Top 5 methods Criminals use to Launder money

Top 5 methods Criminals use to Launder money:

Money Laundering has become a massive problem for governments as the issue is escalating day by day. It hits the world economy badly as the vast amount of money is used to fund illegal activities and fund terrorism. As per a recent UN report, approximately $ 800 billion – USD 2 trillion is laundered every year, accounting for 2-5% of global GDP. Anti-money laundering laws, rules, and regulations are implemented to detect suspicious accounts and transactions and trace the source of the illegal money. Let’s discuss the top 5 methods criminals use to launder money and evade government scrutiny. 

Hooded cyber crime hacker using mobile phone internet hacking in to cyberspace,online personal data security concept.

1. Instant Messaging

Who would have thought the instant messaging platform would become a popular choice for criminals to launder their dirty money? Criminals use instant messaging apps, which are more than messaging apps, and offer services that make payment facilities available.

Online transfers have reduced cash transactions to a great extent. With the vast amount of transactions being made on messaging platforms, tracking might be a problem, so businesses need to be vigilant and track down suspicious transactions and fake accounts. Companies will require resources and a team to identify such doubtful transactions.

AML training can help companies stay ahead of the criminals and know if the messaging platforms are misused. Training will equip them with updated knowledge of the technology being used and adopt a proactive approach to detect any suspicious transaction immediately. 

2. Online Games

The online gaming industry today is growing by leaps and bounds. Criminals have found the gaming platforms to be a potential opportunity to launder money. The games use virtual currencies which users can trade for real cash.

There are no specific regulations for online trading in the gaming industry, so criminals set up numerous accounts in different jurisdictions to transfer money. They purchase in-game credits and transfer them to launder money. They also create fake accounts or hack existing accounts to steal other players’ credits, and all these attempts are made to increase the virtual currencies, which they can later trade for cash.

3. Gift Cards

Gift cards enjoy immense popularity. After the card is activated, criminals quickly transfer the funds available or use them to buy products sold for cash. Stolen debit or credit cards are rampantly used to purchase prepaid cards, and then they are further sold for money.

The method adopted by the criminals is to copy the serial numbers of the cards, scratch the security code and later cover them up. So, it’s essential to catch the criminals when the cards are stolen as these can be used to launder money. A method adopted to prevent prepaid cards for money laundering is that retailers limit the number of prepaid cards anyone can buy in a day.

4. Cryptocurrency

Cryptocurrency is one of the most popular virtual currencies, and criminals are using this newest kid on the block to launder money. This digital currency is protected by encryption which prevents double-spending. But this currency is not issued by the central government and not regulated by the government, so they become a favourite method of the money launderers. Moreover, it is also banned in some countries.

For instance, the Chinese government has stated that all transactions in cryptocurrency are invalid. Though cryptocurrency may not pose a massive threat to a particular country’s currency, its increased use and entry into the mainstream medium of value exchange is undoubtedly something to worry about.

Today, the digital world is expanding, and many large-scale companies accept this modern currency for providing their products and services. So, it allows criminals to make transactions and indulge in financial terrorism. A recent study has revealed that approximately 56 % of worldwide crypto exchanges do not have a robust KYC process. People use this loophole and use digital currency to launder money.

5. Shell Companies

Criminals often use shell companies or front companies to launder money to hide the identity of the true beneficiary of the proceeds or the profit of the illegal activities. The modus operandi is to sell goods at discounted prices and show false profits. The legal and illicit money is mixed to make them appear legal and avoid scrutiny. This money is used to fund illegal activities.

Conclusion

Governments rely on the newest technology and software solutions, such as the AML software dedicated to identifying and detecting money-laundering activities with advancements in technology. Technologies such as Blockchain are being considered to combat money laundering offences successfully. On the flip side, criminals, too, are using technology to their advantage and using innovative ways to launder money.

Criminals will do whatever it takes to make their fraudulent activities successful. A proactive approach is required to help the business stay ahead of the criminals as a business owner. It is crucial to have a robust AML compliance program exposure to technology and the right team to help identify the criminals.

It’s better to be prepared and choose a reliable AML service provider that will bring value to the table with its array of services. Right from AML/ CFT policy, controls and Procedure documentation to the creation of Risk assessment report and AML health check-up to the

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FAQs

The various methods used to launder money include: 

  • Using smurfs, mules, or shells 
  • Gambling 
  • Investing in real estate and then selling it  
  • Investing in jewellery and moving it to other jurisdictions 
  • Online auctions and sales 
  • Virtual currencies 
  • Anonymous online payment services 
  • Fake identities 
  • Counterfeiting 

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About the Author

Jyoti Maheshwari

Chartered Accountant

Jyoti has over 5 years of hands-on experience in regulatory compliance, policymaking, risk management, technology consultancy, and implementation. She holds vast experience with Anti-Money Laundering rules and regulations and helps companies deploy adequate mitigation measures and comply with legal requirements. Jyoti has been instrumental in optimizing business processes, documenting business requirements, preparing FRD, BRD, and SRS, and implementing IT solutions.