The ten most prominent modi operandi related to money laundering

OCG Activities
OCG Activities, Blue=Threat, Orange=High Threat

All ten presented money laundering techniques rely on the use of intermediaries who use multiple bank accounts, exploit the financial market and financial service products such as loans, insurance, bonds, and stock market trading.

Money launderers frequently set up and use shell companies that possess no significant assets and do not perform any significant operations, only serving the purpose of laundering funds. The shell companies used to send and receive money transfers are typically embedded in complex corporate structures which conceal the links to account beneficiaries. In many cases, these companies are registered in offshore jurisdictions.

Criminal networks continuously seek to exploit the latest technological developments such as cryptocurrencies and anonymous payment methods. Rapid transaction processing and the proliferation of effective anonymisation tools are significant obstacles in the identification of the beneficial owners of criminal proceeds. A growing number of online platforms and applications offer new ways of transferring money and are not always regulated to the same degree as traditional financial service providers. Money launderers heavily rely on document fraud to facilitate their activities. Fraudulent documents such as false invoices and forged ID documents are used to conceal the origin of criminal cash, to open bank accounts or to establish shell companies. Money launderers provide services to both organised crime and terrorist organisations.

Money laundering techniques

1) Informal value transfer systems

Underground banking systems are financial networks operating outside of regulated financial systems to transfer money or value internationally and outside regulations of conventional banks. They can operate in multiple jurisdictions and allow hidden transactions between users facilitating the laundering of large amounts of money[3].

In 2016, a Joint Investigation Team (JIT) composed of French, Belgian and Dutch investigators, Eurojust and Europol dismantled a complex network involved in the laundering of drug trafficking proceeds based in Morocco. Cash couriers travelling by car collected up to EUR 1 million per month in cash across Western Europe and transported it to Belgium and the Netherlands to be transferred to Morocco via the Middle East using the Hawala system. The operation resulted in the seizure of more than EUR 7.1 million in cash.

2) Abuse of money services business

A number of criminal groups generating smaller but regular amounts of cash still use this alternative financial service as a suitable conduit to place and transfer their criminal funds.

In 2015, Europol supported Spanish authorities in dismantling a Chinese network involved in the laundering of criminal proceeds from THB for labour exploitation, the production of counterfeit goods as well as excise tax fraud. Relying on middlemen and third parties, the OCGs had established complex corporate structures and various accounts to transfer money to China. In addition to their main criminal activities, the group also offered money laundering and international remittance services to other OCGs based in the EU in exchange for a negotiated percentage of the laundered funds. Between 2009 and 2015, the European branch of this OCG had laundered more than EUR 340 million.

3) Trade-based money laundering

Legal entities remain a key tool for money laundering activities and are instrumental in enabling trade-based schemes, which limit the movement of cash and provide a façade of legitimacy to money transfers[4].

Trade-based money laundering is a highly effective way of concealing criminal funds by manipulating or forging purchases or sales using double invoicing, false invoicing, over- and under-invoicing by companies that are owned by OCGs, their associates and relatives.

4) Virtual assets solutions (cyptocurrencies)

Bitcoin and Ethereum are the two cryptocurrencies that form 80% of the market value. The growing popularity and adoption of cryptocurrencies have also led to their increasing use in money laundering schemes. Drug traffickers use bitcoin automated teller machines (ATMs) to convert criminal cash into virtual currency. Money laundering networks use the €500 banknote to store and transport proceeds using cash couriers travelling to destinations outside of the EU. Larger amounts are easier to transport using high denomination banknotes. While the production of €500 banknotes has stopped, the banknote has not been fully withdrawn from circulation and continues to be legal tender.

Example: Cryptocurrency laundering as-a-service: members of a criminal organization arrested in Spain[5]

In a Spanish investigation supported by Europol, criminals carried out several money-laundering schemes involving the transfer from fiat currency to virtual assets to hide the illegal origin of the proceeds. Some of the identified modi operandi used crypto ATMs and smurfing, a criminal method used to split illicit proceeds into smaller sums and placing these small amounts into the financial system to avoid suspicious transaction reporting. During the investigation, it was identified that the criminal group was receiving transfers of criminal proceeds and collecting criminal cash and converting it into virtual assets. The estimated amount of laundered funds in the span of one year is €9 million. During the action day, one cannabis cultivation facility with 165 plants was dismantled, seven house searches were performed (including one money exchange office with two bitcoin ATMs), nine people were detained and 16 charged. Extensive amounts of evidence and assets were seized: four real estates, more than 200 bank accounts, 11 vehicles, €18 000 in cash, 30 mobile devices, jewellery, documents, identity cards used for structuring purposes.

Abuse of banking services and digital banking services (open online accounts, mule accounts, cheap international transfers, offer of e-money services)

5) Alternative value transfer commodities

OCGs originating from North Africa, the Middle East and China are heavily involved in compensation schemes using gold or diamonds. The misuse of gold has been addressed in Regulation (EU) 2018/1672 on cash control, which expands the definition of cash to cover gold and imposes declarations upon those entering or leaving the EU with a value exceeding €10 000[6].

6) Interest free loans

Criminals offer interest-free cash loans in Europe to be repaid in a country of destination, usually in the Middle East or South America, within a set period of time. This allows an OCG to franchise their money laundering activities[7].

7) Real estate

Despite measures taken across the EU to decrease the laundering of money via real estate, investing criminal money into property development to launder money remains a threat. A number of modi operandi are used, such as partial payment via cash, over- or under-valuing real estate and using non-transparent companies and trusts or third parties.

8) Gambling and hospitality

Cash-intensive businesses and gambling services continue to be used to launder criminal proceeds.

9) Cash movements

Using money mules to traffic cash has been the traditional modus operandi used in money laundering schemes. However, the COVID-19 pandemic has diminished, and in some places even almost eliminated, the use of cash as a payment medium as cash-intensive businesses in the hospitality sector have closed and many other businesses have switched to payment card transactions exclusively. It remains to be seen whether this will have a longer-term impact and reduce the attractiveness of cash to money launderers.

10) Money laundering-as-a-service

In exchange for a commission of between 5% and 8%, these syndicates offer complex laundering techniques and carry out the laundering operations on behalf of other OCGs[1]. Professional enablers such as solicitors, accountants, company formation agents provide the skills and knowledge of financial procedures necessary to operate these schemes[2]. Although only a few groups are known to provide these services, they launder large amounts of money and have a considerable impact on the ability of other OCGs to disguise and invest criminal proceeds. These syndicates are a significant obstacle to tracing criminal assets. The criminal groups that possess the expertise or have access to skilled online money launderers are potentially of a bigger threat than those using traditional money laundering tools such as cash.

© European Union Agency for Law Enforcement Cooperation 2020.

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[1] Europol 2017, European Union Serious and Organised Crime Threat Assessment (EU SOCTA), accessible at https://www.europol.europa.eu/socta-report

[2] Europol 2016, Threat assessment on money laundering, syndicates and professional enablers.

[3] Europol 2017, European Union Serious and Organised Crime Threat Assessment (EU SOCTA), accessible at https://www.europol.europa.eu/socta-report

[4] Europol 2017, European Union Serious and Organised Crime Threat Assessment (EU SOCTA), accessible at https://www.europol.europa.eu/socta-report

[5] 23 Europol 2019, Cryptocurrency laundering as a service: members of a criminal organisation arrested in Spain, accessible at https://www.europol.europa.eu/newsroom/news/cryptocurrency-laundering-service-members-of-criminal-organisation-arrested-in-spain

[6] Regulation (EU) 2018/1672 of the European Parliament and of the Council of 23 October 2018 on controls on cash entering or leaving the Union and repealing Regulation (EC) No 1889/2005.

[7] Europol information.

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