Money laundering is a serious crime, one that all financial institutions and legitimate businesses of any size can fall victim to. It only takes one misstep for illegally-procured money to be circulated into your business, whether as an innocent-looking deposit, a generous donation or a hearty investment. This can easily result in an organization or institution being implicated as an accessory to money laundering—whether deliberate or otherwise—and their people could end up facing hefty fines, costly legal battles, lengthy prison time, or all of these.
Therefore, a proactive approach to protecting oneself against money laundering is imperative for banks and businesses, one that should involve the training and education of employees and officers to recognize warning signs as they appear. Technological solutions that employ artificial intelligence against money laundering is essential as well, as their implementation allows analysts and investigators to find instances of the crime through predictive analytics and big data analysis. If used appropriately, software solutions may even help prevent the crime from even taking place to begin with.
With that said, here are some of the known methods of money laundering, made popular by the criminal elements that utilize them for their malicious ends.
Channeling money to overseas banks
A standby of money laundering, this method involves the criminal element sending their ill-gotten wealth into banking accounts established in banks or financial institutions overseas, especially in countries where bank secrecy laws exist.
Some money laundering schemes involve the money going through dozens, if not hundreds of bank transfers, all just to make its paper trail more convoluted and thus harder to track by law enforcement authorities. According to the International Monetary Fund, the countries that criminal elements often involve in their money laundering schemes include the Bahamas, the Cayman Islands, Panama, Hong Kong, Bahrain, and Singapore—to name a few.
Establishing shell companies
Sometimes, criminal elements set up fake companies or businesses of their own—companies that have no staff or service or product of any kind, but can somehow take payments as well as dole out receipts. This is obviously a front, with its main purpose being to hide and move illegallygotten funds and resources. This can also be used in conjunction with taking out business accounts in banks or to invest in other legitimate businesses, to further circulate the dirty money into the economy for cleaning.
Underground or alternative banking
Some Asian countries feature well-established alternative banking systems that allow for undocumented, paperless transactions. These are often rooted in tradition and operate in an implicit basis of trust, and as such, held in equal legal regard as traditional banking systems. They are also outside government controls and regulations, which can make it difficult for law enforcement to regulate them and safeguard against money laundering. Some examples of this include the ‘fie chen’ system in China, as well as the ‘hawala’ system used widely in Pakistan and India.
Laundering through casinos
There have been cases where criminal elements have resorted to the high turnover rate of finances in casinos to launder their money. The criminal would come in and purchase casino chips, before cashing them out some time later and taking a check for the payment. They may also fraudulently imply that their chips are gambling winnings. While many famous and popular casinos have since complied with government regulations to choke this particular method of money laundering, not all countries and casinos have, and as such, this gives particularly deft criminals the opening they need.
The rise of cryptocurrency in today’s financial markets have made it a particularly attractive option for criminal organizations to abuse it for money laundering. However, one of the main selling points of cryptocurrency as a money system is the near-permanent transaction record that follows each and every changing of hands, making the sources and recipients of the financial resources easily trackable. However, there may come a time where this changes, as cryptocurrency itself is indelibly hinged with breakthroughs and advancements in technology, and as such, criminal organizations may find it working to their favor soon enough.
Investments in legitimate businesses
Launderers may also seek to involve legitimate businesses in helping them clean their dirty money, either through legitimate investments or even buying out the company outright, to turn it into their own money-making scheme. The businesses most used in this particular method are small ones where considerable amounts of money can change hands in a short span of time. These include establishments like bars, carwashes, strip clubs and even money changers or remittance brokers.
While some of these businesses will definitely be complicit and deliberate in their participation in money laundering, there will also be others who will be unaware that they are being used for such a purpose, becoming unwitting accomplices to the crime. This makes them as liable for indictment as the criminal elements responsible are.
Money launderers may try two or more of the above listed methods, all to try and make their ill-gotten resources as clean as possible. It is therefore up to banks, other financial institutions, and businesses to help law enforcement agencies by taking the necessary measures not just to prosecute offenders, but to identify them and predict their actions in advance. This way, parties responsible can be held accountable for their crimes.