Being an AML Detective in the Crypto World


  • What is Cryptocurrency?
  • Background on AML in Crypto
  • AML Compliance: setup, role & responsibilities
  • Regulations, enforcement
  • How to identify and what to do with Red Flags?
  • How do we minimize risk?
  • What’s the future? I.e. new technologies, blockchain


Do you want to be a successful AML detective in the cryptocurrency world? Come on, who doesn’t!! Most people think “crypto” and they get scared
Why? Because people fear the unknown. Yes, it’s still in its infancy, but it's not like it was created this year. Believe it or not, crypto started around 10 years ago. Crazy, right?? And it's developing into a bigger and bigger market. It’s even considered an asset class now. Who knows, it might replace the dollar one day. Actually, in my opinion, I think it will.

So, with the future of crypto being bright, it’s important that we, as AML detectives, understand all the different aspects. Remember, knowledge is power!!

To start, how much does the typical person understand about the crypto world. In order to get over the fear of cryptocurrency, we need to understand. Unfortunately, we can’t tell criminals that in the compliance world compliance professionals are fearful. They would probably laugh just like I’m doing now. For criminals, to commit a crime, fear doesn’t come into the equation. Criminals always try to create new opportunities in new and upcoming markets. Think of them as entrepreneurs, I guess.

So, let’s start out by defining cryptocurrency; Let’s look at a quick definition by Wikipedia (my favorite source):

A cryptocurrency, crypto-currency, or crypto is a collection of binary data which is designed to work as a medium of exchange. Individual coin ownership records are stored in a digital ledger, which is a computerized database using strong cryptography to secure transaction records, control the creation of additional coins, and verify the transfer of coin ownership. Cryptocurrencies are generally fiat currencies, as they are not backed by or convertible into commodities. Some crypto schemes use validators to maintain the cryptocurrency.

A cryptocurrency is a tradable digital asset or digital form of money, built on blockchain technology that only exists online. Cryptocurrencies use encryption to authenticate and protect transactions, hence their name. There are currently over a thousand different cryptocurrencies in the world, and their supporters see them as the key to a fairer future economy.

Since we got the semantics out of the way, let’s dive into how money launderers use cryptocurrency to launder money. In the AML world, launderers go through the same three stages to clean money as they do with crypto, with some differences.

First is the Placement stage. In this stage, money launderers convert their dirty money or illegal gains into cryptocurrency. We are talking about criminal activity that involves drugs, terrorist financing….

The second stage is Layering. For layering, you obviously want to make it tough to trace. If it’s channeled between different wallets the audit trail becomes more obscure. Then, the criminal funds are co-mingled with legitimate funds to make it difficult for anyone, particularly law enforcement, to track and identify.

The final stage is Integration. The now co-mingled funds, illegal and legal funds, are then converted back to cash or used to purchase any type of goods or services. Criminals can purchase cars, homes, fine art..

This whole process can take days, weeks, or months to accomplish. In the end, this is how revenue generated through illegal activity is incorporated into the financial system. It might be time-consuming for a criminal, but the goal is to have funds, so they look like the average citizen.

Money laundering Schemes

Did you ever ask yourself what type of schemes money launderers use? I find it interesting but also very educational. As technology has advanced, criminals are also using it to their advantage. Since the creation of cryptocurrency, the opportunities for money launderers have only increased. I combed the internet to find different ways criminals launder money. Obviously, there are many schemes, new and old.

Remember, you are an AML Detective and have to be an expert in spotting these. Here are some of them:

  • Setting up a cash-intensive business such as restaurant, laundry mat, car wash, strip club, supermarket, car service.
  • Structuring (or Smurfing). Structuring has been around forever. This is when someone takes an amount of illegal funds and breaks it into smaller amounts in order to make it less suspicious using money orders, cashier’s checks. Then they are deposited into accounts.
  • Creation of shell companies. They do not have any business operations or anything else active. The sole purpose is to hide money.
  • Trusts are used to conceal ownership information.
  • Trade-based laundering involves altering invoices or business documents to disguise dirty money as business profits.
  • Bank Capture is when the money launderers run a financial institution. This way, money can move to different financial institutions without raising any red flags since the operational component can be hidden by the higher-ups.
  • Casino laundering. To me, this is the easiest. Maybe because I have visited casinos in my day and see how it can be done. Casino chips can be purchased, maybe gambled a little, then turned back into cash and be claimed as gambling winnings.
  • Real Estate can be purchased with cash and then sold quickly. This is completely legal. Also, criminals can potentially make a profit of their illegal gains. Suspicion could be raised if it’s done too often.

My goal with providing money laundering schemes is not to give you ideas on how to do it, but as AML detectives, we need to understand the various ways criminals try to circumvent the system. Plus, maybe I have seen too many movies based on these schemes, but it is interesting.