Table of Contents
Money laundering refers to illegal practices that are designed to take money generated from criminal activities like drug trafficking or fraud, and disguise it so that it appears to originate from a legitimate source.
Money laundering can impact the financial system and the economy. Read on to learn how money laundering works.
Key Points
• Money laundering is a growing problem, with U.S. offenses increasing 41% between the 2021 and 2025 fiscal years, per the U.S. Sentencing Commission.
• Structuring and smurfing are money laundering techniques that involve breaking large sums into smaller transactions and using multiple individuals to make deposits, deliberately avoiding the bank thresholds that trigger suspicious activity reports.
• Shell companies and front businesses are commonly used laundering vehicles — shell companies exist only on paper, while front businesses operate legitimately as cover for underlying criminal enterprises.
• Digital assets like cryptocurrency, NFTs, and virtual game currencies are increasingly exploited for laundering due to their largely unregulated nature, making them tools for concealing illicit funds.
• Trade-based laundering moves illegally obtained money across borders through commercial transactions, while casinos and professional gatekeepers such as accountants and attorneys can also facilitate the laundering process.
What Is Money Laundering
Money laundering involves taking “dirty” money made through criminal activities and “laundering” or processing it to make it appear “clean.”
The U.S. Treasury Department defines money laundering more specifically as: “financial transactions in which criminals, including terrorist organizations, attempt to disguise the proceeds, sources, or nature of their illicit activities. Money laundering facilitates a broad range of serious underlying criminal offenses and ultimately threatens the integrity of the financial system.”
Money laundering is done by individuals and organizations worldwide. In addition to terrorist organizations, other groups that carry out money laundering activities typically include drug traffickers, smugglers, human traffickers, cybercriminals, corrupt government officials, corporate white-collar criminals, and organized crime networks. Globally, an estimated $800 billion to $2 trillion dollars is laundered every year, according to the United Nations Office on Drugs and Crime.
Offenses involving money laundering have increased 41% in the U.S. between the 2021 and 2025 fiscal years, according to the U.S. Sentencing Commission. In 2025, 27% of money laundering cases involved losses exceeding $1.5 million.
The Financial Crimes Enforcement Network (FinCEN) is responsible for enforcing the Bank Secrecy Act to detect money laundering crimes in the U.S. and help build a case against offenders.
How Does Money Laundering Work? The 3 Core Stages
Money laundering involves disguising the source of illegally obtained funds to make them appear legitimate. The process can be complicated and may involve multiple groups or individuals, particularly when large amounts of money are being laundered.
There are three key stages of money laundering: placement, layering, and integration.
Stage 1: Placement
During placement, the first stage of money laundering, funds derived from criminal activity is introduced into the mainstream financial system, such as through FDIC-insured banks. This is the most vulnerable stage of the process, when moving large amounts of cash into a bank or other financial institution can trigger regulatory alerts.
Stage 2: Layering
In this stage, criminals create a web of financial transactions that are intended to work together to disguise laundering activity. The goal of layering is to hide the money’s origins, which is often achieved by creating confusion. The more layers that are added, the more difficult it becomes for bank employees and regulators to untangle them.
Stage 3: Integration
This final stage is when the laundered money is returned to the mainstream financial system. If the laundering has been successful, the funds appear to be from a legitimate source and can be used without raising red flags.
7 Common Money Laundering Techniques to Watch For in 2026
Money laundering can take many different forms, which adds to the challenges law enforcement agencies face in combatting it. While it’s often assumed that money laundering is something that only financial institutions need to worry about, some types of money laundering scams can target individuals.
These are some money laundering schemes to be on the alert for to help protect yourself and your bank account.
1. Smurfing and Structuring
Structuring and smurfing are two separate but related money laundering methods. With structuring, criminals break up large amounts of money into smaller transactions for the purposes of avoiding suspicious activity reports (SARs). Banks and other financial institutions are required to file SARs with FinCEN within 30 days if they know, suspect, or have reason to suspect that a depositor is attempting to evade reporting rules mandated by the Bank Secrecy Act. Specifically, that includes the $10,000 reporting rule, which requires banks to report cash transactions exceeding $10,000 and any other transactions that may suggest money laundering or illegal activity.
Smurfing is the means by which funds are deposited. A money laundering operation might use several individuals, dubbed smurfs, to make deposits in order to avoid triggering red flags with the bank.
2. Shell Companies and Front Businesses
Shell companies are legally registered entities that exist only on paper. They have no physical location, no employees, and generally no business activities.
A front business is a functioning business that actively operates but exists as a cover for a criminal enterprise.
Both shell companies and front businesses can create a perception of legitimacy, which helps to facilitate money laundering activities. Either way, the goal is to obscure ownership of the money and provide a place where it can be introduced, layered, and integrated into the financial system.
3. Real Estate Laundering
Real estate laundering may involve multiple strategies that are designed to hide the true source of assets and lend legitimacy to a criminal operation. For example, a criminal might set up one or more shell companies to purchase property, which they then sell to one or more co-conspirators.
This type of laundering allows criminals to exchange “dirty” money for legitimate assets which they can then use to generate more money. For example, a front business may purchase property that it renovates and flips for a profit.
4. Digital Asset Laundering
Digital assets are becoming increasingly popular as money laundering tools. That’s mainly because cryptocurrency, non-fungible tokens (NFTs), and virtual game currencies remain largely unregulated.
A process known as decentralized finance can be used to launder money by allowing users to transfer or swap digital assets anonymously. Another technique called crypto mixing blends identifiable and non-identifiable tokens together, then redistributes them to multiple crypto wallets.
The CLARITY Act, which is working its way through Congress as of July 2026, would establish an anti-money laundering framework to help prevent the criminal use of digital assets. The Act would require digital asset intermediaries to implement anti-money laundering (AML) programs and Know Your Customer (KYC) rules similar to the ones traditional financial institutions are required to follow.
5. Trade-Based Money Laundering (TBML)
With trade-based money laundering, criminals move illegally obtained funds across borders in trade transactions to disguise where they came from. TBML methods may include things like creating false bills for shipments of goods that don’t actually exist, or under-misrepresenting the amount of goods being shipped — in other words, invoicing for expensive items, while shipping items that cost significantly less.
6. Casino Laundering: Chips, Credits, and Cash-Outs
Casinos can be used as front businesses for money laundering activity through a variety of methods. Using a process known as “chip dumping”, an individual feeds large amounts of illegally obtained cash into a slot machine or other electronic gaming terminal in order to build up credits. They can then turn those credits into a ticket or voucher and cash it out.
“Chip walking” involves leaving a casino with chips in hand instead of cashing them in, and then redeeming the chips later. For example, someone might use $10,000 in dirty funds to buy chips, and redeem them at a later time at the same casino or a different casino for clean money.
With a “cash-out,” an individual uses illicit money to buy chips, does a bit of low-risk gambling to create an activity record (to help avoid suspicion), and then cashes out the remaining chips.
7. Use of Professional Intermediaries (Gatekeepers)
Gatekeepers are professionals who are used as intermediaries during the money laundering process. Accountants, attorneys, and real estate agents are some of the types of individuals who might act as gatekeepers — either voluntarily or unknowingly — to help criminals move money from one place to another.
These types of professionals tend to be targeted because they have a specialized knowledge of the financial and legal worlds. Someone who gatekeeps for a money laundering operation may be less likely to face questions about financial transactions, for instance, or they may be better equipped to deflect any questions that arise.
Real-World Money Laundering Examples
What does money laundering look like in action? It’s helpful to know since some of these schemes can target consumers and potentially defraud them of their money. Here are some examples to help you understand what to be on the watch for.
Example 1: The Classic “Cash-Intensive” Business Model
Cash-intensive businesses frequently feature in money laundering schemes because they handle high volumes of money. The business mixes legally obtained funds with illegally obtained money. This makes it easier for criminals to place dirty money into the financial system since it’s blended with funds generated by legal business activities.
Example 2: Modern AI-Driven “Pig Butchering” and Layering Scams
Pig butchering scams revolve around building trust with victims before defrauding them. Money launderers can use this strategy to pose as investors, consultants, potential romantic partners, or online gamers to lure in victims and convince them to participate in investment or cryptocurrency “opportunities” that are actually fraudulent. These criminals may use AI to create fictional personas or deepfakes to make a victim believe they’re talking to a real person. Fraudsters might also enlist AI tools to create authentic-looking documents to authorize wire transfers or other financial transactions from a victim.
Once the victim transfers over funds, the criminal typically disappears with the money. Money laundering networks then convert the dirty money into crypto, or launder it through layering activities across borders.
How Banks Detect Money Laundering
Banks may discover money laundering by following the Know Your Customer rules and anti-money laundering regulations. Some of the ways banks work to detect money laundering include:
• Verifying customer identities and performing due diligence to assess a customer’s risk profile
• Monitoring financial transactions in real-time to detect suspicious activity, such as unusually large deposits or wire transfers, including international transfers
• Using AI to study client behavior patterns and identify activity that might be abnormal, based on the customer’s previous history
• Filing suspicious activity reports with FinCEN when certain conditions are triggered.
Those are some of the methods banks use to look for money laundering behind the scenes. If a bank suspects that a customer is being used to launder money, they might flag the transaction(s) and reach out to the customer in an attempt to determine if the activity is legitimate.
How to Protect Yourself from Unintentional Money Laundering
Unintentional money laundering can happen when an individual unwittingly becomes a money mule for criminals or a target for fraud. For instance, as part of a fake job offer or through someone they meet on a dating website or online gaming platform, an individual might be asked to open a bank account in their name to receive money and then to transfer the funds. Acting as a money mule is illegal, and a person can be prosecuted for it even if they didn’t know what was going on.
Some of the things you can do to protect yourself from unintentional money laundering include practicing good online banking security and learning how to spot common financial scams. For example, red flags that could indicate money laundering or financial fraud include:
• Job opportunities that require you to deposit money into a bank account
• Someone you meet on a dating, gaming, or social networking site asks you to receive a deposit in your bank account and then forward or transfer it to individual(s) you don’t know
• An individual you meet online directs you to put cash in a cryptocurrency kiosk
• You’re asked to invest in a one-of-kind opportunity that sounds too good to be true
To protect your bank account, keep your passwords and PINs private, never give out your account number or routing number, and set up multi-factor authentication at login.
If you suspect that you’re being targeted for a money laundering scam, report this type of bank account fraud to your financial institution and document all communications with the suspected scammer. You can also file a complaint with the FBI through the Internet Crime Complaint Center.
Recommended: If Someone Has Your Bank Account Number Can They Take Money Out?
The Takeaway
Money laundering can come with a high price tag for individuals, financial institutions, and economies, which is why governments take a strong interest in detecting, preventing, and prosecuting these crimes. Keeping your financial information private and safe, familiarizing yourself with the signs of money laundering schemes, and trusting your instincts when a financial offer seems too good to be true, may help you minimize your risk of becoming a victim.
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FAQ
What is the most common example of money laundering?
One of the most common examples of money laundering involves “front businesses” that are heavily reliant on cash for operations. With this type of money laundering scam, the business takes in funds from legal business activities and blends them with funds generated by criminal activity. These commingled funds are then placed into the traditional financial system where they can be laundered.
What are the 4 stages of money laundering?
The primary stages of money laundering are placement, layering, and integration, which involve putting illegally obtained money into the financial system, covering up its origins with multiple financial transactions, then returning the “clean” money to the financial system to be disbursed. A fourth layer of money laundering is called extraction, and this is when the criminal uses the laundered money for things like spending or to finance more front businesses.
What is anti-money laundering (AML)?
Anti-money laundering, or AML, is a set of laws and regulations that govern financial activity in the U.S. The purpose of anti-money laundering laws is to identify potentially suspicious activity at the bank level and report to the Financial Crimes Enforcement Network (FinCEN) for further action. FinCEN investigates and refers individuals and organizations associated with money laundering to the Department of Justice for prosecution.
Can you accidentally participate in money laundering?
It’s possible to unintentionally or accidentally participate in money laundering if you fall victim to a scam, or if you’re targeted as a potential money mule — for which you might be asked to deposit cash into your bank account, and then to forward or transfer the funds, for example. By unwittingly acting as a money mule, you are committing a federal crime and could be prosecuted.
Why do criminals use cryptocurrency for money laundering?
Cryptocurrency and other digital assets are often used for money laundering due to a lack of regulation of these assets and because they generally provide anonymity. Generally speaking, it’s possible to do money laundering in such a way by using cryptocurrencies and layering transactions that it could be virtually untraceable.
Photo credit: iStock/Delmaine Donson
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