An astounding $800 billion to $2 trillion is laundered globally each year, accounting for a staggering 2-5% of the world’s GDP. While money laundering is not a new concept, the methods criminals use to execute it are constantly evolving.
With the advancement of technology and globalization, fraudsters are devising more ingenious ways to launder money, making it increasingly challenging for authorities to detect and prevent these activities.
When individuals become victims of fraud, the toll is more than just financial; it’s also emotionally devastating. On the flip side, financial institutions face their own set of repercussions. You risk losing not just hefty sums in penalties but also something far more valuable — public trust. Failing to rigorously comply with Anti-Money Laundering (AML) regulations doesn’t just put you on the wrong side of the law; it severely damages your brand credibility, which makes it important to have the right AML technology in place.
To arm you with the insights you need, this article uncovers seven crafty tactics that criminals are using to launder money. By understanding these devious methods, you’ll be better equipped to combat financial fraud.
So, without further ado, let’s dive right in.
7 Unconventional Money Laundering Methods
While you may be aware of the more common money laundering methods like bank laundering, smurfing, or fraudulence through cash, criminals are now using advanced technology and more unconventional techniques to carry out their fraud schemes.
Here, we discuss seven such creative money laundering methods to watch out for.
#1. Art Auctions
Art auctions, often perceived as the domain of the elite, have become a hotspot for money laundering activities. Criminals exploit the subjective nature of art valuation to manipulate auction prices, enabling them to move vast sums of money discreetly.
Typically, a criminal might purchase art using illicit funds. Once the artwork is bought, its value can be manipulated. For instance, the artwork can be sold at an inflated price to a collaborating party, effectively “cleaning” the dirty money. The proceeds from this sale are then presented as legitimate earnings.
In some cases, the artwork might not even physically change hands, but on paper, it appears to be a legitimate transaction. This method allows criminals to legitimize their illicit gains as art transactions.
Art auctions offer an ideal environment for money laundering due to several factors:
- Subjective Valuation: Unlike other assets, the value of art is highly subjective. Two experts might value the same piece of art differently, giving criminals the scope to inflate or deflate prices as needed.
- Privacy: High-end art auctions often cater to an elite clientele that values discretion. This desire for privacy can be exploited by criminals to make large transactions without drawing the attention of other clients.
- International Nature: Art is frequently bought and sold across borders, making it easier to move money internationally under the disguise of legitimate transactions.
A real case study of Matthew Green shows how he allegedly got involved with Beaufort Securities, a Mauritius-based company accused of fraud, stock manipulation, and money laundering. The company had previously laundered money by depositing it under false names in offshore banks and buying and selling real estate.
Green was approached by Beaufort conspirators to launder £6.7 million in exchange for a 1965 Picasso, Personnages. The plan was to create fake ownership papers for the artwork while keeping it stored, and later pretend to buy it back, keeping a portion of the laundered money.
#2. NFTs
In the past few years, many countries in the world have introduced AML regulations for the traditional art industry. This is why criminals are moving towards more advanced technology and the internet to use and legitimize their ill-gotten money.
The pseudonymous nature and highly fluctuating prices of NFTs make them an attractive option for criminals to launder funds without having to verify their identity.
According to FinCEN,
“The ability to transfer some NFTs via the internet without concern for geographic distance and across borders nearly instantaneously makes digital art susceptible to exploitation by those seeking to launder illicit proceeds of crime, because the movement of value can be accomplished without incurring potential financial, regulatory, or investigative costs of physical shipment.”
A common money laundering practice is to purchase an NFT at a lower price using a digital wallet. The criminals then buy the NFTs from themselves at a higher price using a different wallet, all without having to verify themselves.
They later sell it to an unsuspecting buyer to complete the process, allowing them to transfer their illegal money through legitimate transactions.
#3. Virtual Gaming Economies
Online games often have their own in-game currencies, items, and assets. These virtual goods can sometimes be traded both within the game and on external third-party platforms. This has led to the creation of a thriving virtual economy where items and currencies are bought, sold, and traded, often for real-world money.
Criminals have identified this as an opportunity to launder money. Here are some of the most common methods used:
- Criminals acquire virtual in-game assets with illicit funds and then sell them on third-party platforms to convert them into clean money
- Some games allow players to use virtual assets to buy real-world items which can be used to purchase weapons or drugs
- Criminals create multiple game accounts, transferring virtual assets between them to obfuscate their trail.
- Some games offer gambling features where players can bet and trade using their virtual assets.
One such instance was when the popular game CSGO announced, “Worldwide fraud networks have recently shifted to using CS:GO keys to liquidate their gains. At this point, nearly all key purchases that end up being traded or sold on the marketplace are believed to be fraud-sourced.”
This led them to stop allowing their users to sell their container keys purchased in-game on the Steam Community Market.
#4. Cryptocurrency
The decentralized nature of cryptocurrencies makes them an attractive option for money launderers. On top of it, using crypto tumblers or crypto mixing services, fraudsters can easily mix illegal funds with legitimate ones, making transactions virtually untraceable to the actual source.
For instance, the NYTimes revealed a recent update on an infamous multi-million dollar laundering operation using Bitcoin. In August 2016, Bitfinex, a cryptocurrency exchange, suffered a significant breach where 120,000 bitcoins were stolen, causing a 22% drop in Bitcoin’s USD value.
The stolen bitcoins were closely monitored, and several transfers were observed over the years. The most significant movement occurred on February 1, 2022, when 94,643.29 bitcoins, representing 79.03% of the stolen amount, were consolidated into a single address without any privacy measures.
On February 8, 2022, the U.S. Department of Justice (DOJ) announced the seizure of approximately 94,636 bitcoins and the arrest of two individuals, Ilya Lichtenstein and Heather Morgan. Lichtenstein, known in the tech community as the co-founder and CEO of Mixrank, and his wife, Morgan, are accused of laundering the stolen Bitfinex bitcoins.
These cases are a wake-up call for both financial and non-financial institutions to use effective AML technology and asset tracing tools to combat modern-day digital money laundering schemes.
#5. Trade-Based Laundering
International trade offers a vast landscape for money laundering. These types of fraud activities can include:
- Criminals manipulating invoices of goods or services
- Creating multiple invoices of goods or services
- False purchase descriptions in invoices
- Overvaluing or undervaluing goods to move money across borders.
A recent case study exposed Amadou Kane Diallo, CEO of California-based companies Virtual Advisors LLC and Liquide Inc., who has been charged with misleading investors and misusing their funds for personal luxuries.
Diallo allegedly deceived at least 11 investors, claiming their money would be used for business opportunities in various sectors or to attract institutional investors.
Contrarily, he used over $1.8 million from them for personal expenses, including luxury vehicles, high-end dinners, and extravagant events. He faced charges for 19 counts of wire fraud and two counts of money laundering, with potential prison sentences of up to 20 years for each wire fraud count and 10 years for each money laundering count.
Now, with the rise of online marketplaces, trade-based laundering schemes are evolving further. For instance, a case revealed by the FBI showed ISIS using eBay to send terrorism funds to the U.S.
#6. Shell Companies and Offshore Accounts
Even though this isn’t the most unconventional money laundering scheme on the list, shell companies can still be used in various creative ways to hide assets and financial transactions.
By channeling money through multiple shell companies and offshore accounts, criminals can obscure its origin. For instance, one of the biggest investigations in journalism history carried out by ICIJ, the Pandora Papers revealed nearly 12 million leaked documents that unveiled the concealed dealings of global elites, including world leaders, celebrities, and billionaires.
From celebrities like Elton John and Ringo Starr to the Qatari royal family and Jordan’s King Abdullah II, they were listed for their offshore dealings. The paper also revealed that politicians from 90 countries hid money offshore to evade taxes.
The Pandora Papers investigation spanned over two years and involved more than 600 journalists from 117 countries. This was enough time for many fraudsters to escape the investigation.
A better way to deal with digital-age money laundering schemes is to use advanced fraud investigation tools. The right tool should be able to capture data with maximum accuracy and minimum time to steer the investigation effectively.
#7. Instant Messaging Apps
Many instant messaging apps now offer peer-to-peer payments, which has opened up a new avenue for money launderers.
For instance, Meta collaborated with PayPal and Mastercard to enter the P2P payment market with its Facebook Messenger. This leaves multiple opportunities for launderers to transfer direct funds within encrypted texts.
These encrypted messages can also be used to carry out private communication between parties without leaving any trace, making it easier for criminals to carry out fraud. For instance, 16 Wall Street firms were fined $1.8 billion for using private messaging apps to communicate with their customers and intentionally not keeping records of the conversations.
Challenges in Detecting Modern Money Laundering Techniques
Traditional investigative methods, while effective in the past, now face limitations in detecting sophisticated laundering techniques. There’s a growing potential for overlooking these advanced methods, making it imperative for investigators to adapt and evolve.
Here’s a deeper dive into the challenges faced by investigators:
#1. Rapid Technological Advancements
The digital age has brought about rapid technological advancements, enabling criminals to exploit new platforms and tools for money laundering.
From cryptocurrencies to online gaming economies, the digital world offers a safe haven for illicit financial activities.
#2. Globalization of Financial Systems
The interconnectedness of global financial systems has made it easier for money launderers to move funds across borders, often through complex networks of shell companies and offshore accounts.
This is because once the money has been transferred internationally, it becomes difficult to track the movement of funds across borders.
#3. Limitations of Traditional Systems
Conventional systems primarily rely on predefined rules and thresholds. Sophisticated launderers can manipulate these rules, making their transactions appear legitimate.
This makes it difficult for institutions to track money trails, which could ultimately lead to the launderer.
#4. The Volume of Financial Transactions
The sheer volume of daily financial transactions, especially in large financial hubs, makes it challenging to manually pinpoint suspicious activities.
However, all is not bleak. Advanced tools, like ScanWriter, are stepping up solutions for organizations to effectively identify the money trail.
Must Read: The Ultimate Guide to Investigating Synthetic Identity Fraud and Decoding Frankenstein IDs
The Role of Advanced Investigative Tools in Combating Money Laundering
The fight against money laundering is a continuous one. As criminals devise new methods, it’s crucial for investigators to stay ahead. With tools like ScanWriter, detecting and investigating money laundering becomes more feasible.
Source: ScanWriter
For those in the field of financial investigations, considering ScanWriter as a solution can be a step in the right direction for the following reasons.
- Accurate Data Capture: The software converts any paper or digital document into Excel within minutes, ensuring 100% accurate data capture.
- “Flow of Funds” Model: Powered by Microsoft BI, Scanwriter can automatically prepare “data visualization models,” for instance, ‘flow of funds,’ to show the money movement and capture any fraudulence.
- Tracing International Money Trails: ScanWriter is equipped to trace international money trails, accommodating different regulations, languages, and time zones.
While the challenges of detecting modern money laundering techniques are real and growing, tools like ScanWriter offer sustainable solutions. By leveraging technology and staying updated with the latest trends, financial institutions can effectively combat money laundering and safeguard the integrity of the financial system.
To book a 14-day hands-on trial run of ScanWriter, request a free demo or contact us today at info@personable.com