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Common Money Laundering Techniques Explained

Author: Niall Hearty  16 April 2024
5 min read

Money laundering is a practice used by those who are looking to disguise the fact that the money they possess has been gained through criminal activity.

It is used to “clean’’ the money so that it is hard for the authorities (or anyone else carrying out investigations) to recognise that it is the proceeds of crime.

As this article will explain, money laundering can be carried out in many different ways and is a challenge for the authorities, who face the task of proving that someone’s wealth has been gained through crime.

The Scale of Money Laundering 

That task is a large one. In 2023, it was estimated that a total of around $800 billion is laundered each year, which is almost 5% of the global gross domestic product (GDP).[1]

The task has been made more challenging in recent years as money launderers have been quick to use new technologies and cryptocurrency to help disguise the criminal origins of their money.

In response to the challenge, the authorities and regulators in some countries have imposed more reporting requirements on the financial institutions (such as banks) that handle money. This can include carrying out Enhanced Due Diligence (EDD) on their customers; the most rigorous level of the Know Your Customer (KYC) checks.  

They have also imposed fines on financial institutions that have not met their obligations to prevent money laundering.

What is money laundering?

Money laundering is the way by which money is moved around to make it hard to prove that it was originally gained through criminal activity.

The exact ways in which this is done may vary. But all money laundering tends to involve three stages:

  1. Placement: This is when the money that has been gained through criminal activity is introduced into the legal economy. This is usually done by putting the money into a range of investments.
  2. Layering: The money is then moved around, in and out of various accounts or investments, to disguise where it has originally come from.
  3. Integration: The money is then taken back to its owners – who gained it through crime – so they can use it as legitimate, “clean’’ currency.

If you would like to learn about the stages of money laundering in more detail, please read our informative article The Three Stages of Money Laundering.

Money Laundering Techniques 

While money laundering usually involves the three stages of placement, layering and integration to “clean’’ the money that has been gained through criminal activity, the techniques used can vary.

There are a large number of ways that money is laundered. While they all have the same aim of cleaning dirty money, they do it in different ways.

  • Bulk Cash Smuggling.
  • Money Muling.
  • Blending Funds/Cash-intensive Businesses.
  • Smurfing/Structuring and Counterfeiting.
  • Smurfing/Structuring and Counterfeiting.
  • Trade-Based Money Laundering.
  • Shell Companies/Trusts.
  • Tax Havens.
  • Transaction Laundering.
  • Black Salaries.
  • Casinos and Gambling.
  • Bank Capture.
  • Commodity Investment.
  • Real Estate Investment.
  • Round Tripping.
  • Cyber Laundering.

Read on to learn more about the most common methods of money laundering.

Bulk Cash Smuggling

Money is physically moved across international borders to disguise where it came from. It may be moved from one country to another country that has less strict regulations regarding banks making checks on where money has come or to a country where the regulations are rarely enforced.

Money Muling

This involves a number of people transferring the proceeds of crime through their accounts for the criminals who own that money. These people may do this online or by using financial services such as courier exchanges. They may have been recruited to do this by the criminals or may not even know that their accounts are being abused in this way.

Blending Funds/Cash-intensive Businesses

The money earned through crime is invested in businesses that handle large amounts of cash, such as shops, car washes or pubs. This is done so that the dirty money can be mixed (blended) with the money that the business has earned legitimately, which makes it hard to identify the proceeds of crime. Money launderers can exaggerate the legitimate earnings from the business to disguise the wealth they have obtained through crime.

Smurfing/Structuring and Counterfeiting

Smurfing, also known as structuring, is when money gained through crime is broken down into small amounts and then deposited into - and moved around - a number of accounts. This makes it hard to recognise the criminal origins of the money.

The small amounts will also not raise suspicions in the banks where the accounts are held. Banks have to report money deposits above a certain size – but this will not be an issue with the small amounts used in smurfing.

You can learn more about this topic in our detailed article What is the difference between structuring and smurfing in money laundering?

Trade-Based Money Laundering

Goods are purchased, investments are made in legitimate assets such as stocks or bonds or a financial interest is bought in an established business. This is all done to disguise the original source of the money.

Shell Companies/Trusts

Dummy companies (also known as shell companies) are created by money launderers to hide illegal funds and avoid paying taxes. Such companies may not carry out any real activity. But they are attractive to money launderers as they often face little legal scrutiny regarding who the ultimate beneficial owner actually is, although some countries have introduced measures to tackle this.

Tax Havens

Those looking to launder money are often attracted to countries whose financial regulations are weak or not properly enforced, making it easy to avoid paying tax or come under any official scrutiny.

Transaction Laundering

Those looking to disguise the proceeds of crime use the world of e-commerce to hide illegal online sales and purchases through the use of legitimate merchants, who may or may not know they are being exploited.
 

Black Salaries

“Cash in hand’’ payments are made to unregistered workers, often using money that has been gained through illegal activity.

Casinos and Gambling

Criminals swap the money they have gained through wrongdoing for gambling chips or play with it on the gaming machines. If investigated, they will then claim that their wealth is due to gambling. A similar approach is used with auction sites.

Bank Capture

Money launderers actually gain control of a financial institution. This enables them to move their money around without arousing any attention from the authorities. They can also carry out transactions with legitimate banks to make their funds appear respectable.

Commodity Investment

Investing in mobile commodities such as gems and gold that can be easily moved to other jurisdictions.

Real Estate Investment

The proceeds of crime are used to buy, sell or rent real estate properties to create the appearance of legitimate financial transactions.

Round Tripping

Funds are transferred to offshore companies or jurisdictions with weaker anti-money laundering controls. That money is then sent back as direct foreign investment to avoid any tax obligations.

Cyber Laundering

Criminals use the digital world in various ways to hide the illegal origins of their funds. Technological developments have enabled them to move their money quicker than ever in order to avoid detection and the dark web has made it easier for them to do business without being detected.

Digital currencies and cryptocurrencies are often used in cyber laundering, with the money launderers using services known as tumblers or mixers to blend their illegal money with legal funds.

Online gaming platforms have also become popular with money launderers, due largely to the virtual assets, in-game currencies and complicated network of transactions involved – all of which can help disguise the proceeds of crime.

You can learn more about cyber laundering in our in-depth article Cryptocurrency and Money Laundering.

Conclusion

Money laundering takes many forms. It is also a crime that places many legal obligations on companies, financial institutions and individuals. Ensuring compliance with money laundering obligations can require the assistance of those with the relevant legal expertise. 

Anyone who is suspected of not meeting such obligations or is accused of money laundering has to respond in the most appropriate way as quickly as possible. Rahman Ravelli has the experience and expertise to ensure a strong, detailed and logical response to any such allegations .

Sources

  1. United Nations Office on Drugs and Crime - Money Laundering Overview.
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Niall has a wealth of corporate crime expertise and an ability to coordinate global bribery and corruption cases. His achievements in such investigations have made him a logical choice for corporate clients.

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