activities so that it appears to have come from
legitimate sources. It is a massive global problem: the United Nations Office
on Drugs and Crime (UNODC) estimates between 2% and 5% of the global
GDP is laundered each year. And those funds allow criminal enterprises to
continue financing their illicit operations.
While techniques vary, there are several common schemes bad actors use to
launder dirty money. This article will provide an overview of some of the
most prevalent methods, including smurfing, trade-based laundering, shell
companies, and casinos. Understanding how money laundering works is the
very first step in helping both authorities and regulated industries crack down
on financial crimes and disrupt dangerous criminal organizations.

What is money laundering?

Money laundering is defined as the process by which a person or a network
of criminals work to conceal the true source of illegal proceeds. Money
laundering is a crime in its own right, but the illicit funds being laundered are
also associated with crimes such as fraud, corruption, drug trafficking, etc.
When left unchecked, money laundering can have serious consequences,
impacting the economy and providing funds for drug dealing, human
trafficking, corrupt officials, and more. Laundered funds may also be used for
terrorist financing. For banks and other regulated industries, non-compliance
with money laundering regulations can also come with a steep price in the
form of fines.

How does money laundering work?

The money laundering process typically (but not always) takes place in three
steps.
 1. Placement. In this first step of the process, funds enter into the legal
economy. Funds may be placed through a business, or cash may be
deposited in a bank account in small increments so the transactions do
not appear suspicious.
2. Layering. Next, money is separated from its source. Layering can
involve many steps and transactions, many entities, and many
countries, making it difficult for AML investigators to understand
where the money came from.
3. Integration. At the integration step, the money has effectively been
cleaned and appears legitimate. It can now be used like any other funds.

7 common money laundering schemes

Criminals use many different tactics to conceal the origin of illegal funds.
While it would be nearly impossible to write an exhaustive list, here are some
of the most common money laundering schemes.

Smurfing or structuring
This money laundering scheme is when a criminal splits up a large amount of
money into smaller chunks to avoid their transactions appearing suspicious.
Financial institutions are obligated to report transactions above $10,000, so
depositing a large amount of criminal proceeds simply isn’t an option. By
enlisting the help of associates, friends, or relatives, sometimes in several
countries, a criminal can have those individuals deposit smaller amounts into
their accounts and then have that money wired to his own account.

Round tripping
This is when funds are sent on a “trip” to various accounts, individuals, shell
companies, countries with low regulatory standards, etc. before being sent
back to their owner with a shiny veneer of legitimacy. The idea is to create a
complicated path that’s hard to follow. It’s easy for analysts and investigators
to miss a step in this complex journey of criminal funds, making them
difficult to trace back to their original source.

Shell companies
Shell companies exist only on paper and have no real operations or assets.
Money launderers will layer the money through a series of shell company
transactions to disguise its criminal origins. For example, a shell company
may "buy" a service from another shell company owned by the same criminal
network. Or dirty money might be sent through shell companies as
"payments" for fictitious goods and services. Shell companies make it
extremely difficult for authorities to trace the true source of the money. Many
criminals register shell companies in countries with lax regulations and
privacy laws to better hide their activities.

Money laundering through cryptocurrency

For a long time, cash was king for criminal activity, but that’s no longer the
case. Virtual currencies like Bitcoin are not regulated in a uniform way,
making them an easy vehicle to launder criminal proceeds. Certain types of
cryptocurrency also allow for a great deal of anonymity. This money
laundering scheme has emerged recently, and regulators and financial
institutions are now trying to keep up.

Trade-based money laundering

This scheme takes advantage of the complexity of international laws and
regulations. A money launderer may manipulate invoices or the value of
goods in order to move money around and give it the appearance of being
legitimate. Moving funds through different countries, with the involvement of
several individuals or businesses, makes it easier for criminals to evade
standard AML checks.

Gambling
Since lots of cash moves through casinos, both online and offline, it can be a
natural place for illicit money to be laundered. Both the layering and
placement steps of the money laundering process are relatively easy at a
casino. With two accomplices sitting at the same table, one can lose on
purpose, quietly transferring money to the other.

Reselling assets
Cash can easily be made to look legitimate through reselling assets.
Criminals may purchase big-ticket items with cash, and then quickly resell
those items to have money they are able to actually use in their bank
account. Real estate is one of the most common vehicles for this type of
money laundering, but luxury cars and other such items are popular
placements for illicit funds.
Money laundering schemes red flags
One of the keys to detecting money laundering schemes is identifying
specific red flags that may indicate suspicious behavior. Here are some of the
common red flags to look out for:

Unusual transaction patterns

Transactions that deviate from a customer's typical behavior warrant further
investigation. Such transactions may include unusually large amounts or
deposits of multiple smaller amounts that were likely structured to avoid
reporting requirements.

Large amounts of cash or wire transfers

Transactions involving large sums of cash, particularly if they are structurally
designed to avoid reporting requirements, are often associated with money
laundering schemes.

Transactions from countries with weak AML laws

Transactions involving high-risk countries with weak anti-money laundering
laws or a significant presence of criminal activity certainly don’t
systematically indicate suspicious activity. However, transactions from such
countries warrant extra scrutiny to be sure no criminal activity is going on.

Transactions involving high-risk industries or products

Certain industries and products have a higher risk of being used for money
laundering, such as the jewelry and precious metals industry, the art market,
and the gambling industry. Transactions involving these industries or
products should be closely monitored to flag any suspicious activity.

Frequent and unexplained changes to accounts or beneficiaries

Multiple changes to account information or beneficiaries, especially rapid or
frequent changes, along with inconsistent or incomplete information warrant
closer examination.
By flagging these warning signs early on and taking the necessary steps to
investigate them, financial institutions and other organizations can take
proactive measures to mitigate risk and prevent money laundering.

Money laundering schemes are constantly evolving

Criminals’ number one goal is to effectively hide money with illicit sources.
New money laundering schemes emerge all the time. Banks and other
financial institutions need to constantly monitor data and patterns to catch
new schemes when they emerge.
Traditional AML approaches use relational databases to store data. Looking
for patterns within data stored in tables is time consuming and requires a lot
of manual work. It’s also easy to miss connections within the data that might
be a money laundering red flag.
Low level signals within your data can be the key to detecting new money
laundering schemes. Linkurious Enterprise financial crime investigation
platform can help you detect those signals, offering a swift, precise, and
intuitive way to explore your data and the relationships within it.