Money laundering and terrorist financing both happen together and utilise the same financial strategies. In money laundering, criminals try to make illegal money legal. While terrorist financing uses money to conduct harmful activities. Both tricks used by criminals rely on certain methods called typologies. These methods are how criminals hide the real source of their money.
Organizations need to know these strategies in order to reduce potential risks. Businesses should follow anti-money laundering laws that help them prevent money laundering and terrorist financing.
This guide discusses the common ways money laundering happens, such as hiding illegal money through various complicated transactions. It is important to know about money laundering typologies to stay alert. Banks and other financial institutions must train their employees and follow strict rules to stop these crimes.
What does mean by money laundering typologies
Money laundering typologies are the strategies that criminals use to hide the illegal source of their money. These techniques are designed to gain unfair advantages if weak financial systems and avoid detection. With time, as the financial system gets smarter, money laundering typologies have become more sophisticated. Intillially it was sufficient to make simpler transactions and depositing. However, banks stricter rules and regulations forced the criminals to develop and follow advanced strategies.
Modern money laundering techniques involve methods such as using multiple accounts for layering funds, utilizing trade-based schemes or using some other digital platforms such as cryptocurrencies. Criminals quickly change the AML rules and develop new ways to evade detection.
In order to run the finance sector smoothly, it is essential for businesses to understand these typologies. Being unaware increases the risk of illegal activities, damaging the business reputation or facing many legal penalties. So, financial institutions can strengthen their defense against financial crimes by recognizing patterns like smurfing (breaking large sums into smaller deposits), real estate laundering, or cyber laundering. Adopting robust AML practices, organizations can protect themselves and make the financial system strong.
Most common money laundering typologies
To stand against financial crimes or fight criminals, businesses need to know the methods that people use to get illegal money. This section discusses the most common money laundering typologies to help you stay alert from money fraud.
1. Financial transaction layering
This is the method in which criminals move money through various accounts, banks or different countries. Layering makes it hard to know the original source of money. Due to a lot of movement, money looks legal.
2. Unusual customer behavior
Customer conduct monitoring identifies terrorist financing or money laundering. The chief indicators are:
- Transactions out of character with a customer’s record
- Multiple accounts under different names
- Heavy volume transactions in the short term
- Cheque issued to unrelated family or unknown parties
- Premature cancellations of insurance policies with resulting losses
- Multifaceted fund movements from account to account
- Regular loan repayments or gambling cheque payments followed by withdrawal of cash
- Utilization of various names for similar activities
- Unexplained earnings not matched to financial status
3. Smurfing/Structuring
This technique involves breaking large amounts of money into smaller amounts to prevent detection. These smaller transactions make it difficult for authorities to trace illegal funds due to below reporting thresholds. Smurfing often uses multiple individuals (“smurfs”) to deposit money into various accounts.
4. Mingling
Combining illicit funds with legal earnings, usually through a legal venture, is referred to as mingling. It makes financial statements opaque, and it becomes challenging to separate legitimate profits from illicitly acquired money.
5. Unusual insurance claims
Insurance claims can be used to obscure the proceeds of a crime. For example;
- Insurance policy closed with third-party request for payment
- Accounts showing insurance policy cashed outside of purchase jurisdiction
- Large sum of cash paid for insurance policy
- Immediate surrender of insurance policy following purchase
- Frequent claims made less than the premiums
- Use of intermediary to collect insurance policy payments
- Utilization of an offshore company for payment of premiums for an insurance policy purchased by individuals privately
6. Trade-based money laundering
In this typology, criminals used fake trade deals to hide illegal money. Invoices change by making prices too high or too low. People lie about the quality of goods or say that they are the sender while they did not send items. This trick compel organizations to think tat money is clean.
7. Offshore accounts and tax havens
Individuals hold bank accounts in nations with tough privacy regulations or poor money regulations. This becomes difficult for other nations to determine the account holders. These accounts conceal where the money is obtained and shield dirty money from getting trapped.
8. Purchase value asset
Criminals invest illegal money into purchasing easy-to-sell items of value such as cars, jewelry, or gold in an attempt to conceal the origins of the funds. This method works because those kinds of exchanges require less to report, therefore complicating how agencies track back where the funds originate. Reporting rules under “Tranche 2” are about to make things more demanding in terms of transactions with expensive products, stopping that kind of tactic.
Following are some examples of how criminals conceal their money:
- Purchasing huge quantities of gold in cash
- Investing company money in gold and then carrying it personally.
- Loading huge amounts of money on prepaid cards
- Purchasing costly goods, such as automobiles, and reselling them in a hurry, requesting payment by check
- Purchasing high-value commodities like diamond rings, bullion, automobiles, or real estate
- Selling large quantities of gold for cash payment.
- Selling large quantities of gold as an individual.
These processes are hard to track the origin of money and are used in money laundering schemes.
9. Casino laundering
This is another widely used money laundering method. In this typology criminals prefer to buy casino chips with illegal money, playing for a few hours then cashing the chips out. The resulting funds are then presented as gambling winnings, seemingly legitimate in origin.
10. Prepaid cards
These cards are already loaded with funds and are not directly linked to bank accounts. This preloading of cards makes it difficult to track transactions. They function similarly to regular debit or credit cards but offer greater anonymity.
11. Cash Business
It is easy for businesses that primarily deal in cash to mix illegal funds with their daily earnings. This blending complicates the distinction between lawful and unlawful earnings.
12. Gaming activities
Individuals can hide where their money originates through gaming. For instance:
- Purchasing winning tickets from actual players
- Using money for casino chips to pay for illicit transactions
- Hiding money earned through crimes through playing online games
Some of the common methods through which this occurs include:
- Depositing gambling funds into a foreign bank
- Playing games that do not offer much but which are simple to win
- Depositing funds into slot machines and promptly turn
Why it is important to stay alert from money laundering typologies
Staying vigilant against money laundering typologies is crucial to safeguarding financial systems from exploitation by criminals. Understanding these evolving techniques enhances compliance, protects reputations, and ensures legal adherence. The Dubai Premier Center Training Institute’s Anti-Money Laundering (AML) Regulations for Banks course equips professionals with essential skills to detect and prevent illicit activities, strengthening institutional defenses and promoting a secure financial environment.