Creative ways to launder money

Money laundering takes different forms and varies by scale. The bigger the reward, the more creative money launderers should be to stay under the radar of the financial compliance system. While some schemes seem obvious, others remain secret until they are accidentally revealed. Here, we review some unusual or creative ways to launder money, which are hard to identify and prevent.

Art

Artworks are an attractive vehicle for money laundering because of the highly private nature of the art market, the high value of assets, and the lack of regulations. According to the Art Basel report, the global art trades, including primary and secondary deals, amounted to USD 65 billion in 2023. It’s impossible to assess the share of purchases made to launder dirty money, but there’s a benchmark. After the AML regulations were introduced to the art market in Mexico in 2013, art sales dropped 70% within a year.

Even the legitimate parties in the art market seek discretion, which makes this course of action normal. Deals are often conducted via intermediaries, meaning sellers and buyers don’t know much about each other. Artworks may be sold several times without leaving the exhibition space or a free port (a special economic zone in which such deals are naturally free from customs clearance or taxation). The subjective nature of art valuation creates the potential for price manipulation.

Finally, the international nature of the art market makes moving money across borders easy. This makes art (along with other easily moved luxury goods) a money laundering instrument of choice for sanctioned oligarchs, corrupt politicians, and other people who don’t want to resort to less “noble” methods.

NFT

NFTs, or Non-fungible tokens, were introduced in 2014 as a concept of ownership certificates stored on a blockchain, linking to physical or digital assets. In 2021, NFTs skyrocketed, promising to revolutionize digital art and provide artists a new opportunity to earn both from the sale and resale of their works. However, only a few digital artists benefited from the technology that has enriched speculators, fraudsters, and created a tremendous amount of room for money laundering.

Due to blockchain's anonymized nature, NFTs became extremely sensitive to price manipulations that required nothing but several crypto-wallets. So-called wash trading (numerous deals between wallets controlled by a single person or a group to create an illusion of interest and pump the price) totaled 98% of deals on some NFT marketplaces. Unsurprisingly, the NFT market became a haven for criminals who used NFTs to launder money, with little or no oversight from the platforms that made money from each trade.

The market peaked in 2021, with primitive computer-generated CryptoPunk #9998 sold for USD 532 million (which was highly likely an attempt to launder money). By then, the industry was under increased scrutiny from anti-money laundering authorities. In 2022, the market collapsed, leading to a complete devaluation of assets owned by “bigger fools.”

Gaming economies

Most online games monetize through in-game currencies and digital assets, such as lootboxes, rare items, cosmetics, in-game objects, and more. In many games, digital goods can be traded between accounts or sold on official marketplaces, third-party platforms, or through the resale of redeemable codes or accounts for cryptocurrencies or fiat money (which is usually against Terms of Service). The deals with in-game assets ain’t subject to strict governance (if subject to any), and money laundering there can go unnoticed.

In 2019, Valve, the developer of a well-known cooperative shooter Counter-Strike: Global Offensive, discovered that lootboxes and keys for them, which could be traded between users on the Steam Community Market, became a money laundering vehicle. Nearly all transactions with CS:GO lootboxes and keys were made using stolen credit cards to launder money.

Fake bookings

(Nearly) everything can become a money laundering vehicle for a creative criminal. In 2017, the Daily Beast revealed a scheme by a group of Russian hackers. The criminals used legitimate or stolen Airbnb accounts to request bookings and make payments from stolen credit cards to hosts who later returned the money while retaining their share. Despite high commissions for hosts and guests on booking websites, this scheme allowed them to launder money without revealing themselves.

Staged gambling

The taxes on income from gambling are surprisingly low in many countries, while most casinos have a lazy approach to compliance, even in the EU or the US. The games that ain’t played against the house, such as poker, open an opportunity to effectively launder money and even transfer it between parties.

Alternative finance

Alternative financial systems, such as Islamic finance, are trust-based and highly ethical but can be easily exploited for money laundering. Islamic finance exists alongside the traditional financial system but embodies the principles of Sharia. Some Islamic financial instruments, such as the informal value transfer system Hawala, essentially work below the radar of the anti-money laundering system and can be abused. The lack of a centralized and standardized regulatory framework in Islamic finance is another problem that allows criminals to breach trust and move illicit funds.

Laundromats

Large-scale money laundering schemes may include numerous financial institutions, dozens of companies in different jurisdictions, and sophisticated schemes with hundreds of fake contracts. The most prominent example is the Troika Laundromat, which was revealed by the Organized Crime and Corruption Reporting Project (OCCRP) and other journalists in 2019. The scheme was orchestrated by the Troika Dialog investment bank and worked for ten years.

The Laundromat allowed oligarchs, corrupt politicians, and organized crime groups to secretly acquire assets and funnel money to the European Union and the United States. For that purpose, Troika Dialog created at least 75 firms in tax haven jurisdictions that were incorporated within shell companies in other tax haven jurisdictions to conceal ownership. The bank accounts were opened via proxies, such as seasonal workers.

The shell companies issued, canceled, and paid for contracts, invoices, and loans, supplemented by fake paperwork. The amount of questionable money flown from the EU and the US through Troika Laundromat totaled USD 4.8 billion between 2003 and 2013, and the European banks exploited within the scheme failed to identify suspicious activities and execute proper compliance measures.

There is much more to come

Money laundering is a lucrative business that develops and adapts to new regulatory measures, changes in policies, and efforts of anti-money laundering bodies. Anytime soon, we will see new (or modernized old) approaches to money laundering that emerge in response to more strict rules and stronger compliance measures imposed by national and supernational authorities.