From Dirty to Clean: The Covert Networks and Techniques of Professional Money Launderers

The secretive world of money laundering employs a variety of mechanisms and networks to conceal the ill-gotten gains of criminal actors. As financial infrastructure evolves and regulations tighten, the elusive figures behind money laundering operations continually adapt and innovate to stay ahead. However, throughout the processes and schemes engineered by professional money launderers (PMLs), open-source intelligence (OSINT) investigators can still uncover suspicious transactions, relationships, and other indicators of illicit behavior. This analysis of PMLs reveals the hidden methods they use to thrive as well as key tools and approaches to find and stop them.

What is Money Laundering?

Money laundering is the process of criminal actors disguising the illicit origin of funds in order to funnel it into the banking system, increasing transferability and flexibility while reducing the risk of prosecution, seizure, or theft. Money laundering schemes are often complicated, but they always involve three core steps:

1. Placement, where funds obtained through criminal activity are moved into the legitimate financial system.
2. Layering, where the origin of the funds is disguised by moving it between multiple accounts.
3. Integration, where the funds are made available to the criminal in a way so that they appear legitimate.

In the same way that traditional businesses rely on accountants, organized crime groups rely on third-party professionals to handle their illicit funds. As a service, PMLs launder the proceeds of crime for organized crime groups (OCGs) for a commission or fee. Criminals may rely on PMLs either due to a lack of in-house expertise or to put distance between themselves and their funds.

Apathetic or deliberately ignorant to the origin of the funds, PMLs tend to launder money through multiple jurisdictions on behalf of their “clients” with sufficient funds. To do so, PMLs rely on their own specialized knowledge and expertise to exploit legal loopholes, find opportunities, and help preserve and legitimize the proceeds from illegal activities.

The detailed process of laundering illicit funds makes it difficult for investigators to follow the movement of funds and prosecute offenders. Investigating money laundering is a serious problem that affects investigators across many industries, including law enforcement, government, banking, and more. To successfully disrupt money laundering, investigators must be equipped with the right tools and knowledge to ensure that they understand how money flows and remain equipped to take action.

How Do Professional Money Launderers Operate?

PMLs market themselves almost exclusively through word of mouth and utilize shadow accounting systems that contain detailed records with code names. PMLs may work on their own, as part of a professional money laundering network (PMLN), or as part of a professional money laundering organization (PMLO).

PMLs utilize numerous mechanisms, organizations, and networks to move funds, usually during the placement and layering stages in the laundering cycle, including transport networks, money mule networks, virtual currency networks, and proxy networks. Tracking the money flowing through these mechanisms is a time and resource-intensive effort that has in recent years led to heavy investment by investigators in AI and ML-driven tools to help alleviate manual burdens and automate certain steps.

Money Transport Networks 

Money transport and cash controller networks assist criminals that generate substantial amounts of cash. These controller networks receive and transfer illicit funds internationally while charging a processing fee. Cash controllers substitute illicit proceeds for legitimate goods through an account settlement system for many OCGs.

Cash controller networks orchestrate the laundering of the proceeds of crime for multiple OCGs, with unwitting customers’ bank accounts being used to swap illicit funds for their legal funds. Alternatively, funds may be transferred in physical cash and channeled into the financial system through the purchase of goods like second-hand vehicles, spare parts, and equipment.

When working internationally, accounting settlement systems may be used to balance money amongst several customers and keep money in the same jurisdiction to avoid riskier cross-border transfers.

Money Mule Networks 

PMLs recruit networks of money mules: individuals who are paid to transfer money through their personal bank accounts and wire it to other accounts. Money mules are typically recruited unknowingly through job advertisements for positions like “transaction managers,” or knowingly through social media under the guise of making money quickly. PMLs may manage their network of money mules themselves or employ a manager, known as a herder. 

When dealing with physical cash, money mules are frequently recruited from underserved communities or countries with struggling economies. They are incentivized with cash payments and free travel. On the other hand, when washing money digitally, herders seek out mules who appear legitimate, such as students and young employees with established bank accounts.

While a single money mule transferring a small amount of funds may appear to be a low-level offender, OCGs can tap into networks of hundreds of mules to move significant sums of cash. Money mule networks have been known to establish companies that appear as legitimate businesses but exist only to employ mules at scale and to facilitate the sale of illicit goods through online stores.

Virtual Currency Networks

With many criminals embracing cryptocurrencies, PMLs also provide schemes that enable them to cash out their proceeds into fiat currency. Fiat is a currency issued by a government that is not supported by tangible assets like gold or silver, such as the euro, pound, and US dollar.

PMLs transfer digital currencies through a chain of cryptocurrency wallets to layer the funds. The funds may be split up during transfer, mixed with other illicit funds, or sometimes legitimate funds, to hide the trail. With the digital trail masked, funds can be sent to their final digital wallet destination, liquidated, and transferred to banks to be withdrawn in cash. The bank accounts used commonly belong to recruited money mules who then redistribute the funds to criminals. 

Proxy Networks

Some PMLs utilize proxy networks, a banking service that relies on multi-layered transfers to obfuscate the trail of the financial flows heading to their final destination. Proxy networks develop multiple layers of shell companies in many jurisdictions, which exist purely to redistribute and mix funds from a myriad of sources and make the client’s funds untraceable. PMLs identify loopholes and other possible purposes for payments that provide a veneer of legitimacy to the transactions.

During the proxy network process, funds are transferred to accounts opened in the name of shell companies, often using legal entities. If the illicit proceeds were cash, controllers deposit the cash into the shell companies' accounts. Funds are then moved through a complex chain of accounts and mixed with other clients’ funds. From there, funds are transferred under fictitious contracts, loan agreements, consultancy services, or investments to other companies controlled by the PML. Finally, funds are returned to accounts controlled by the PML clients, or goods and services are purchased on behalf of those clients.

PMLs can launder funds and facilitate large-scale tax evasion schemes, leveraging several layers of shell companies between the importer and producer of goods. At the final stage, funds are transferred to corporate bank cards, followed by subsequent cash withdrawals. The number of shell companies and personal bank accounts involved may exceed several thousand, limiting detection and diversifying possible losses. 

It is estimated that roughly $2 trillion US dollars are laundered every year and that institutions spend hundreds of billions each year on financial-crime compliance and investigations. To make an impact on money laundering at scale, investigators need to leverage automated solutions to investigate those with suspected links to illicit funds.

How Can Automated OSINT Solutions Combat Money Laundering?

Money laundering is a pervasive problem plaguing law enforcement agencies and financial institutions across the globe. Despite the challenges and complexity, the emergence of AI/ML-driven automated OSINT solutions has opened new doors, providing investigation teams with powerful platform tools that can help detect and disrupt money laundering activities in real time.

With overwhelming transaction volumes and vast networks involved in money laundering, manual investigation techniques can no longer keep pace with the velocity and scale of bad actors. To address this challenge, automated OSINT solutions are needed to uncover illicit networks and techniques more effectively and efficiently.

One way to do this is by incorporating an automated fraud and risk signaling solution that assesses public data in individuals and businesses' digital footprints. By building this functionality into existing systems via API, investigators can identify patterns and anomalies that otherwise go unnoticed by legacy or more manual methods.

Automated solutions make it possible to comb through a wide array of public data sources, such as consumer records and social media, to quickly generate comprehensive, court-ready reports on high-risk individuals and businesses. Investigators are no longer constrained by labor-intensive manual research involving internet searches for data like business filings and social media content. Instead, they can target the most relevant information, allowing them to reach more informed conclusions at a much faster rate. The elimination of manual processes enables investigators to optimize their inquiries and concentrate on detecting potentially suspicious behavior that could indicate money laundering.

In addition, employing automated link analysis tools can help investigators discover common data points that connect individuals and businesses in money laundering networks. By using advanced OSINT tools like those provided by Skopenow, investigation teams can draw new connections and uncover new insights to dismantle criminal networks, thereby helping their organizations to take action and combat money laundering operations with new efficacy.

At Skopenow, we understand the importance of staying up-to-date on the latest developments, trends, and techniques in OSINT. Start unlocking the power of open-source intelligence with a free trial today: www.skopenow.com/try.