How Round Tripping Distorts Business Integrity and Fuels Money Laundering?

Picture a firm that reports a massive increase in its ROI, which grasps the attention of stakeholders and boosts its stock price. However, regulators later discover that the earnings are merely circulated among the associated parties without any actual economic activity. This looping of funds is known as round-tripping. It’s a deceptive strategy used to transfer a huge amount of illegal money without drawing the attention of authorities.

How Round Tripping Misleads Investors?

Cases in recent years have exposed how round-tripping is used to deceive investors and fake revenue. A lot of these schemes, ranging from inflating revenues through circular sales to routing funds offshore and back as fake foreign investment, go unnoticed until the regulators expose them. When such schemes are uncovered, they lead to huge financial penalties, reputational damages, and legal consequences for the entities involved.

One prominent example of round-tripping is a data intelligence company Near Intelligence’s alleged engagement in the illusion of legitimate transactions. The company, along with its affiliated company MobileFuse, sent money in a loop, reporting $25 million in its financial reports to the investors, auditors, and the public without any real work or service. They were found to be involved in round-tripping and, as a result, U.S. federal prosecutors indicted key company executives of both companies on charges of conspiracy and securities fraud.

Cases like Near Intelligence demonstrate how round-tripping misleads investors and causes harm to a company’s financial integrity. Regulators are stepping in to uncover such schemes, but enforcement alone is not enough to be relied on, and an effective detection of round-tripping through the financial system is needed. However, effective detection of these patterns requires proactive monitoring of unusual funds and affiliated entities. This is something most firms struggle with because of fragmented data and static AML systems.

The key question is how organizations will perform this proactive monitoring and stop that spiral from moving into any enforcement action or AML compliance failure?

Why Financial Institutions Should Care About Round-Trip Trading?

Detection of round-tripping can be a challenging task, as it can disturb even a legitimate company attempting to defend itself, which may face financial instability by going beyond regulatory scrutiny. Not only does it distort financial statements, but it also opens the door for money laundering by hiding the true source of illicit funds and undermining market confidence.

A 2023 report entitled “SEC Enforcement in Financial Reporting and Disclosure” mentions that, alone, the SEC collected about $4.95 billion, covering all enforcement actions. Even if a business gets associated with a third party involved in round-tripping, it can still trigger compliance risks. That’s why businesses should care about round-tripping. They must actively monitor for red flags, strengthen internal controls, and conduct thorough due diligence to protect financial integrity and long-term sustainability.

Did You Know?

Round-tripping isn’t just a way to avoid taxes; it is also associated with Phantom FDI ( Foreign investment flows that do not reflect any actual economic activity). As mentioned in the IMF researchers’ report “The Rise of Phantom” $15 trillion of global FDI is phantom. This round tripping of money goes through corporate structures in offshore tax havens, creating the appearance of actual economic activity. However, in reality, no capital reaches the economy.

Key Risk Indicators in Detecting Round Tripping

Basic transaction monitoring is not enough to detect round-tripping; there is a need for advanced and comprehensive strategies. Use of an advanced approach is even more necessary given the fact that the financial world is becoming increasingly complex, creating barriers to identifying these schemes. The significant risk indicators are:

• Transactions Passing Through Multiple Jurisdictions

Round-tripping mostly includes multiple jurisdictions, which makes it challenging to see the bigger picture, resulting in funds with undefined sources.

• Hidden Data

Secret accounts and shell companies are a clear red flag as they conceal the origins and locations of payments, making effective due diligence way more challenging.

• High Transaction Volumes

FIs routinely handle a diverse range of financial activities, and ineffective systems with limited features usually make it nearly impossible to control a high volume of transactions.

Given these hurdles, compliance officers need powerful solutions that not only track transactions but can also identify complex patterns indicative of illicit behavior.

How Modern AML Solutions Address Round Tripping?

To tackle the challenge of round-tripping, businesses need AML solutions that go beyond basic detection. Effective solutions provide advanced analytics, real-time monitoring, and comprehensive data sources. Here’s how:

• Comprehensive Data Integration

Effective AML solutions integrate global watchlists, sanctions lists, and adverse media sources, giving compliance officers a full view of the entities they’re dealing with. This helps detect potential transactions associated with round-tripping, such as connected companies or individuals engaged in suspicious transactions, including those involving Politically Exposed Persons (PEPs) and their  Relatives and Close Associates (RCAs).

• Real-Time Monitoring

Round-tripping often involves rapid, high-frequency transactions. Monitoring these in real time allows businesses to spot suspicious activity as it happens, preventing fraudulent schemes before they spiral out of control.

• Customizable Risk Scoring

Businesses should be able to tailor risk thresholds based on their specific needs, ensuring that they can focus on the highest-risk activities. A customizable risk engine allows financial institutions to adapt their monitoring to detect complex, multi-layered schemes like round-tripping.

Ready to Outpace Financial Criminals? Take the Next Step

Are businesses struggling to screen and identify entities linked to circular trades, funnel‑account deposits, and social‑media‑driven scams before regulators do? Do false positives and manual processes slow your compliance teams while criminals innovate faster? Our industry‑leading AML solution combines powerful analytics with a proprietary database for comprehensive global coverage to help you stay ahead. It offers:

• Real‑time sanctions, PEP, and adverse media screening with updates every 15 minutes, helping you intercept round‑tripping schemes early. The solution also screens whether a company’s Ultimate Beneficial Owners (UBOs) are Politically Exposed Persons (PEPs) or their relatives and close associates (RCAs)
• Comprehensive data integration across global watchlists, sanctions lists, politically exposed person databases, and adverse media sources for a unified view of every counterparty.
• Continuous screening paired with sentiment analysis and risk scoring to minimise false positives while ensuring no suspicious activity slips through.
• Customisable adverse media categories and language filters that adapt to your industry, geography, and regulatory obligations, delivering consistent and transparent outcomes.
• Enhanced efficiency through structured data and enriched profiles that reduce manual workloads and assist compliance teams on real risks.

AML Watcher proprietary data helps businesses assess various money laundering risks in line with the risk exposure of the business.