Breaking News for Financial Crime Professionals

IE Insights: Top 10 Ways Money Launderers Are Caught Red-Handed – Number 7 Will Surprise You!

May 2023

Money laundering is a complex process that involves making illicitly gained proceeds appear legal, and it’s a serious crime often connected to other illegal activities like drug trafficking or organized crime. Money launderers often get caught through a combination of techniques and tools used by law enforcement, banks, and other financial institutions.

Here are some common ways:

  1. Suspicious Transaction Reporting: Banks and other financial institutions are required by law in many jurisdictions to monitor and report suspicious activities that could indicate money laundering. These activities could include unusual transactions, such as large cash deposits, rapid movement of funds, or transactions that do not fit a customer’s typical behavior.
  2. Anti-Money Laundering (AML) Software: Financial institutions use sophisticated AML software to detect suspicious patterns of behavior. These programs can flag transactions that deviate from normal patterns or that involve certain high-risk countries or entities.
  3. Data Analysis and Machine Learning: With the rise of big data, data analytics, and machine learning, law enforcement agencies and financial institutions can process vast amounts of information to identify patterns that would be too complex for humans to notice. These tools can identify trends or links between seemingly unrelated transactions or individuals.
  4. Informants and Undercover Operations: Traditional investigative techniques, like using informants or conducting undercover operations, continue to play an important role in detecting money laundering activities.
  5. International Cooperation: Money laundering often involves transactions across multiple countries. Law enforcement agencies around the world cooperate and share information to track these activities and bring the criminals to justice.
  6. Public Records and Open Source Intelligence: Public records, such as property records, can be used to identify suspicious activities. Similarly, information from the open web, or open source intelligence, can provide leads that help investigators uncover money laundering schemes.
  7. *Poorly Covered Tracks: Money launderers who do not adequately cover their tracks can leave clues that arouse suspicion. For instance, large lifestyle changes, inconsistencies between reported income and spending, or visible ties to criminal entities can all be red flags.
  8. Audits: Audits of businesses, especially those in high-risk sectors such as casinos or real estate, can uncover irregularities indicative of money laundering.
  9. Blockchain Analysis: With the rise of cryptocurrencies like Bitcoin, money laundering has increasingly moved to the digital realm. Law enforcement agencies, with the help of specialized private firms, use blockchain analysis to trace cryptocurrency transactions. Because all transactions are recorded on the blockchain, a public ledger, it’s possible to trace the movement of funds, even if the identities of the individuals involved are pseudonymous. With sophisticated tools, money launderers who use cryptocurrencies can be tracked and caught.
  10. Whistleblowers: Whistleblowers play an important role in detecting financial crimes, including money laundering. Employees in banks, financial institutions, or businesses who notice suspicious activities often have protection under law to report their observations to authorities. Some high-profile money laundering cases have come to light due to the courageous actions of whistleblowers.
*With the rise of social media platforms, many people share aspects of their life online, and this can inadvertently expose money laundering activities.
For instance, if someone is publicly displaying a lavish lifestyle that is inconsistent with their known income or employment, law enforcement might start to investigate where the funds are coming from. They might flaunt luxury cars, designer clothes, extravagant vacations, and other high-value items or experiences that seem out of reach with their official earnings.
Money launderers might also expose themselves by inadvertently sharing information or associations that can lead investigators to their activities. For example, they might be tagged in locations or with people who are already under investigation.