How to Launder Money: Stages, Methods and Penalties

Money laundering is the process of disguising the proceeds of crime so the money looks like it came from a legitimate source, and it moves through three recognized stages using a handful of common methods, with federal penalties reaching 20 years in prison, fines of $500,000 or twice the value of the property involved, and mandatory forfeiture of assets tied to the offense.¹ The stages, methods, and penalties are what this piece walks through, in that order.

The Three Stages

Financial institutions, prosecutors, and regulators describe laundering as a three-stage process. Each stage has a different purpose, and each creates different chances for detection.

Placement

Placement is the first move: getting physical cash from a crime into the financial system. That can mean depositing currency at a bank, buying money orders, or paying cash for high-value goods. It is the riskiest stage for the launderer because moving large amounts of cash is conspicuous, and banks must report cash transactions above $10,000 to the government.²

Layering

Once money is in the system, the goal shifts to hiding where it came from. Layering piles transaction on transaction to break the trail: wiring funds between accounts in different countries, converting into foreign currencies, buying and reselling investments or luxury goods. Every added step puts more distance between the money and the crime that produced it.

Integration

In the last stage, the money returns to the economy looking clean. It surfaces as business profit, investment return, or the proceeds of a property sale, and the person can then spend or invest it in the open. Integration is what makes laundering damaging: criminal profits end up circulating alongside lawful earnings.

Common Methods

Within those stages, launderers rely on a familiar set of techniques. Each one exploits a different weakness in how the financial system watches money move.

Structuring (Smurfing)

Structuring means splitting a large sum into smaller deposits or transactions that each stay below the $10,000 cash reporting threshold. Depositing $9,500 at several branches over a few days instead of one $10,000 deposit is the textbook example. Federal law prohibits structuring for the purpose of evading reporting requirements, and it applies even when the underlying money is legal. The prohibition reaches transactions at banks and nonfinancial businesses and the movement of monetary instruments across U.S. borders.³ Bank staff are trained to spot patterns of just-below-threshold deposits, and those patterns often trigger a Suspicious Activity Report.

Shell Companies

A shell company exists on paper but has no real operations, employees, or meaningful assets. Criminals use them to open accounts, hold property, or process transactions under a corporate name, keeping the real owner out of view. When the company is registered in a jurisdiction with weak disclosure rules, tracing beneficial ownership becomes very hard.

Congress passed the Corporate Transparency Act in 2021 to force companies to report their true owners to FinCEN. In March 2025, FinCEN issued an interim rule exempting all U.S.-formed companies from those reporting requirements, keeping the obligation only for foreign-formed companies registered to do business in the United States.⁴ Domestic shell companies remain available as a tool for hiding ownership.

Trade-Based Laundering

Trade-based laundering moves value across borders under the cover of ordinary commerce. The most common tactic is misinvoicing: a company ships $50,000 worth of goods but invoices the buyer for $200,000, so $150,000 crosses the border disguised as a routine commercial payment. Global trade volumes are so large that customs authorities and financial regulators struggle to spot the manipulated invoices among the legitimate ones.

Cryptocurrency

Digital currencies opened new laundering channels. Value can move across borders quickly, and some platforms operate outside traditional banking oversight. FinCEN treats businesses that accept and transmit virtual currency as money transmitters, meaning they must register, run anti-money-laundering programs, and file the same reports as banks.⁵

Techniques include mixing services that blend one user’s transactions with others to obscure the trail, peer-to-peer exchanges operating without proper registration, unregulated foreign platforms, and cryptocurrency kiosks used to convert cash into tokens. A crypto business that facilitates transfers without registering with FinCEN may be operating illegally as an unregistered money services business.⁵

Real Estate

Buying property with cash or through a shell company has long been a favored integration method: real estate holds and grows in value, and reselling it turns criminal proceeds into apparently clean funds. FinCEN’s Residential Real Estate Rule will require certain professionals involved in closings to report non-financed transfers of residential real estate to legal entities or trusts. Reporting under the rule takes effect March 1, 2026.⁶

Federal Criminal Penalties

Two federal statutes carry most money laundering prosecutions, and a conviction under either one triggers mandatory forfeiture on top of the prison term and fine.

18 U.S.C. 1956 — Laundering of Monetary Instruments

Section 1956 is the main money laundering statute. It reaches anyone who conducts a financial transaction knowing that the funds are proceeds of illegal activity, when the transaction is meant to promote further crime, conceal the source of the money, or evade a reporting requirement. It also covers moving money into or out of the United States with the same intent. The maximum penalty is 20 years in prison and a fine of $500,000 or twice the value of the property involved, whichever is greater.¹

The statute also supports law enforcement stings. A person who conducts a transaction involving property that is merely represented to be criminal proceeds faces the same 20-year maximum, even if the money was never actually dirty. “Represented” means a statement made by a law enforcement officer or someone acting at the direction of a federal official.¹

18 U.S.C. 1957 — Transactions in Criminally Derived Property

Section 1957 targets anyone who knowingly conducts a financial transaction of more than $10,000 in property derived from criminal activity. The government does not have to prove intent to conceal the source or promote more crime; it only has to prove that the person knew the property came from an illegal source and that the amount exceeded $10,000. Penalties reach 10 years in prison and a fine of up to twice the value of the criminally derived property.⁷

Mandatory Criminal Forfeiture

A court sentencing a defendant under Section 1956 or 1957 must order forfeiture of any property involved in the offense and any property traceable to it. The judge has no discretion to skip it. Forfeiture reaches bank accounts, real estate, vehicles, and any other asset connected to the laundering scheme.⁸

Structuring

Structuring is prosecuted separately under 31 U.S.C. 5324. The prohibition covers structuring deposits at banks, transactions at nonfinancial businesses, and the movement of monetary instruments across borders, and it carries enhanced punishment when the structuring is part of a broader pattern of illegal activity.³

Civil and Compliance Penalties

Not every laundering-related penalty runs through a criminal courtroom. Financial institutions and individuals face substantial civil and administrative fines for Bank Secrecy Act compliance failures, even without a money laundering charge attached.

Willful violations of BSA reporting or recordkeeping requirements outside the structuring context carry criminal penalties of up to $250,000 and five years in prison. If the violation occurs while breaking another federal law, or if it is part of a pattern of illegal activity worth more than $100,000 in a 12-month period, the maximum rises to $500,000 and 10 years.⁹

FinCEN can also impose civil money penalties without a criminal case. As of the January 2025 adjustment, the caps include:

Recordkeeping violations for funds transfers: up to $26,262 per violation.
Willful or grossly negligent recordkeeping violations: up to $26,262 per violation.
Beneficial ownership reporting violations by foreign companies: up to $606 per day the violation continues.¹⁰

The civil figures adjust annually for inflation, so the exact dollar amounts shift year to year. Penalties apply per violation, and a single regulatory examination can uncover hundreds or thousands of individual violations at one institution.

1
Office of the Law Revision Counsel. 18 U.S.C. 1956 – Laundering of Monetary Instruments
2
Financial Crimes Enforcement Network. The Bank Secrecy Act
3
Office of the Law Revision Counsel. 31 U.S.C. 5324 – Structuring Transactions to Evade Reporting Requirement Prohibited
4
Financial Crimes Enforcement Network. FinCEN Removes Beneficial Ownership Reporting Requirements for US Companies and US Persons
5
Financial Crimes Enforcement Network. Advisory on Illicit Activity Involving Convertible Virtual Currency
6
Financial Crimes Enforcement Network. Residential Real Estate Rule
7
Office of the Law Revision Counsel. 18 U.S.C. 1957 – Engaging in Monetary Transactions in Property Derived From Specified Unlawful Activity
8
Office of the Law Revision Counsel. 18 U.S.C. 982 – Criminal Forfeiture
9
GovInfo. 31 U.S.C. 5322 – Criminal Penalties
10
eCFR. 31 CFR 1010.821 – Penalty Adjustment and Table