October 17, 2023

Money Laundering Methods and Typologies in the Money Services Businesses (MSBs) Sector

A deep dive into the tactics, typologies, and schemes criminals employ to launder illicit proceeds through MSBs.

Money services businesses (MSBs) such as money transmitters, check cashers, and currency exchangers are particularly susceptible to abuse by money launderers seeking to disguise the proceeds of illegal activity. This vulnerability arises from several factors inherent to the nature of MSB operations.

MSBs often handle large volumes of cash transactions and serve a diverse customer base, including high-risk individuals and businesses. This makes it easier for criminals to blend in and move illicit funds without raising suspicion. Moreover, many MSBs have a global reach, allowing money launderers to exploit cross-border transactions and differences in AML regulations between countries.

MSBs are most vulnerable in the placement and layering stages of money laundering. In the placement phase, criminals introduce their illicit cash into the financial system, often by structuring transactions to avoid reporting thresholds. The fast-paced, cash-intensive nature of many MSBs makes them an attractive conduit for this initial integration of dirty money.

In the layering stage, money launderers attempt to distance the funds from their illegal source through a series of complex transactions, often involving multiple MSBs and accounts. The global network of MSBs and their often loosely regulated status in some jurisdictions make them well-suited for layering schemes designed to obscure the money trail.

Some of the main money laundering typologies and methods that have been observed in the MSB sector include:


Structuring, also known as smurfing, involves breaking up large transactions into multiple smaller ones below record-keeping or reporting thresholds to avoid detection. Criminals may use numerous agents or "smurfs" to conduct the structured transactions.

Example: A drug trafficker has $50,000 in cash proceeds. To avoid the $10,000 reporting threshold, they recruit five "smurfs" to each conduct separate $9,000 cash-to-check transactions at different branches of a check-cashing business on the same day.

Layering Transactions

Layering involves conducting a series of complex transactions through multiple MSBs, accounts, or even countries to obscure the original source of the funds. This makes it difficult for authorities to trace the money trail back to the criminal origin.

Example: A corrupt politician wants to launder $1 million in bribe money. They use a money transmitter to wire the funds to an overseas shell company. The funds are then wired to a second MSB in another country, converted to a different currency, and finally transferred back to the politician's domestic account as seemingly legitimate business revenue.

Complicit Employees

Money launderers may attempt to recruit or conspire with MSB employees to facilitate their schemes. Complicit employees could falsify transaction records, intentionally omit required information, or simply turn a blind eye to suspicious activity.

Example: An organized crime syndicate bribes an employee of a currency exchange business to process large transactions without filing required currency transaction reports (CTRs). The employee also agrees to alter transaction records to disguise the true identity of the criminals controlling the funds.

False Identities

Money launderers often use stolen or fraudulent identification documents to conduct transactions in order to disguise the true owner of the funds. MSBs that lack robust customer identification procedures are particularly vulnerable.

Example: A human trafficker uses a stolen passport to open an account at a money transmitter. They then use the account to receive wire transfers from their illicit operation and withdraw the funds in cash while avoiding any link to their real identity.

Mixing Illicit and Legitimate Funds

Money launderers may attempt to combine their illegal proceeds with revenue from legitimate sources, a process known as commingling. This can make the illicit portion of the funds appear to be from a legal origin. 

Example: The owner of a cash-intensive business like a restaurant or car wash inflates their reported daily cash receipts by adding in small amounts of drug money. They then use an MSB to deposit the commingled funds, making the drug proceeds appear to be legitimate restaurant or car wash revenue.

Exploiting Prepaid Cards

Prepaid cards, particularly open-loop cards that can be used at a variety of merchants, can be an attractive vehicle for money laundering. Criminals can load illicit cash onto prepaid cards, which can then be used to access the funds with less scrutiny than traditional bank accounts. MSBs that issue or load prepaid cards are particularly vulnerable.

Example: A street-level drug dealer accumulates $20,000 in small-denomination cash from narcotics sales. They visit multiple MSBs to purchase prepaid debit cards with the drug cash, staying under the $3,000 daily load limit to avoid identification requirements. The dealer can then use the cards to make purchases or withdraw the funds at ATMs, effectively laundering the money.

Trade-Based Money Laundering

Trade-based money laundering (TBML) involves disguising the proceeds of crime as legitimate trade transactions. This can involve over- or under-invoicing goods and services, falsifying trade documentation, or engaging in phantom shipping. MSBs may be used to settle the imbalanced trade invoices or transfer the excess value.

Example: A drug cartel controls both an import company in Europe and an export company in South America. The cartel ships $1 million worth of goods from the South American company to the European company, but creates a false invoice for $1.5 million. The European company pays the full invoice amount, effectively transferring an extra $500,000 to the cartel. An MSB is used to process the invoice payment under the guise of a legitimate trade transaction.

Exploiting Black Market Peso Exchange

The Black Market Peso Exchange (BMPE) is a trade-based money laundering system that operates primarily in Central and South America. It allows drug cartels to launder U.S. dollar proceeds by exchanging them for clean pesos through a series of transactions involving importers, exporters, and currency brokers. MSBs, particularly unlicensed ones, can be used to facilitate the peso exchanges.

Example: A Colombian drug cartel has $1 million in U.S. cash from drug sales. They sell the cash at a discount to a currency broker. The broker uses an MSB to wire transfer the equivalent amount in pesos (minus their commission) to the cartel's Colombian bank account. The broker then sells the U.S. dollars to Colombian importers, who use them to purchase goods from U.S. exporters, completing the BMPE cycle.

To combat these risks, MSBs must implement robust AML compliance programs that include rigorous customer due diligence, ongoing transaction monitoring, and timely reporting of suspicious activities. However, the fragmented nature of the MSB sector and the varying levels of AML oversight across jurisdictions can make it challenging to maintain consistently high compliance standards, further increasing the vulnerability of MSBs to money laundering abuse.

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