Money laundering schemes: common criminal strategies

Money laundering is the process by which a person - or more likely a network of people - conceal the true source of illegal proceeds. These funds may come from fraud, corruption, drug trafficking, or other unlawful activities. When left unchecked, money laundering schemes can have serious consequences, impacting the global economy and providing funds for drug dealing, human trafficking, corrupt officials, and more. Non compliance with money laundering regulations can also have a steep price for banks and other financial institutions. 

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.

Criminals use many different tactics to conceal the origin of illegal funds. Here are some of the most common money laundering schemes.

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.

This is when funds are sent on a trip to various accounts, individuals, shell companies, countries with low regulatory enforcement, etc. before being sent back to their owner with a shiny veneer of being legitimate. 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.

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. This money laundering scheme has emerged recently, and regulators and financial institutions are now trying to keep up. 

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.

Since lots of cash moves through online gambling, 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 an online casino. With two accomplices sitting at the same digital table, one can lose on purpose, quietly transferring money to the other.

Cash can be made to look legitimate through reselling. 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, luxury cars, and other such items are popular placements for money laundering.

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:

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.

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

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.

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.

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.

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.

Learn more about money laundering schemes and how to combat them: