How Commingling Blur the Lines Between Legitimate & Illegal Wealth?

If you think you’re familiar with the complexities of anti-money laundering and financial crime but still have never heard the term “commingling,” you’re in for a surprise for sure!

This article is going to increase your insight into unique money laundering techniques as we will talk about what is commingling, its role in the 20th century, common methods of commingling, an interesting case study of the Sicilian mafia from the early 1980s, and how to mitigate the commingling risks.

What is the Comingling of Funds?

The way of combining illicit gains with legitimate business revenues to conceal the original source of money gained illegally is known as “commingling.”

This method is frequently employed during the integration stage of money laundering when criminals try to combine illicit funds with legitimate sources of revenue to make them seem clean.

To put it simply, “commingling” is the practice of combining money from illegal activities, such as drug trafficking or fraud with legitimate business profits to hide their illegal origins.

What are the Origins of Commingling?

Money laundering through legitimate companies is not a novel concept. Since organized crime’s inception, this has been used as a primary financial tactic, particularly in industries where cash transactions are frequent, such as casinos, bars, and restaurants.

In the early 1900s, American organized crime syndicates like the Mafia were able to hide their illegal profits, by running legitimate businesses

When illicit gains are passed off as regular business income, they make it nearly impossible for law enforcement and regulatory agencies to identify the source of their dirty money. This strategy allowed them to evade detection and integrate their illegal profits into the legal economy.

Commimgle Role in the 20th Century

Throughout the 20th century, the commingling of assets became a crucial part of money laundering schemes. It was widely used in the US during the Prohibition era when bootleggers and speakeasies used legitimate enterprises to divert their illegal profits.

As global financial systems developed, criminals adapted the strategy to operate in global marketplaces.

For example, money launderers were able to move their illicit funds across states while staying anonymous due to the extra security provided by offshore accounts and shell corporations.

The advent of international trade and sophisticated financial tools makes it increasingly harder to track down illicit assets, which is why commingling funds is a particularly effective strategy.

Commingling By the Sicilian Mafia in the US: A 1980s Case Study

In the United States, Italian Mafia gangs utilized pizzerias and restaurants as fronts to launder money from drug trafficking and other illicit activities between the 1950s and the 1970s.

These high-volume companies provided the ideal justification for combining illegal funds with gains from legitimate companies.

It was difficult for authorities to track down the source of the illegal income since mafia members frequently exaggerated sales numbers to easily integrate unlawful wealth into the legal economy.

This kind of tactic is shown by the “Pizza Connection” case, which concerned a sizable heroin trafficking network that functioned through individually owned pizza restaurants around the United States.

Between 1975 and 1984, this network smuggled heroin from Southwest Asia valued at over $1.65 billion and distributed it through these pizzerias.

The success of these methods gave evidence of the Mafia’s ability to exploit legitimate businesses for illicit purposes. They were able to hide the real source of funds by fusing illegal profits with legal income, which makes it very difficult for law enforcement to combat organized crime.

This era made it abundantly evident that stringent financial rules and careful oversight of businesses handling substantial sums of money were necessary to prevent such money laundering schemes.

Regulatory Implications of Commingling in the AML Industry

Commingling funds is still a major obstacle to anti-money laundering (AML) operations. It is now simpler than ever to combine illegal earnings with legitimate business profits due to the growth of electronic transactions and international trade, particularly in industries with a large cash flow.

In order to prevent commingling, the Financial Action Task Force (FATF) and other AML regimes emphasize the important role of keeping an eye on high-risk businesses and improving transaction transparency.

One should be aware that strict AML regulations are necessary to stop financial crimes since money launderers continue to use this tactic despite their efforts.

Common Methods of Commingling Used in Money Laundering Schemes

Commingling of funds is carried out via a variety of techniques and can take many different forms, all of which are intended to obscure the funds’ origins and make it more difficult for authorities to detect them.

Commingling provides a number of benefits from the standpoint of money launderers. First, it enables them to construct complex networks of transactions that hinder law enforcement’s ability to track down the illegal monies’ original source.

It enables financial criminals to successfully conceal their activities and obstruct suspicion by mixing illicit funds with legitimate ones.

Second, money launderers can conceal their illegal activities with the help of commingling, which allows them to take advantage of the enormous amount of transactions that occur within the global financial system.

Get an insightful review to help clarify the typical techniques employed in money laundering schemes involving commingling:

1. Shell Companies

An example of this would be a network of shell corporations set up by a drug cartel in different jurisdictions to funnel narcotics revenues, which makes it extremely hard for law enforcement to track down the source of the money.

Such organizations exist only to obscure commingling funds and have no real business purpose. Money launderers may make it difficult to distinguish between legal and criminal activities by putting ill-gotten gains into these companies that appear to be legitimate.

2. Trail Camouflaging

Executing multiple transactions rapidly one after the other in order to further obscure the evidence of illicit payments is what trail camouflaging is all about.

Money launderers employ a range of maneuvers, in the same way as stock purchases, currency exchanges, and wire transfers, to create a convoluted network of activities that deceive investigators.

For example, a cybercriminal can make small stock investments, convert currencies at each step, and move stolen money through multiple bank accounts in multiple countries to further obfuscate the paper trail.

3. Smurfing

Dividing large sums of illicit funds into smaller, less obvious amounts to avoid detection is known as “smurfing.” Another name for it is structuring.

Criminals use individuals or groups (smurfs) to make several small deposits or purchases, keeping each transaction below the reporting threshold set by financial institutions.

An organization involved in human trafficking, such as recruiting several individuals to regularly deposit tiny sums of money into various bank accounts.

How Commingling in Cryptocurrency operate

It becomes difficult to determine the money’s origin when illicit payments are combined with legitimate transactions on cryptocurrency infrastructure, a phenomenon known as commingling of commingling crypto funds.

Peer-to-peer (P2P) transactions and decentralized exchanges (DEXs) allow users to exchange cryptocurrencies without following rigorous identification verification processes, which is why this blending often takes place on these platforms.

Criminals can use these online platforms to exchange illicit currency for cryptocurrency, which is then mixed with legal payments in a way that conceals their origin.

Tools like tumblers and mixers are also frequently used in the process, combining many Bitcoin transactions to create a pool of currency that becomes challenging to pinpoint their exact origin.

Furthermore, commingling crypto assets occurs when users transfer unlawful funds across many crypto wallets or exchanges, following complex transaction chains that make it hard for law authorities or financial institutions to identify the funds’ origins.

Criminals can conceal the criminal nature of their assets by using mixing services and layered transactions, which blend them into the flow of lawful transactions.

As crypto transactions become more integrated with standard banking institutes, commingling crypto funds may make anti-money laundering (AML) initiatives more difficult to implement.

Commingling with its complex nature presents a serious obstacle for compliance officers or MLROs trying to stay in compliance with AML regulations.

What do MLROs require to minimize these nefarious risks; implementation of reliable and sophisticated AML screening solutions.

AML Watcher: Your Trusted Ally in Combating Commingling Challenges

AML Watcher provides a tailored AML screening solution to assist financial institutions in detecting, preventing, and reporting commingling schemes with unprecedented precision.

How

Conducting Enhanced Due Diligence (EDD)

AML Watcher ensures that institutions conduct extensive investigations of high-risk individuals and entities.

This enhanced due diligence blacked by PEP screening, link structure mapping, and adverse media analysis helps compliance professionals identify questionable activities quickly.

Detect hidden relationships between a consumer and a flagged individual, ensuring no gaps in risk analysis.

Through Sanction and Watchlist Screening

With access to 1,300+ watchlists and 200+ global sanction regimes, AML Watcher detects connections to blacklisted entities, even when hidden behind complex financial transactions.

Detect commingling methods rely on proxies or multilayer ownership structures linked to sanctioned individuals.

Streamlining  SAR Reporting

AML Watcher automates Suspicious Activity Reports (SARs) and detects anomalies linked to commingling. Detailed, actionable reports ensure that institutions meet regulatory requirements promptly and accurately.

Compliance staff can save time while ensuring that no questionable activity remains unreported.

Offering Continuous monitoring

Commingling schemes change rapidly, but AML Watcher stays up with real-time alerts and 24/7 monitoring.  Any changes to a client’s risk profile generate immediate notifications, ensuring a quick reaction.

This continuous vigilance enables institutions to detect illegal acts before they escalate.

Sharing Adverse Media Insights

AML Watcher scans 5,000+ credible media sources in 80+ languages, uncovering negative media coverage about clients or associated businesses.

Recognize a growing scandal involving a shell business linked to a consumer and take immediate action.

Through Dynamic Risk Scoring

AML Watcher offers adaptive risk assessments that are adjusted based on new data, allowing institutions to focus resources on high-priority threats.

Prioritize high-risk entities without losing sight of low-risk activities that could escalate.