Money laundering refers to the process undertaken to “clean” dirty money (i.e. money obtained via criminal activity). Many money laundering schemes are connected with drug offenses, embezzlement (and other white-collar crimes), and terrorist-related offenses.
Common Money Laundering Schemes
Money laundering is a white-collar crime that is charged as a federal offense under 18 U.S.C. § 1956(a), which is punishable by up to 20 years in prison and a fine of up to $250,000. Common money laundering schemes are:
- Bank laundering. If a person owns a financial institution (i.e. a bank, loan company, credit card company, etc.), they can easily clean money by moving the money throughout their organization to another financial institution. In most cases, it is hard to flag or detect money laundering because they take place using currency exchanges.
- Cash business laundering. Cash businesses like laundromats, vending machines, restaurants, lawn services, car washes, and street vendors are often used to launder money. Because of the large amounts of cash flowing into the business already, it is harder to prove that dirty money is being cleaned with these businesses. While law enforcement officers can compare a business’s profits and cash flow to similar businesses, it can still be difficult to prove that money is being laundered through the business.
- Casino laundering. A lot of money exchanges hands at casinos, which is why money laundering schemes are often run through casinos. In most cases, people launder money through casinos by purchasing chips, gambling very small amounts, and then cashing out to clean the dirty money.
- Layering. This type of money laundering occurs when dirty money is put through many transfers and transactions. The goal of the purchases is to “distance” the money from its illegal origins. For example, dirty money will first be exchanged for gold currency then used in a real estate transaction, and then for casino chips. In layering schemes, dirty money typically goes through multiple countries as well.
- Real-estate laundering. In these types of money laundering schemes, dirty money is used to make a cash purchase on a piece of land or property, which is quickly sold after the initial sale. The resale money is then deposited and considered clean money.
- Structuring. Structuring occurs when large cash amounts are split into smaller amounts and deposited into a lot of different accounts using cashier’s checks or money orders. This form of money laundering is also known as smurfing.
- Trade-based laundering. Dirty money is cleaned when criminal funds are disguised and moved through trade transactions, which can include falsely invoicing good or services, creating multiple invoices for singular transactions, and/or falsely listing the sale of goods or services.
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FAQs
The traditional forms of laundering money are smurfing, using mules, and opening shell corporations. Other methods include buying and selling commodities, investing in various assets like real estate, gambling, and counterfeiting.
What are the 3 ways that money is laundered? ›
How Money Laundering Works
- Placement: Injects the “dirty money” into the legitimate financial system.
- Layering: Conceals the source of the money through a series of transactions and bookkeeping tricks.
- Integration: Laundered money is disbursed from the legitimate account.
Key Takeaways. Money laundering is a crime that conceals the origins of illegally obtained funds, making them appear legitimate. It involves three distinct stages: placement, layering, and integration. Common techniques include cash smuggling, shell companies, and real estate investments.
How do you identify a money laundering scheme? ›
Warning signs include:
- rapid succession of transactions relating to the same property.
- use of cash or third-party intermediaries without adequate commercial explanation.
- use of overseas trusts or companies to conceal property ownership.
- unexpected early repayments, for example of a mortgage.
The scale of money laundering is difficult to assess, but it is considered to be significant. The United Nations Office on Drugs and Crime (UNODC) estimates that between 2 and 5% of global GDP is laundered each year.
What is layering money laundering? ›
Layering is the second of the three stages of money laundering, when successive layers of legitimacy are added to the ill-gotten funds, until their source is sufficiently obscured from authorities to be undetected as ever having been illegal.
What is the first stage in a money laundering scheme? ›
Placement is the first stage of money laundering, in which criminal proceeds are introduced into the financial system. They can be deposited as cash, used to buy financial instruments, funneled through businesses, or used to buy high-value assets in less strictly regulated industries.
How many types of money laundering are there? ›
This is possible through the three basic types of money laundering - smuggling funds across borders, through the financial system or through misinvoicing goods and services during international trade (also called trade-based money laundering or TBML).
What are the 4 elements of money laundering? ›
The stages of money-laundering include:
- Placement (i.e. moving the funds from direct association with the crime)
- Layering (i.e. disguising the trail to foil pursuit)
- Integration (i.e. making the money available to the criminal, once again, from what seem to be legitimate sources)
Frequent cross-border flow of transactions, especially with high-risk countries. A large amount of cash deposited in smaller portions. A large amount of cash deposited in an account at once. Payment received in account, not matched with goods shipped or trade-based money laundering.
This can typically be as easy as using illegitimate funds to invest in something legitimate so that the funds now appear to be “clean”. Such funds are then transferred to purchase goods and services, making their detection nearly impossible. Integration is the final stage of the money-laundering process.
What is an example of money structuring? ›
For example, if someone has $50,000 in cash to deposit in their bank, should they choose to deposit it through five deposits of $9,999 and one deposit of $5, with the intent to avoid the reporting requirement, they have committed the crime of structuring.
Who investigates money laundering? ›
The United States Department of the Treasury is fully dedicated to combating all aspects of money laundering at home and abroad, through the mission of the Office of Terrorism and Financial Intelligence (TFI).
What is the simple money laundering scheme? ›
Here are some common money laundering scheme examples:
Using “smurfs” to break down large amounts into smaller transactions and deposit them. Blending dirty cash into the legitimate cash flow of established businesses. Smuggling cash to deposit in a foreign financial institution.
What is the 5 money laundering directive? ›
What is the 5th money laundering directive? The 5th money laundering directive, or 5MLD for short, is a European Union directive designed to prevent the use of the financial system for the purposes of money laundering or terrorist financing.
What is money laundering structuring examples? ›
To properly demonstrate the differences between structuring and smurfing, let's look at a couple of examples. Let's say that someone has $90,000 in cash. If they want to avoid reporting requirements, they can split this into 10 transactions of $9,000. This is an example of structuring.
