What is Transaction Laundering?

Transaction laundering is a form of money laundering where illegal merchants process illicit funds through legitimate online platforms like e-commerce.

It happens by disguising the origin of funds through routing transactions with a legitimate business, the illegal funds look like legit sales creating a big challenge for the regulatory bodies to address the issue.

How Does Transaction Laundering Work?

Formation of a Business

It begins by forming a business, often a shell company presented as an online legitimate business with a website. This may further grow by developing a professional online presence to build credibility and attract potential customers.

Receiving Illicit Funds

As part of the process, fake invoices or order confirmations are generated to substantiate the transactions. This method makes the transactions appear legal and aligns with typical business operations.

Conducting Fake Transactions

Fake transactions are then processed from the store website with legitimate receipts. This helps to create an illusion of genuine business activities and further facilitates the laundering process.

Manipulating Transaction Data

Data is then manipulated through altering descriptions of goods and services and adjusting amounts to match sales patterns is a common technique in money laundering.

Transferring Funds

Transferring the funds to the business bank account is used during the placement stage of money laundering to ensure normal business operations. Multiple accounts or financial institutions are used in the layering stage to avoid suspicion and spread funds.

How to Detect Transaction Laundering?

Advanced AML screening software can detect suspicious transaction patterns that can further contribute to money laundering and illicit financial activities. These tools employ algorithms to identify specific patterns that traditional methods cannot.

Conclusion

Electronic money laundering is undermining the integrity of global finance as illicit funds are injected into the financial system. The sophisticated techniques used to disguise the origin of funds are a threat to global AML efforts, so transaction monitoring tools should be incorporated to determine the origin of illicit funds.