Money laundering schemes that may have already infiltrated your business

Hiding in plain sight is one of the primary tactics for predators in the wild and, when it comes to targeting businesses to be unwitting accomplices to money laundering schemes, criminals can adopt excellent camouflage.

Money laundering activities cost the world somewhere between 2% to 5% of its GDP – up to $2 trillion a year – and businesses can inadvertently become pawns in this criminal activity.  

Making ‘dirty’ money ‘clean’ happens in three stages – placing, layering and integration. Placing is the introduction of ill-gotten gains into the financial system. Layering is moving the money around and putting distance between it and its original source. Integration is when the money becomes seemingly legitimate, allowing the criminals to access and use it.

The layering stage is when innocent businesses are most vulnerable to get caught up in the money laundering process. The difficulty comes with proving that innocence; it’s not unusual for a company to be caught up in the legal ramifications of a money laundering scheme.

The common type of money laundering schemes that could target your business

The first line of defense is knowing the ways your business can be used for money laundering. While there are many techniques used by criminals to launder money, the following tactics are the most likely to target a legitimate business.

The tactics used can depend on what sector you are in, but you should also be wary of indirectly being involved, such as dealing with suppliers caught up in schemes.

90% of laundered money remains undetected.

Round-tripping

This method essentially sends money on a round trip across the world, usually to a jurisdiction with weak anti-money laundering laws, where it sits in an account of a corporation (usually a front), and then sent back as an investment. Depending on where it is invested (for example, into a government-backed investment scheme), it can even be exempt from taxation.

Round-tripping can also be when money is paid to a law firm (or something similar like an accountancy firm) as a retainer, and then the criminals cancel the contract. When the money is sent back, the criminals can represent the money as coming from a legitimate source, such as a legacy from a will or as proceeds from a litigation case.

Using shell companies and trusts to do business

One of the key tenets of banking is to ‘know your customer’. In other words, to do proper due diligence on the person/entity you are doing business with, and the same applies to general businesses.

Trading with a shell company or a trust that is a front for illegal activities can get your business into a lot of trouble, so reasonable checks should be made when trading with a new entity.

Investing in commodities

Criminals like to invest in commodities, particularly luxury commodities such as gold, gems, and diamonds, that can be easily moved to new jurisdictions where they either convert them to cash, artificially inflate or deflate their price, or use false documentation to integrate them into the legitimate financial system. 

Real estate investment

Just like commodities, real estate is an attractive avenue for criminals to launder money. From basic tactics like paying for property with cash, disguising the true ownership of the property through third-parties, trusts or shell companies, to rent being paid far above market rates, and off-the-book transactions, there are many ways criminals can infiltrate the real estate market.

Business email compromise

Scammers can infiltrate a legitimate businesses emails for various reasons, and one of them is for money laundering purposes. Essentially, once they’re in, criminals can use legitimate emails to make illegitimate payments and fund transfers, helping them in the layering part of the money-laundering process. 

Trade-based laundering

Trade-based money laundering is, in effect, a much more complex version of commodity investment. It uses the global trade system to transfer value from one source to another, under or over valuing goods along the chain, as well as misrepresenting goods entirely.

There is also a tactic know as carousel transactions, where a high-value commodity is repeatedly imported and exported, and the criminals use the VAT system of different jurisdictions against each other to continuously make money.

A U.S. Department of Treasury report in 2018 identified trade-based laundering as one of the most used, and one of the hardest to detect, methods of money laundering. It’s also one of those tactics where legitimate businesses can be used as part of the scam.

Transaction Laundering

Transaction laundering is one of those tactics born of the digital age, using the anonymity of online payment systems to make a business process payment for another business – usually via a website. This allows the seller of illegal goods or services to use a legitimate business to ‘wash’ the money through another payments system, showing up in a banks system as legitimate because they ‘know that customer’.

Our partners in ComplyAdvantage have explored transaction laundering in detail if you want to learn more.

400 times more money is laundered in government-backed currencies than in cryptocurrency.

Cyber-laundering

A broad term, cyber laundering describes the digital tactics criminals use to launder money on the internet. It can be applied to schemes such as online games being used very similarly to those classic front businesses (from laundromats to casinos) that are used to hide illegitimate money with legitimate earnings.

Fake charities, crowdfunding, digital currencies (trading major coins like Bitcoin with ‘alt-coins’ which don’t have AML policies), etc. can also be other entry points for criminals to generate income that can hide their ill-gotten gains.

How to protect your business from money laundering tactics

As you can see from this list, criminals will target every avenue open to them in the financial system to launder money. For businesses not wanting to be caught up in their activities, there are a couple of key principles to follow.

Know your customer

Just like the banks, businesses must practice reasonable due diligence on their suppliers, the supply chain their goods flow through, and even the buyers of their product or service. While it is, in practical terms, impossible to rout out all forms of criminal activity as a private business, taking a proactive approach will both help you detect potential risks, and defend yourself legally in the future if you are every unknowingly caught up in a scheme.

Have technical safeguards in place

Leveraging technologies to protect your business is the latest front in the fight against money-laundering. Your payments system should have automated red-flags built in it, providing an early warning system for you to launch an investigation, and be as transparent as possible to allow for active monitoring and a clear audit trail. 

Have AML Policies in place

Having policies and reporting procedures is an often-overlooked tactic to fight money-laundering; it’s simply too easy to let it slide down the to-do list. However, it is vital to have these in place, and to conduct regular training in them.

One of the hard truths about money laundering is that sometimes in can come from within your workforce, so having these policies and procedures down on paper will both deter potential fraudsters and help others detect them if they do cross the line.

To learn more about TransferMate’s anti-money laundering policies and how we protect our customers, click here.