AML typologies are the recurring methods criminals use to disguise illegally obtained money as legitimate wealth, and each one produces a distinct behavioral pattern that financial institutions are trained to spot. Most schemes move money through three stages: placement puts cash into the financial system, layering runs it through enough transactions to break the paper trail, and integration returns the cleaned funds to the legitimate economy. The typologies below correspond to specific techniques used at one or more of those stages, and a single scheme often combines several.
Cash Structuring and Smurfing
Structuring is the most straightforward placement technique and one of the most commonly prosecuted. Federal law requires banks to file a Currency Transaction Report for every cash transaction over $10,000.1Financial Crimes Enforcement Network. Notice to Customers: A CTR Reference Guide To avoid that report, a launderer breaks a large sum into deposits of $9,000 or $8,500 and spreads them across multiple branches, accounts, or days. When the launderer recruits others to make those deposits on their behalf, the technique is called smurfing.
Structuring is a standalone federal crime under 31 U.S.C. § 5324, regardless of whether the underlying cash came from illegal activity.2Office of the Law Revision Counsel. 31 USC 5324 – Structuring Transactions to Evade Reporting Requirement Prohibited The base penalty is up to five years in prison and a fine of up to $250,000. If the structuring involves more than $100,000 over a twelve-month period or occurs alongside another federal crime, the ceilings double to ten years and $500,000.1Financial Crimes Enforcement Network. Notice to Customers: A CTR Reference Guide Prosecutors often stack structuring with the broader money laundering provisions of 18 U.S.C. § 1956, which can reach twenty years and fines of $500,000 or twice the value of the laundered property, whichever is greater.3Office of the Law Revision Counsel. 18 USC 1956 – Laundering of Monetary Instruments
The telltale pattern on an account statement: a stretch of inactivity followed by a burst of deposits just below $10,000, often made at different branches on the same day.
Shell Companies and Corporate Layering
Once cash is in the system, layering depends on obscuring who controls it. Shell companies are the classic tool: entities formed with no real operations, employees, or physical presence, existing solely to hold accounts and move money. Routing funds through several shells across different jurisdictions creates a transaction chain investigators struggle to unwind. Nominee directors listed on public filings add another layer of distance between the money and the person who actually controls it.
Congress passed the Corporate Transparency Act to attack this problem by requiring companies to report their beneficial owners to FinCEN. A 2025 interim final rule narrowed the law’s reach significantly. FinCEN removed the reporting requirement for all companies formed in the United States, limiting the obligation to foreign-formed entities registered to do business in a U.S. state or tribal jurisdiction.4Financial Crimes Enforcement Network. FinCEN Removes Beneficial Ownership Reporting Requirements for U.S. Companies and U.S. Persons FinCEN has also said it will not enforce BOI reporting penalties against U.S. citizens or domestic companies while the rule is in effect.5Financial Crimes Enforcement Network. Beneficial Ownership Information Reporting
The practical consequence is that domestically formed shell companies remain relatively easy to create without disclosing who truly benefits from them. That gap keeps corporate layering among the most accessible typologies in the United States, and it is why shell companies turn up inside almost every other scheme described below.
Trade-Based Money Laundering
Trade-based money laundering moves value across borders by manipulating the price, quantity, or description of goods in international trade. It bypasses traditional cash monitoring because the money travels as what looks like ordinary commerce.
The core techniques are simple. Over-invoicing means the seller charges more than the goods are worth, letting the buyer wire a large payment the seller keeps as laundered funds. Under-invoicing works in reverse: the buyer pays a deflated price, resells the goods at market value, and pockets the difference as clean revenue. Phantom shipping generates invoices for goods that never leave a warehouse, creating a paper trail for payments with no corresponding shipment.6U.S. Immigration and Customs Enforcement. Trade Based Money Laundering
Detection is notoriously hard. The volume of global trade makes it easy to bury fraudulent invoices among millions of legitimate ones, and a Government Accountability Office report found customs agencies face significant challenges identifying fraudulent trade documents mixed with legitimate transactions.7U.S. Government Accountability Office. Countering Illicit Finance and Trade – U.S. Efforts to Combat Trade-Based Money Laundering
The Black Market Peso Exchange
One of the most well-documented trade-based schemes connects drug proceeds to legitimate international trade. A cartel sells narcotics in the United States and accumulates dollar cash. The cartel sells those dollars at a discount to a peso broker in Colombia, who deposits the equivalent pesos into the cartel’s Colombian account. The broker now owns the U.S. cash and converts it by structuring deposits into American accounts or smuggling the currency, then uses those dollars to buy American goods on behalf of Colombian importers. The goods ship to Colombia, and the broker profits from the exchange rate spread.8Financial Crimes Enforcement Network. Colombian Black Market Peso Exchange American exporters selling to broker-controlled importers can become unwitting participants.
Cryptocurrency and Virtual Currency
Cryptocurrency adds speed and borderlessness to the toolkit. The most prominent technique uses mixing or tumbling services, which pool cryptocurrency from many users, shuffle it through a web of wallets, and redistribute different coins to each user. The result severs the blockchain link between deposit and withdrawal.
The U.S. government treats these services as serious threats. In 2022, the Treasury Department sanctioned the mixer Tornado Cash under an executive order targeting cyber-enabled threats, blocking all U.S. persons from interacting with it.9U.S. Department of the Treasury. U.S. Treasury Sanctions Notorious Virtual Currency Mixer Tornado Cash FinCEN separately assessed a $60 million civil penalty against the operator of another mixer for Bank Secrecy Act violations.
Beyond mixers, peer-to-peer transfers let users exchange cryptocurrency directly without a centralized exchange that checks identification. FinCEN’s guidance is that virtual currency administrators and exchangers generally qualify as money transmitters and must register as money services businesses, maintain anti-money laundering programs, and file suspicious activity reports.10Financial Crimes Enforcement Network. Advisory on Illicit Activity Involving Convertible Virtual Currency The IRS requires every money services business to designate a compliance officer, implement written policies, train staff, and undergo independent review.11Internal Revenue Service. Money Services Business (MSB) Information Center
Decentralized Finance Vulnerabilities
DeFi protocols pose a newer challenge. A Treasury risk assessment found the most significant illicit finance risk in this space comes from DeFi services that simply do not comply with existing AML obligations.12U.S. Department of the Treasury. Illicit Finance Risk Assessment of Decentralized Finance These protocols let users swap, lend, and move tokens without any intermediary performing identity checks. Smart contract flaws can be exploited to steal assets outright, and the cross-border nature of DeFi lets criminals jump between jurisdictions with weak oversight. Although many projects market themselves as fully decentralized, Treasury found most have a controlling organization providing centralized governance, which complicates the question of who bears compliance responsibility.
Real Estate and High-Value Assets
Buying real estate with laundered funds is one of the oldest integration techniques. The typical pattern uses a shell company to buy residential property with cash, skipping the mortgage underwriting that would otherwise verify identity. The property is later sold or rented, producing income that looks entirely legitimate.
FinCEN has responded with Geographic Targeting Orders requiring title insurance companies to identify the individuals behind shell companies making non-financed residential purchases above certain thresholds. The current GTO, effective through early 2026, covers major metropolitan areas across fourteen states and the District of Columbia, with a general purchase threshold of $300,000.13Financial Crimes Enforcement Network. FinCEN Residential Real Estate Geographic Targeting Order FinCEN also finalized a broader residential real estate reporting rule, though a federal court decision has paused its enforcement, and reporting persons are not currently required to file real estate reports while that order remains in force.14Financial Crimes Enforcement Network. Residential Real Estate Rule
Portable high-value assets are the other favorite. Art is particularly attractive because transactions involve large sums, buyers can stay anonymous through intermediaries, and subjective pricing means overpaying does not automatically draw suspicion. A painting bought with dirty money can be resold at auction years later, producing clean proceeds with almost no paper trail back to the original crime.
Synthetic Identities and AI-Enabled Fraud
Generative AI has accelerated a typology that barely existed a decade ago. Synthetic identity fraud builds fake personas from fragments of real information, combining a child’s Social Security number with a fabricated name, a generated photograph, and an invented employment history. Criminals use these identities to open bank accounts, apply for credit, and access the financial system under names that do not belong to any real person. The Federal Reserve Bank of Boston has described generative AI as an “accelerant” for this fraud, with estimated losses growing from roughly $8 billion around 2020 to approximately $14 billion a couple of years later.15Federal Reserve Bank of Boston. Synthetic Identity Fraud: How AI Is Changing the Game
Once a synthetic identity has a functioning account, it becomes a vehicle for every other typology. It can receive structured deposits, hold cryptocurrency wallets, or sit as a nominee on a shell company. Know Your Customer checks at account opening are the main defense, but deepfake video is beginning to defeat the liveness checks that ask users to blink or turn their heads.
Sanctions Evasion and Proliferation Financing
Sanctions evasion overlaps heavily with shell company layering and trade-based laundering. When a country, entity, or individual is placed on the Office of Foreign Assets Control sanctions list, their U.S. assets are frozen and U.S. persons are prohibited from transacting with them. Sanctioned actors circumvent this by establishing front companies in non-sanctioned jurisdictions, building layered ownership structures, and routing payments through intermediary banks that may not spot the connection.
Penalties for violating OFAC-administered sanctions are severe. Civil penalties can reach the greater of $377,700 per violation or twice the transaction amount. A willful violation can bring criminal fines of up to $1,000,000 and imprisonment of up to twenty years.16eCFR. 31 CFR 560.701 – Penalties
Proliferation financing is a closely related threat. Treasury’s 2026 National Proliferation Financing Risk Assessment identifies state actors using complex procurement networks, front companies, and digital assets to acquire dual-use technology and fund weapons programs, specifically calling out the use of the global technology sector to generate revenue and the recruitment of intermediaries to circumvent export controls.17U.S. Department of the Treasury. 2026 National Proliferation Financing Risk Assessment Financial institutions with weak AML controls are the primary targets.
Professional Gatekeepers
Lawyers, accountants, and trust administrators play a unique role in laundering because their involvement lends transactions an appearance of credibility that automated monitoring rarely questions. A lawyer can form a shell company, open a client trust account, receive funds from an overseas entity, and distribute them to a real estate closing, all within the normal scope of legal practice. The same transaction run by a non-professional would draw far more scrutiny.
Client trust accounts are a particular vulnerability. Funds are commingled with other client money, and banks generally treat transfers from attorney trust accounts as low-risk. When a professional knowingly participates in laundering, the penalties under 18 U.S.C. § 1956 apply in full: up to twenty years in prison and fines of up to $500,000 or twice the value of the property involved, whichever is greater.3Office of the Law Revision Counsel. 18 USC 1956 – Laundering of Monetary Instruments A conviction also means permanent loss of a professional license.
Red Flags and When a Bank Must Report
Financial institutions are the first line of defense, and reporting duties correspond directly to the behavioral patterns these typologies produce. A bank must file a Currency Transaction Report for any cash transaction over $10,000.18FFIEC BSA/AML InfoBase. FFIEC BSA/AML Assessing Compliance with BSA Regulatory Requirements – Currency Transaction Reporting When a transaction looks suspicious but does not fit a reporting category, the institution must file a Suspicious Activity Report within 30 calendar days of initial detection. If no suspect has been identified, the institution gets an additional 30 days, but reporting cannot be delayed beyond 60 days total.19Financial Crimes Enforcement Network. FinCEN Suspicious Activity Report Electronic Filing Instructions
Common red flags map back to the typologies above:
- A dormant account that suddenly receives a burst of deposits just under $10,000 (structuring).
- A modest retail business that abruptly starts wiring six figures overseas (trade-based laundering).
- Multiple accounts opened with slight variations of the same name (synthetic identities).
- Rapid movement of funds through newly created entities with no operating history (shell company layering).
- Transactions inconsistent with a customer’s known business profile or geographic footprint (sanctions evasion or peso exchange activity).
- Non-financed residential real estate purchases through LLCs in a GTO-covered area (real estate integration).
FinCEN’s national AML priorities reinforce which categories demand the most attention: corruption, cybercrime, terrorist financing, fraud, transnational criminal organizations, drug trafficking, human trafficking, and proliferation financing.20Financial Crimes Enforcement Network. FinCEN Issues First National AML/CFT Priorities and Accompanying Statements Every typology here feeds into at least one of those priority areas. Recognizing the pattern is what starts the report, and the report is what starts the investigation.