Money laundering is a multibillion-dollar crime worldwide and costs financial services businesses billions more in fines from regulators.
As watchdogs crack down more and more on banks’ failure to detect money laundering attempts and collusion from within, it’s more important than ever to stay vigilant, and to be aware of the modern money laundering methods currently in use.
Ultimately money laundering has a single goal: to take the proceeds of crime and ‘launder’ them so they can be spent legitimately.
This has traditionally involved splitting large sums of money into many smaller transactions, along with using wire transfers, foreign exchange and physical smuggling of cash to move money across borders.
Here are five modern money laundering methods that may pass under the radar for institutions that have not updated their anti-money-laundering protocols in recent years.
1. Online banking
Online banking is a mature technology in some developed countries but is still emerging in others, where internet security in general may also be less well established.
Criminals can use a wide variety of techniques, ranging from security loopholes in online banking apps, to phishing emails and other ways to compromise legitimate account holders’ login details.
This does not always leave the accountholder out of pocket financially – the aim is to launder money, not to steal it – but it may see funds transferred to an innocent third party, who is then asked (or forced) to transfer the balance back again to the fraudsters.
2. Business email scams
A variation on the above is to specifically target businesses that trade cross-border, by carrying out unauthorised fund transfers.
This can again be achieved via hacking and phishing methods or using social engineering techniques to persuade an individual working within the target business to authorise the transfer of funds.
Both of these methods can also be used in finance fraud, to steal money from the victim. But for the purposes of money laundering, the victim may be left unaware that they have participated in a crime at all.
3. Fake identities
A classic con is to create an alter ego that does not exist. In the 21st century, it is relatively easy to generate a digital paper trail convincing enough to apply for financial products.
These can include loans and credit cards, as well as bank accounts and savings products where money obtained through crime can be deposited temporarily and then withdrawn as ‘clean’ funds to spend elsewhere.
Banks are particularly disadvantaged by this technique as they can be left chasing ghosts, with significant reputational risks, as well as out of pocket if they approve a loan, credit card or pay interest to an accountholder who does not exist.
4. Gift cards
Gift card scams are common across a number of different types of fraud, and most of us have received at least one call from a purported tech support helpline asking us to test our online banking or internet settings by buying a gift card.
For money launderers, gift cards are an anonymous way to turn the proceeds of crime into a balance that can be spent on goods from major internet retailers without detection.
This not only impacts financial services providers. Increasingly, supermarkets and other bricks-and-mortar retailers are expected to check why their customers want to buy gift cards with cash, whether that is to detect victims of crime, or those attempting to commit it.
5. Virtual money
Virtual money – especially in the form of cryptocurrency – has given criminals a new and anonymous way to transfer funds from one currency to another or back again.
E-wallets do not need to be linked with an individual identity in the real world and are highly secure, with access limited only to the person (or persons) who has the private account key.
Cryptos are not yet tightly regulated by governments, there is no central database that can be scrutinised, and there are no corporate intermediaries needed to convert digital currencies – all of which makes them ideal for laundering money.
What does the future hold?
Cryptocurrencies in particular are a trend to watch for money laundering solicitors and their clients. These virtual currencies are very hard to track, making it easier for criminals to use them to clean the proceeds of crime, ready to deposit into a conventional account.
Legitimate investors have generated substantial gains from cryptos – driven in part by the value added by money laundering transactions – and there will likely be resistance to any attempts by governments to crack down on cryptos’ ease of use.
In general, the quantity of money involved in laundering activities only goes up and up, putting financial services providers at ever greater risk of losses and regulatory penalties.
Money laundering defence lawyers must work hard to show that their clients have taken all appropriate precautions against conventional and emerging laundering techniques, both in the real world and in digital transactions.