Understanding the intricacies of money laundering typologies


In a recent post by RegTech firm Alessa, the company outlined how best to understand the intricacies of money laundering typologies. 

Money laundering typologies represent the intricate strategies used by criminals to conceal the origins of illicitly gained funds. These methodologies are crafted to circumvent financial system vulnerabilities and steer clear of anti-money laundering alarms. The sophistication of these schemes has escalated in parallel with advancements in financial technologies and global banking networks, posing significant challenges to the detection and prevention of such illicit activities.

Recognising these typologies is crucial, especially for entities in the financial sphere. Ignorance of these methods not only risks abetting unlawful undertakings but also endangers reputational and legal standings.

Common Typologies of Money Laundering

Money launderers and terrorist organisations employ a myriad of techniques to launder money. Understanding these common methods is vital to combatting financial crime.

Financial Transaction Layering: This involves dispersing funds across multiple accounts and jurisdictions to veil their illegal origins. The complexity of these transactions makes tracing the illicit source exceedingly difficult.

Smurfing/Structuring: This tactic entails dividing large sums into smaller, less conspicuous deposits to evade detection thresholds.

Mingling: This method mixes illicit funds with legitimate business revenues, obfuscating the money’s origin.

Trade-Based Money Laundering: Utilising trade transactions to mask the illegal origin of funds, often through invoice manipulation and misrepresentation of shipped goods.

Shell Companies: These are entities with no active operations, used to hide business ownership and facilitate covert fund movements.

Offshore Accounts and Tax Havens: These accounts are in jurisdictions with lax money laundering laws or stringent secrecy norms, aiding in the concealment of fund origins.

Purchase and Resale of Valuables: High-value items are bought with illegal funds and resold, converting tangible assets into ‘clean’ money.

Real Estate Investments: Illicit funds are laundered through property transactions, presenting sales proceeds as legitimate earnings.

Abuse of Insurance: Exploiting the complex nature of the insurance sector, criminals over-insure assets or purchase policies with illicit funds for later ‘clean’ payouts.

HOSSPs (Hawala and Other Similar Service Providers): These providers facilitate informal value transfers, often without a formal paper trail, ideal for discreetly moving illicit funds.

Casino Laundering: Using illegal funds to purchase casino chips and later presenting the cash-out as legitimate gambling winnings.

Bearer Instruments: These untraceable instruments facilitate anonymous fund transfers.

Prepaid Cards: These provide a means to conduct transactions with greater anonymity.

Correspondent Banking: Exploited to transfer funds internationally, obscuring their origin.

Cash Businesses: Facilitate the blending of illicit funds with daily business revenue.

Precious Metals and Gems: Used for converting illicit funds into seemingly legitimate proceeds through sales.

Diversion of Funds from NGOs: Manipulating NGO finances to divert funds for terrorist activities.

Convertible Virtual Currencies (CVCs) and Cryptocurrencies: Provide anonymity and operate outside traditional banking systems, making them attractive for laundering.

Read the full post here.

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