Common methods of money laundering

Published on 12/09/24

Money laundering is one of the biggest challenges in the war on drugs. It has become the norm for drug cartels to use enhanced methods to hide their illicit revenues. It is proving a tough nut to crack for law enforcement agencies pursuing this money.

The FATF estimates that $2.5 trillion in ill-gotten gains circulate globally each year, some of which is attributable to drug sales.

To prevent such vices, the failure of which drug cartels continue to carry out illegal activities. It is important to understand the different ways in which money is laundered.

Some common money laundering methods used by drug cartels.

1. Smuggling large amounts of cash

In the drug trade, there are several well-known techniques to exploit their illegal money. One of the simplest is the process of bulk cash smuggling.

Organized crime groups, such as cartels, transport huge amounts of cash by hiding it in car trunks, trucks or airplanes.

In 2022, the DEA seized $800 million in large-scale cash smuggling.

This method is still widely used because of its effectiveness, simplicity and the large amounts of money involved.

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2. Structuring of deposits

Cartels also use a method known as structuring or smurfing, a process in which large sums of money are divided into multiple installments, which attracts less attention from law enforcement agencies.

These are deposits into different accounts to prevent the money earned through drug trafficking from being discovered. Suspicious structuring activities have also been identified and are increasing.

According to the Financial Crimes Enforcement Network (FinCEN), it is a popular method for money laundering. In the recent past, SARs related to structuring have increased by 15% annually.

3. Empty companies

Shell companies establish fronts through which they carry out seemingly legal operations. These companies are happy to embezzle their illegal money with clean money.

For example, a cartel might decide to open a car wash or a restaurant, which is a necessary camouflage for the flow of money.

According to the U.S. Department of Justice (DOJ), in 2023, 37 percent of drug money laundering investigations involved shell companies.

4. Money laundering based on trade

Money laundering based on trade These strategies use trade invoices as a tool to facilitate the transfer of money from one country to another.

Cartels often engage in practices such as over- or under-invoicing goods to transfer money between countries. This technique is difficult to identify because the workings of international trade are complex.

Recent research shows that illicit trade accounts for 65 to 70% of money laundering transactions annually, or $2 trillion.

5. Real estate investments

Illicit money can easily be ‘laundered’ through real estate, one of the most popular options for such an operation.

Drug cartels acquire valuable assets for real estate purposes, including mansions and other commercial buildings.

These investments aid in money laundering. It can be difficult to determine whether the money came from drug sales or other legitimate real estate transactions.

In 2023, the FATF stated that 20% of real estate transactions were related to the identification of registered large transactions.

This is proof why the real estate sector, which has become increasingly popular in recent years, needs to be strict on AML.

6. Casinos and gambling

By engaging in money laundering, casinos enable the mixing of money, most of which comes from illegal businesses with real profits.

There are known cases where cartels use the proceeds of their illegal activities to purchase chips in a casino, make minimum bets and then withdraw the money as ‘clean’ money.

According to the report, there has been an alarming increase of about 10% in the number of money laundering cases related to casinos in one year.

This sector, which falls under the BSA AML regulations, involves a high level of cash transactions and has therefore become an easy target for money laundering activities.

7. Offshore accounts

Another way to hide money is through offshore accounts in countries that do not comply with anti-money laundering laws.

They opened these accounts so that cartels could deposit their money so that the police wouldn’t confiscate it.

According to the Global Financial Integrity 2024 report, approximately US$1 billion is parked in offshore banking centres.

They are all connected to organized crime and drug trafficking. These accounts are difficult to link, because the existence of such accounts is protected by offshore regulations.

8. Exchange Rate Arrangements

Cartel money laundering also uses currency exchange schemes to facilitate money laundering. Some opt for black market currency exchange, where the dollar is exchanged for the local equivalent.

Cross-border transactions make it more difficult to freeze suspects’ assets.

According to the International Monetary Fund (IMF), approximately $300 billion is embezzled through currency exchanges every year.

Contact us at amlwatcher.com to learn how our AML solutions can enhance your ability to detect cartel money laundering and protect your business.