Examples of Money Laundering & How to Prevent Them

Money laundering is a global problem today that is difficult to eliminate due to criminals constantly inventing new techniques to commit the crime. Due to its ever-evolving and detrimental nature, businesses operating in regulated industries are mandated to adopt anti-money laundering practices with the right technology in place to stay compliant with regulations. There are several examples of money laundering today that would thrive without these technology and processes.

Financial institutions need to be conversant with these examples of money laundering schemes and how to combat them to stay compliant in their operations.    

What is Money Laundering?

Money laundering refers to the process of “cleaning” money with illicit origin (e.g. drug pushing, human trafficking) to make it appear legitimate. The process involves running the money through three stages - placement, layering and integration, after which the criminal can freely spend the money. 

Criminals can't just spend the cash obtained from illegal operations without attracting the attention of the authorities. Regulatory authorities are always interested in the source of wealth, especially from individuals whose financial history does not align with their current financial strength. 

Intelligent criminals take advantage of the legal financial system by running illegal funds through high-cash businesses to make the funds appear like proceeds of the business. This way, the business becomes a legal backing or source of funds if investigated, eliminating suspicions of illegal activities. 

Examples of Money Laundering and How to Prevent Them

Let's look at a few examples of money laundering in different industries and how businesses can prevent them:

1. Banking and Financial Services

Case Example: HSBC

In 2012, HSBC was fined $1.9 billion for facilitating money laundering by allowing drug cartels to launder millions of dollars through its U.S. operations. The bank failed to implement robust AML measures, such as proper customer due diligence and monitoring of suspicious transactions.

Prevention Strategies:

• Implement comprehensive AML programs that include customer due diligence, transaction monitoring, and reporting of suspicious activities.
• Regularly update and train employees on AML policies and procedures.
• Utilise advanced technologies, such as machine learning and AI, to detect unusual transaction patterns.

2. Real Estate

Case Example: Vancouver Real Estate Market

In Canada, the Vancouver real estate market was used extensively for money laundering. Criminals purchased luxury properties using illicit funds, inflating property prices and making it difficult for legitimate buyers.

Prevention Strategies:

• Conduct thorough due diligence on buyers, especially for high-value transactions.
• Report suspicious activities, such as cash purchases or transactions involving offshore entities, to regulatory authorities.
• Use AML technologies to verify the source of funds.

3. Gaming and Casinos

Case Example: Crown Resorts

In 2020, Australia's Crown Resorts was investigated for facilitating money laundering through its casinos. The company allowed high rollers to deposit large sums of cash without adequate scrutiny.

Prevention Strategies:

• Enforce strict cash handling policies and monitor large cash transactions.
• Implement customer identification procedures, especially for high-value patrons.
• Regularly audit and review AML compliance programs.

4. Art and Antiquities

Case Example: The Bouvier Affair

In the Bouvier Affair, art dealer Yves Bouvier was accused of money laundering and fraud by inflating the prices of artworks and facilitating the movement of illicit funds through art transactions.

Prevention Strategies:

• Conduct provenance checks and verify the legitimacy of artworks and sellers.
• Implement KYC procedures for buyers and sellers.
• Monitor and report unusual transactions, such as the rapid reselling of high-value art pieces.

5. Cryptocurrency and Digital Assets

Case Example: Bitfinex Hack

In 2016, the cryptocurrency exchange Bitfinex was hacked, and approximately $72 million worth of Bitcoin was stolen. The stolen funds were laundered through multiple cryptocurrency wallets to obscure their origin.

Prevention Strategies:

• Implement AML and KYC measures for cryptocurrency exchanges and wallet providers.
• Use blockchain analytics tools to trace the movement of digital assets.
• Report suspicious activities and collaborate with law enforcement agencies.

6. Luxury Goods and Jewelry

Case Example: Gold Smuggling in India

In India, gold smuggling has been a prevalent method for laundering money. Criminals purchase gold with illicit funds and smuggle it into the country, converting it into legitimate assets.

Prevention Strategies:

• Conduct thorough due diligence on suppliers and buyers.
• Implement inventory tracking systems to monitor the movement of high-value goods.
• Report suspicious transactions, especially those involving cash payments or offshore entities.

7. Retail and E-Commerce

Case Example: Trade-Based Money Laundering (TBML)

In TBML schemes, criminals use trade transactions to launder money by over-invoicing or under-invoicing goods. For example, a retailer might import goods at inflated prices to move illicit funds.

Prevention Strategies:

• Implement robust KYC procedures for suppliers and customers.
• Monitor trade transactions for discrepancies, such as unusual pricing or repeated trades of the same goods.
• Collaborate with customs and regulatory authorities to identify and report suspicious trade activities.

How to Spot Money Laundering Activities

Some of the signs that may be indicative of money laundering activities include: 

• Unusually large cash deposits or withdrawals that are inconsistent with the customer’s known business activities.
• Multiple small transactions just below the reporting threshold within a short period, aimed at avoiding detection (structuring or smurfing).
• Inconsistent information provided by the customer, such as different addresses or contact details across documents.
• Transactions involving shell companies or entities with no clear business purpose, physical presence, or employees.
• Transactions with countries known for high levels of corruption, lax AML regulations, or high crime rates.
• Payments made to or received from unrelated third parties with no clear business connection to the customer.

Read more on money laundering red flags for businesses today.

How to Prevent Money Laundering with Smile ID Solutions

Establishing robust KYC and AML check procedures is key to preventing money laundering. Smile ID compliance solutions empower businesses to achieve all of these in one place. Prevent money laundering through the following:

Identity Verification

Smile ID offers an array of identity verification solutions to help businesses meet their KYC compliance needs. This includes: 

• Document Verification: empowers businesses to verify 8500+ identity documents across 226 countries globally using biometric authentication and OCR technology. Our solution boasts 100% coverage across all African countries with at least 3 ID types covered.
• Government KYC Checks: leverage direct access to databases from ID issuing authorities across Africa to verify customer identity. 
• Enhanced Document Verification: Combine the functionality of Document Verification and Government KYC checks in one robust solution for a more detailed compliance check.

AML Check

Take extra precautions by running an AML check on the customer against:

• 1100+ global and African sanctions and watchlists
• PEP list of approximately 1.5 million individuals across four levels.
• Adverse media from 75,000+ reputable news sources with a minimum of 2 news sources from every country in the world.

Businesses can run verifications via our no-code platform or API/ SDK integration. Book a free demo today to learn more.