Money laundering is the process of concealing the origin, identity, and destination of criminal proceeds by making it look like the profit is from a legitimate source. This allows malicious individuals to create the illusion that they’ve obtained large amounts of money through a legitimate source when it’s really earned from terrorist financing, drug sales, trafficking activities, or other crimes.
As money laundering is crucial for many crime operations, it’s a persistent problem plaguing global economies. In fact, the estimated amount of money laundered annually is almost 5% of the global GDP, or $800 billion. Unfortunately, money laundering makes it difficult for honest businesses to compete, as launderers are often able to offer products and services at a lower cost than the market value.
With so much at stake, it’s essential for your business to have anti-money laundering (AML) strategies in place. This is important both because it’s the right thing to do and because failure to do so could make you liable for the fallout. For example, the international bank HSBC failed to maintain proper records as part of its AML measures and was fined $85 million for neglecting to file suspicious activity reports (SARs).
Keep reading as we uncover more money-laundering facts and AML statistics. But first, let’s dive in with the basics, beginning with what money laundering is all about, its typical schemes, and the biggest money-laundering crimes.
The most common types of money laundering schemes
Money laundering allows criminals to “clean” their illegal money and camouflage their sources of funds through various financial transactions. After this, they can safely release the laundered funds back into the legal financial systems.
Some of the money laundering schemes criminals employ include:
Establishing cash-intensive businesses
Cash-intensive businesses, such as grocery stores, taxi companies, restaurants, and car washes, usually deal in cash and handle a high volume of smaller transactions. Money launderers can use these accounts to disguise illegal funding by depositing it along with business proceeds, making it difficult to verify the source of the funds.
Smurfing is a standard money laundering scheme where an enormous volume of funds is broken down into smaller amounts (under regulatory reporting limits) and moved across accounts in different cities and countries, so it’s more difficult for law enforcement agencies to detect any wrongdoing.
Using ghost companies
Criminals often deposit their illegal cash into ghost companies (also called shell companies) or trusts to conceal their fund ownership information. Shell companies are corporations that don’t have active business operations or significant assets. This lack of ownership transparency offers the perfect opportunity to conceal illegal funds and bypass AML and Combating the Financing of Terrorism (CFT) regulations.
Laundering illegal proceeds through high-value assets
Another tactic criminals use is purchasing high-value assets such as metals, real estate, or art — resources that are easily bought and sold and carry value over a longer period of time — with illicitly obtained funds for reselling purposes. This allows them to demonstrate gains as legitimate income.
Drug trafficking is a cash-intensive, complex business operation that often involves multiple international boundaries. This industry launders millions of cash proceeds into banks, further enhancing the drug network.
International and domestic terrorism
Every terrorist organization requires funding to conduct its organized operations. Terrorism-related money laundering operations range from the breathtakingly simple to the dizzyingly complex. According to the FBI, the deadliest terrorist attack in the United States cost almost $400,000.
Terrorists’ money laundering activities are quite complex. In fact, even some legitimate groups can find themselves unknowingly supporting terrorist activities.
Like drug traffickers, arms dealers trade in expensive illegal weapons that need to be purchased and sold off the books. However, not all money laundering cases coming from arms trafficking involve vast volumes of funds and hundreds of weapons. Nowadays, illegal weapon trafficking is often performed through the dark web, using cryptocurrency to conceal the source of transaction funds.
Common money laundering examples in the US
Most money laundering operations don’t make national headlines until detected by authorities. Many perpetrators succeed in evading accountability. However, plenty of them do get caught. Some notorious examples of money laundering in the United States include:
Paul Manafort and Rick Gates, 2006-2017
According to an NBC report, Manafort and Gates were accused of money laundering and generating tens of millions of dollars from their lobbying work for Ukraine. They hid payments from 2006 to 2016 through foreign corporations, banks, and partnerships.
At first, both resisted the charges but eventually accepted them as convictions came forward. Both have been sentenced for their money laundering crimes.
Liberty Reserve, 2008-2013
Some early cryptocurrency advocates received more than they bargained for from the Liberty Reserve, a Costa Rica-based financial website facilitating global financial transfers and cryptocurrency conversions.
Liberty Reserve was a magnet for hackers and other cybercriminals. It facilitated around $6 billion in suspected money laundering activities. Unfortunately, legitimate users got the short end of the stick when many lost their investment and Liberty Reserve collapsed.
Tom DeLay, 2002
Gates and Manafort aren’t the only 21st-century politicians who have faced financial crimes accusations; the US representative Tom DeLay was also indicted in 2005 after being charged with conspiracy to violate election law and commit money laundering activities related to campaign fundraising during the 2002 election.
According to ABC News, Tom DeLay was sentenced to three years in prison and 10 years’ probation for this case.
Top money laundering statistics
Even though money laundering is illegal and carries stiff punishments in the United States, it remains a problem for American authorities. The statistics, both global and American, show the scale of the problem.
Significance of AML compliance measures
The numbers make it clear that money laundering is a serious problem that permeates all types of business and economic sectors. As such, it’s important to develop and promote policies designed to safeguard systems against this crime.
With AML solutions, financial institutions can efficiently monitor transactions, investigate questionable ones, and verify users so suspicious activity can be discovered early and the organization can stay in compliance and not run afoul of regulators.