Money Laundering Typologies That Digital Banks Need To Know About

11 mins


The digital banking industry has expanded significantly as banks and other financial institutions embrace developments in financial technology. The coronavirus crisis, which saw a 200% spike in mobile banking registrations in April 2020, has supported that growing trend. Sadly, as digital financial systems advance in sophistication, so do the criminal tactics used in conjunction with them. As a result, methods for regulatory compliance in digital banking must also be adjusted.
Businesses in the financial sector must prioritise compliance for their digital banking services in order to continue providing regulatory compliance while being able to identify and stop money laundering operations.

‍‍Digital banks are therefore vulnerable to many of the same risks that traditional banks have long faced, as well as brand-new difficulties that force anti-money laundering (AML) teams to give fraud prevention and adherence to AML requirements first priority.

We've compiled a list of the various money laundering typologies that can occur in digital banking, along with the essential AML regulations that you need to be aware of, and divided it into the following parts so that you can completely comprehend the AML problems your digital bank is facing. 

In the AML/CFT context, the term “typologies” refers to the various techniques used to launder money or finance terrorism. Criminals are very creative in developing methods to launder money and finance terrorism.

You will have better knowledge of the many forms of money laundering and the significance of adopting effective AML processes at the end of this blog. Let's get started with the different kinds of digital bank money laundering typologies you can run into.‍

Types of money laundering typologies digital banks should be aware of

Comparing digital banks to other financial institutions' risk profiles and typologies reveals no significant differences. However, their emphasis on easy onboarding, rapid expansion, and digital-first strategy may make them attractive targets for money launderers.

Here, we examine the key typologies that digital banks should be aware of and how they might successfully reduce the dangers they pose.



Also known as smurfing, it is a method of placement whereby money is broken into smaller deposits. This method is used to beat suspicion of money laundering and to circumvent anti-money-laundering reporting requirements. In a variant of this method, criminals use smaller amounts of money to purchase financial instruments, such as money orders, and then ultimately deposit these instruments into bank accounts, again in small amounts.

What should you look out for? 

The division of large sums of money into smaller contributions and bill payments
likely to involve a sizable group of people frequently used in connection with money muling because networks can transport huge amounts of money fast and are sufficiently widespread.

What should digital banks do? 

Ensure the transaction monitoring thresholds are adjusted per the bank's risk-based strategy.


Money Mules

Whether they are aware of it or not, money mules are people who move money as part of a money laundering scheme. In contrast to traditional banking, when mules physically move illicit money, digital banking allows mules to electronically move money using user accounts and digital wallets.

What should you look out for? 

  • Lower transactional amounts.
  • Clients who might at first seem trustworthy or unwary.
  • Someone that frequently targets children and young adults who could be less aware of the legal repercussions.
  • Trafficking behaviours

What should digital banks do?

Firms should attempt to create a profile of any relevant associates when concerns are raised. Money muling networks frequently include a huge number of people from different countries.

Fraudulent Accounts

False information is used to open fraudulent accounts, which are frequently used in money laundering to shield offenders from prosecution. Digital banking is a digital service, thus it frequently uses false accounts to launder illicit money.

Through the use of free incentives, criminals may even utilise fraudulent accounts themselves to launder money directly, even if only to transform illegal funds into legal ones.

What should you look out for? 

  • Often configured to conduct a single transaction, so when the compliance team of the bank flags it, the user won't be concerned about closure.
  • Accounts may be created with one name, then later altered to reflect a different name.

What should digital banks do?

Identification and verification checks, as well as know your customer (KYC) screening for things like source of funds, beneficial ownership, and projected usage, are all important components of a thorough onboarding process.

Identity Theft and Account Takeover Fraud

Both account takeover fraud (ATO) and identity theft (shortly stated above) are types of financial fraud that include utilising a victim's identity.
ATO occurs when a fraudster gains control of an existing account, as opposed to identity theft, which includes using stolen information to open a new banking account. These types of fraud are common in digital banking because it gives criminals a way to pass off illicit payments as lawful ones by laundering them through previously valid accounts.

What should you look out for? 

  • A customer flags suspicious transactions or reports their identity has been stolen
  • When significant amounts of data are stolen, as in a data breach, there may be an increase in this activity.
  • Possibly concentrate on accounts with a high value reputation

What should digital banks do?

Since face-to-face transactions are not available in digital banks, rigorous identity verification procedures are crucial.
Keep an eye out for the danger that new technologies, like deep fakes, bring. They may make it difficult to discern between fraudsters and honest people.


Tax Evasion

The illegal attempt to avoid paying taxes or to pay less than is owing is known as tax evasion. In an effort to conceal the real financial information, this is accomplished by either making a fraudulent declaration to tax authorities (or making no declaration at all).
Tax evaders frequently look for digital banks because they think that the ease with which they can deposit and withdraw money from their accounts (without having to do so in person) will enable them to better conceal their assets and dodge discovery.

What should you look out for? 

  • Digital banks should exercise more caution while operating in markets where they are new or less well-established.
  • Criminals will also attempt to take advantage of businesses that provide inexpensive, quick ways for them to transfer money across borders.

What should digital banks do?

  • Companies should collaborate with their partners to develop a plan for efficiently monitoring international payments in particular.
  • Set appropriate risk levels that consider what bank customers would consider "typical" transaction behaviour.

Social Engineering

Social engineering, often known as an authorised push payment (APP) scam, is the art of convincing someone to divulge personal information or do a requested action in exchange for money. These fraudulent attempts frequently take place over the phone or online via emails and social media.

Due to the secrecy connected with digital transactions, digital banking is a popular target for this kind of fraud. Fraudsters can either take advantage of trusting individuals to obtain private financial information for their own purposes or deceive them into laundering money through their own accounts.

What should you look out for? 

  • Flourishing as internet activity increases and digital areas continue to expand
  • Frequently associated with social media platforms and online dating services where users communicate with strangers

What should digital banks do?

  • Digital banks should do a risk-based examination of any social engineering typologies and behaviours that make them particularly susceptible. Identity verification risks should also be understood, as should those posed by new fraud techniques like deep fakes.


Terrorist Financing

When allegedly "clean" money is used to finance terrorism, it constitutes a sort of reverse money laundering. These illicit operations are frequently funded by money that originates from organisations or companies that are lawful and wouldn't raise any red flags.

Digital banks are more at risk of experiencing this form of fraud because these monies will occasionally move through many transfers to avoid being monitored. Digital banking is also a tempting choice for criminals due to its rapid money transfers and ability to conceal user identities.

What should you look out for? 

  • Unusual transactions for the client's financial history.
  • A substantial amount of money is removed from an account.
  • Unexpectedly, a client seems to have many accounts with various financial institutions.
  • The transfer to the overseas account is unusual.
  • There are several transfers made between different accounts.
  • Smurfing looks to be being used by a client to transfer a significant amount of cash.
  • The transfer of funds to a high-risk location's account.
  • A business account delivers funds to a recipient that goes against the mission of the organisation.

What should digital banks do?

Numerous instances of terrorist financing involve con artists who have one or more high-risk characteristics, such location. Your digital bank's risk and compliance teams should collaborate to set up an AML risk assessment to enhance transaction monitoring and take action against bad actors who fit the bill for potential terrorist funding attempts.

Shell Companies and Trusts

Trusts and shell companies disguise the true owners of money. Trusts and corporate vehicles need not disclose their true owner or beneficial owner in many jurisdictions. Shell companies do not have any active business operations but have a legal personality. These company accounts are used to store dirty money. Shell companies and trusts are the best options for tax avoidance and money laundering because of their obscurity.

What should you look out for? 

  • The address of the account holder is in a country that is a tax haven.
  • The location of the account holder's address differs from the customary service areas for the financial institution.
  • There are several companies listed with the same address.
  • A business account's firm name is uninteresting and/or meaningless.
  • There are large, mysterious transactions.
  • There are several beneficiaries involved in the transactions.
    being unable to validate the sender's or recipient's identity.
  • Transactions don't seem to be in line with the company's stated goals.
  • Accounts in high-risk jurisdictions are transferred to.

What should digital banks do?

Examine new users carefully during onboarding to make sure you carry out the necessary KYC/KYB checks and confirm their identity, hence lowering the potential for fraud. But don't stop there; continue to keep an eye out for odd transaction patterns and suspicious activity so you can spot money-laundering attempts when they happen.

Transaction Laundering

In this method, a merchant knowingly or unknowingly processes illicit credit card transactions for another business. Here, the payments ecosystem is used to hide that the transaction even occurred.

What should you look out for? 

  • There are transactions that seem unusual to the account holder.
  • A business account sends or receives money from sources that don't appear to be consistent with the goals of the organisation.
  • A transfer is made right away once money is received from a third party by an account holder.

What should digital banks do? 

Transaction laundering can fairly easily go unreported if the required AML knowledge is lacking. For your risk and compliance team to be effective, they must be aware of the three stages of money laundering, just like all the other money laundering typologies.
Additionally, understanding how these fraudsters use a business front to handle placement, layering, and integration will assist narrow the emphasis for discovering shady transactions. With this knowledge, your team may set up an AML monitoring system to find and identify the indications that these kinds of transactions could happen.


Often explained as money laundering in the digital age, it is the practice of money laundering carried out in cyberspace through online transactions. Criminals use methods such as e-commerce, digital currencies, online games, crowdfunding, etc. to launder money with speed and ease.

What should you look out for? 

  • A suspicious-looking online store sends money to a particular account.
  • An online purchase is made from a dubious-looking e-commerce site.
  • Through online gaming, money is given or received, particularly if it is unusual for the account user.
  • There are transactions that are unusual for the account holder.
  • Digital currency is purchased with a deposit.
  • Selling digital currency results in a variety of deposits going into an account.

What should digital banks do? 

The chances for cyber-laundering expand along with the digital world. Equip your AML team with a monitoring solution that will give them access to financial and non-financial data to stop these sly transactions. Your team will be more confident in its ability to identify transactions that call for additional investigation and those that have been proven to be fraudulent if they can accurately depict the full financial trail. 

Regulations for Digital Banks

Providers of digital banking services must deal with both traditional and emerging fintech-related money laundering issues. These new hazards may result from innovative techniques like phishing emails or harmful software programmes, or they may take advantage of relatively unregulated technology like virtual currencies to facilitate money laundering within the digital financial system. Because of the relative anonymity they provide and the absence of fintech regulation in most countries, digital banking services are favoured by money launderers.

By adopting laws with a specific focus on digital banking services, international financial authorities are responding to these dangers and the gap in regulatory compliance for digital banking. The EU's Fifth Anti-Money Laundering Directive (5AMLD) lays out a number of AML procedures for cryptocurrency service providers, while the Financial Crimes Enforcement Network (FinCEN) in the United States has provided recommendations for businesses working with virtual currencies. The Financial Action Task Force (FATF), in a similar vein, has also published its own recommendations on the use of digital identification inside AML/CFT frameworks.


Why Is an AML Solution Necessary for Digital Banks? 

Digital banks all around the world have already learned the cost of inadequate planning. The FCA in the UK looked into Monzo because it didn't follow rules against financial crime, which cost money. Following a BaFin investigation on AML shortcomings that impeded its growth, German digital bank N26 was fined €4.25 million and given a new customer limit.

Digital banks have every motivation to establish effective AML procedures to prevent money laundering in the face of these severe implications (and legal penalties). They can use technical tools, such as Know Your Customer and Sanctions Lists compliance checks and AI-powered transaction monitoring, because they are digital-first companies. Due to the scalability and flexibility of these solutions, businesses can respond quickly to the numerous legislative changes that undoubtedly will keep coming as governments and regulators try to keep up with new technology.

How Tookitaki Can Help

An award-winning Regtech, Tookitaki’s AML solution helps digital banks strengthen their risk coverage and mitigate risks seamlessly in the ever-evolving world of regulatory compliance. Tookitaki’s Anti-Money Laundering Suite or AMLS is an operating system with multiple modules, such as Transaction Monitoring, Smart Screening, and Customer Risk Scoring solutions seamlessly integrated to provide a one-stop compliance solution. Tookitaki’s Case Manager solution collates the alerts from all solutions in an interactive manner, offering companies speedy alert disposition and easy regulatory report filing. AMLS can be deployed in the public cloud, private cloud and the data centre.

Tookitaki’s “AFC Ecosystem” – a first-of-its-kind initiative that is community-driven and powers financial crime prevention. The ecosystem combines Tookitaki’s network of experts and the typology repository. The typology repository is a library of typologies and a no-code tool that aids in creating new typologies. 

Talk to our experts to learn more about our AML solution and how Tookitaki can be your partner of choice for enhancing risk-based AML compliance programmes.

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