Wonder how criminals successfully introduce large sums of ill-gotten money into the financial system without raising any red flags? There are many steps involved in laundering money; one of the critical initial stages is Placement In Money laundering.
It involves hiding the origin of dirty money by its introduction into legitimate financial circuits or business operations. What kind of industries are, therefore, most vulnerable to being utilized for the placement of money laundering?
According to former FBI agent Dennis Lormel, “Launderers seek out businesses where cash is king and oversight is lax.” There are just some sectors in business that naturally deal in high amounts of cash and may not have the strictest controls or reporting requirements. This would make them especially favored targets of the AML placement stage.
The following article discusses industries that are particularly vulnerable to money laundering placement attempts because of the nature of their operations.
Cryptocurrency Exchanges
There is increased regulatory attention with the increased adoption of cryptocurrency. The total market capitalization for cryptocurrencies still hovers around $1 trillion as of 2023, with Bitcoin itself commanding about 40% of this value.
The salient grounds that most cryptocurrency exchanges still need altitude to be equipped with when it comes to KYC checks. Recently, in the US, FinCEN has heaped up regulatory pressure by demanding more stringent measures of transaction reporting above $10,000.
Casinos and Gambling
Casinos have remained some of the red-hot spots in terms of financial regulation. Indeed, it is projected that in 2022 alone, the global gambling market will reach as much as $450 billion.
Some of these authorities, like the United Kingdom’s Gambling Commission and the Nevada Gaming Control Board, have levied increasingly tighter standards on placement in money laundering compliance.
Despite such efforts, casinos go on laundering money unabated by simply taking advantage of the high-volume cash flow intrinsic to the business.
Digital gambling platforms present new challenges with innovations; for example, a 2023 report by the International Gaming Research Unit revealed that digital transactions have blurred the means for detecting suspicious activities.
Bonus: For additional information on the rules and regulations of anti-money laundering programs, visit amlwatcher.com for the most current rules from FinCEN.
Offshore Banking
The fight against money laundering has been overcome by one nagging issue above all others: offshore banking. While global efforts have made it much more difficult to successfully hide money offshore, according to the International Consortium of Investigative Journalists, the estimated amount laundered via those banks every year has reached $11 billion.
These laws have since been tightened by the Cayman Islands and British Virgin Islands, among other jurisdictions. However, efforts to stem the problem have been hamstrung by the secrecy afforded by shell companies and the complexity of structures used by corporate entities to mask ownership.
Charities and Nonprofits
Many financial criminals view charities and non-profits as a way to launder money in the placement stages of laundering. Criminals who donate phantom dirty money to legitimate causes may claim any subsequent payments from the institution as being for some charitable purposes.
However, tight AML regulations and increased monitoring by agencies like FinCEN have generally avoided the use of non-profits to launder money. The next step in this regard is to verify the identity of donors, and any suspicious transactions are supposed to be reported.
Used Car Dealerships
It is an industry that is primarily cash-based, mainly consisting of small businesses, and perhaps with high incidences of transactions; hence, car dealers have become a target for the placement stage where illicit funds enter legal channels. Criminals may try to deposit large bills directly into a dealership’s bank deposits or make purchases of vehicles for resale later.
Retail Stores
Any retail outlet accepting cash is a potential vulnerability for the initial placement phase of money laundering. Criminals could attempt to deposit or repeatedly exchange dirty money in smaller amounts at retail locations or make purchases of high-value goods for resale.
As larger stores adopt stronger FinCEN-mandated controls, smaller independent shops may still provide placement opportunities for laundering cash before it undergoes further transactions to obscure its criminal origins better.
In 2023, retail sales in the U.S. were estimated at around $5.5 trillion, with small to medium enterprises (SMEs) constituting a large segment of the market.
Common Placement Methods Used
One strategy is to “smurf” or break up large amounts of dirty cash into smaller deposits that are below reporting thresholds, spreading these transactions out over different bank accounts or across multiple branches to avoid the stages of money laundering red flags.
Another tactic involves purchasing traced goods like luxury items or trading commodities that can later be resold for clean funds.
