There are many exemplary methods of money laundering. Banks and Financial Institutions are exposed to money laundering activities and risks because they offer their services to a wide range of customers, who may be from diversified backgrounds and jurisdictions. The money launderers attract banks and FIs because they find it easier to hide, use or transfer their black money.
Money laundering may be committed by anyone, including the senior management or employees of the organization, customers, other stakeholders, the general public, or declared criminals. Usually, money laundering is performed by organized criminals to hide illegal money or support other criminals. Money launderers approach banks to inject and transfer their illegal funds, causing them to process the transactions.
Exemplary Methods of Money Laundering
As banks are aware of the time and resources required to combat laundering activities in traditional banking, they diligently oversee investments in these areas. However, the loopholes of online banking are often undermined in the banking systems of many countries. This weakness is a thriving ground for criminals who use these loose standards for money laundering and terror financing purposes. Online banking is currently the playground of many fraudsters using social engineering methods to access other people’s bank accounts in their favor.
For money laundering purposes, a criminal may transfer money directly to a victim’s account and trick the person into sharing sensitive information, such as passwords, or getting remote access to the victim’s computer. Then, the criminal can make an unauthorized payment from the victim’s account.
Money launderers also utilize these channels for transferring digital currencies using the banking channels and their online banking support. They make payments through their bank accounts and buy or sell digital currencies. Cryptocurrencies such as bitcoin are one the most convenient ways to wash money due to their inherent anonymity feature.
These currencies are not connected to a person’s identity and only depend on the private key connected to an account. In addition, individuals, who use digital currencies, do not have to rely on intermediaries for value transfers. Digital currency platforms often do not carry out checks for the source of money, politically exposed persons or PEPs, and sanctions.
In other FIs, such as Money Service Businesses or Remittance Companies, the money launderers approach them and open their accounts to avail the products and services offered by these institutions. The money launderers inject their money by buying foreign currencies and selling them later to generate more funds using FIs. They may transfer the illegal funds to another location or country using the remittance methods provided by FI.
Other FIs, like leasing companies, are also used by money launderers. They invest illegal funds into the assets such as cars, properties, etc. Money transfer and receiving are a few of the core objectives of money launderers regarding Financial Institutions.
Many regulators have restricted FIs from dealing with cryptocurrency exchanges, and banks have restricted customers from transacting in virtual currencies. However, both these transactions are happening in many countries, and there is a mounting risk of financial crimes. These modern money laundering methods and the rising transaction volumes in them are becoming a major headache for regulators across the globe.
Given the complexity involved in their technology and the difficulties in regulating them, many governments have blocked dealings in cryptocurrencies. The regulators are now required to step up their oversight to counter money laundering via these modern methods. Holding the general hostility of central banks towards cryptocurrencies apart, some prominent global banks have started active cooperation with cryptocurrencies.
Money laundering is the process of concealing the origin of illegally obtained money to make it appear as though it was obtained legally. The process involves three main stages: placement, layering, and integration. It’s important to note that money laundering is a serious criminal offense that can result in severe legal consequences.