Money Laundering Typologies and Methods Flashcards

What is a 'loan-back' scheme in money laundering?

Answer: A scheme where criminals 'lend' themselves their own illicit funds and repay the loan with seemingly legitimate funds

In a loan-back scheme, the launderer deposits illicit funds offshore, then borrows against those funds, creating a paper trail that makes repayments appear to be legitimate loan obligations.

Cuckoo smurfing is best described as:

Answer: Substituting criminal funds for legitimate funds expected in international transfers without the recipient's knowledge

In cuckoo smurfing, a criminal's funds are deposited into an account of a person expecting a legitimate international transfer, replacing those funds — the account holder is unaware their account is being used.

Which of the following is the clearest example of the 'placement' stage of money laundering?

Answer: Depositing cash proceeds from narcotics sales at multiple bank branches below CTR thresholds

Depositing drug sales proceeds at banks constitutes placement — the first, most risky stage where cash enters the formal financial system.

What does the 'layering' stage of money laundering primarily aim to achieve?

Answer: To obscure the audit trail and distance the funds from their criminal origin through complex transactions

Layering uses multiple, complex transactions — wire transfers, currency conversions, shell company movements — to create confusion and distance funds from their source.

The Hawala system of value transfer is best described as:

Answer: An informal value transfer system based on trust and a network of brokers without physical movement of funds

Hawala operates through brokers (hawaladars) who settle debts through trust and offsetting credits rather than actual fund transfers, making it difficult to trace and regulate.

In trade-based money laundering, 'over-invoicing' refers to:

Answer: An exporter charging more than market value to transfer excess value from the importing country to the exporting country

Over-invoicing allows value to be transferred from the importer (who overpays) to the exporter, enabling movement of funds across borders disguised as legitimate trade payments.

Which typology involves moving illicit funds through a series of foreign correspondent banking relationships to obscure their origin?

Answer: Correspondent banking layering through nested accounts

Correspondent banking layering exploits nested or downstream respondent relationships to move funds through multiple jurisdictions, each hop adding complexity and obscuring the original source.