Money Laundering Definition, Charges & Penalties

According to the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN), criminals attempt to launder at least $300 billion every year inside the United States, making it one of the largest financial crime threats to the country’s banking system.

This isn’t a small-time issue. Money laundering fuels drug trafficking, human smuggling, terrorism, corporate fraud, identity theft, and organized crime. Because of this massive threat, the U.S. government created some of the strictest anti-money-laundering (AML) laws in the world, including:

• Bank Secrecy Act (BSA) — 1970
• Money Laundering Control Act — 1986
• 18 U.S. Code §§1956 & 1957
• USA PATRIOT Act — 2001
• Anti-Money Laundering Act — 2020

Understanding how money laundering works is important for bank employees, small business owners, accountants, crypto users, real estate professionals, entrepreneurs, and everyday individuals, because the government prosecutes thousands of cases every year.

What Is Money Laundering? (U.S. Legal Definition)

The official U.S. definition appears in 18 U.S. Code §1956, which describes money laundering as:

Conducting, attempting, or agreeing to conduct a financial transaction knowing that the money involved came from unlawful activity.

In simple way: Money laundering means taking “dirty” money and making it look “clean.”

The goal is to hide where the money came from so the criminal can spend it without raising suspicion.

Examples of “dirty money” used in money laundering include:

• Drug trafficking profits
• Fraud or scamming money
• Bribery or corruption payments
• Human trafficking profits
• Illegal gambling profits
• Stolen money
• Tax evasion money
• Cybercrime revenue (phishing, ransomware, etc.)

Three elements must exist for the U.S. government to charge someone with money laundering:

1. Money came from a crime (called “specified unlawful activity”)
2. A transaction occurred (cash, crypto, wire transfer, check, real estate purchase, etc.)
3. The person knew the money came from illegal activity

If these three pieces exist, the government can charge a person with federal money laundering.

How Money Laundering Works?

The United Nations Office on Drugs and Crime and the U.S. Treasury describe three stages of laundering. America follows the same standard.

1. Placement

This is when criminals first move illegal money into the financial system.

Examples (USA-specific):

• Depositing drug cash into a bank in small amounts
• Buying chips at a Las Vegas casino and cashing them out
• Purchasing cars, jewelry, or electronics with illegal cash

Banks often catch people during this stage.

2. Layering

Criminals try to confuse authorities by moving the money through several transactions.

Examples:

• Wire transfers between multiple U.S. and overseas accounts
• Buying crypto and moving it between wallets
• Purchasing and selling assets repeatedly
• Using shell companies to hide ownership

This is the “hide the trail” stage.

3. Integration

The criminal brings the “cleaned” money back into the economy.

Examples:

• Opening a legitimate business
• Investing in U.S. real estate
• Buying luxury cars or yachts
• Funding a restaurant, trucking company, or salon

At this point, the money looks legally earned—but it isn’t.

Types of Money Laundering in the United States

There are 8 major forms of money laundering commonly prosecuted in U.S. federal courts.

1. Bank Laundering

This involves using banks to hide money. For examples Structured deposits (“smurfing”), Fake business accounts and Using offshore banks.

2. Cryptocurrency Laundering

This has increased dramatically since 2020. For examples Mixing services (tumblers), Decentralized exchanges and Privacy coins. The IRS and FinCEN heavily monitor crypto now.

3. Real Estate Laundering

One of the most common schemes in the U.S. For examples Buying a home with cash, Selling it quickly to hide origins and Using shell companies (LLCs). FinCEN requires reporting for all-cash real estate purchases.

4. Trade-Based Money Laundering

Criminals hide illegal money in imports and exports. For examples Over-invoicing products, Under-valuing shipments and False documentation. This is common in U.S.–Mexico border cases.

5. Casino Laundering

Casinos in Nevada, New Jersey, and tribal lands are common targets. For examples buying chips with illegal cash, minimal gambling and cashing out as “clean” winnings.

6. Shell Company Laundering

Fake companies that look real on paper. For examples LLC with no employees, fake invoices and phantom sales. This is heavily prosecuted under the Corporate Transparency Act (2024).

7. Cash-Intensive Businesses

Criminals blend illegal money with real sales. Such as car washes, nightclubs, restaurants and convenience stores.

8. Online Payment Laundering

Using digital payment platforms like PayPal, Cash App, Venmo and Zelle. Fraud rings use these often.

U.S. Federal Laws That Govern Money Laundering

There are 6 main U.S. federal laws, and every one carries serious penalties.

1. Bank Secrecy Act (BSA) — 1970

Requires banks to report suspicious activity.

Banks must file:

• SARs (Suspicious Activity Reports)
• CTR (Cash Transaction Reports for amounts over $10,000)

2. Money Laundering Control Act — 1986

This law made money laundering a federal crime.

3. 18 U.S. Code §1956

This is the strongest money laundering law. Charges under §1956 include are International money laundering, Concealment laundering, Promotion laundering and Sting operations.

4. 18 U.S. Code §1957

This focuses on transactions of more than $10,000 using criminal funds.

5. USA PATRIOT Act — 2001

Created modern AML compliance. And the requirements are Identity verification, Customer due diligence and Anti–terrorism financing rules.

6. Anti-Money Laundering Act — 2020

Strengthened penalties and corporate transparency.

Federal Penalties for Money Laundering

The U.S. government does not play around with money laundering.
Penalties can include prison, fines, and asset seizure.

1. Prison Sentences

Under 18 U.S. Code §1956, penalties include:

• Up to 20 years in federal prison

Under 18 U.S. Code §1957, penalties include:

• Up to 10 years in prison

Some cases combine both.

2. Fines

Federal fines can be massive:

• Up to $500,000, OR
• Twice the value of the money involved

Whichever number is higher.

3. Asset Forfeiture

The government can seize:

• Cars
• Homes
• Business assets
• Bank accounts
• Cryptocurrency
• Cash
• Luxury items

Anything purchased with illegal money is fair game.

4. Civil Penalties

Banks, businesses, and individuals may face fines for failing to report suspicious activity.

5. Corporate Penalties

Companies can face:

• Multi-million-dollar fines
• Loss of licenses
• Criminal charges against executives

HSBC paid $1.9 billion for AML failures.

U.S. Money Laundering Cases

Understanding real-world examples helps readers see how these laws play out in courtrooms.
Here are three major American cases.

Case 1: Wachovia Bank — $160 Million Settlement

In 2010, Wachovia failed to detect over $378 billion in suspicious transactions linked to Mexican drug cartels. Penalties were $160 million fine and Forced compliance reforms.

Case 2: Paul Manafort — 7.5 Years in Prison

The former campaign chairman for Donald Trump laundered $30 million through offshore accounts. Charges were bank fraud, tax evasion and money laundering scheme. He received a sentence of 7.5 years in federal prison.

Case 3: Liberty Reserve — $6 Billion Laundering Platform

Liberty Reserve was one of the largest digital money laundering operations in U.S. history.

• Laundered $6 billion
• Over 1 million users
• Used for fraud, identity theft, and hacking

The founder received 20 years in prison.

Learn More: Insurance Frauds: Laws, Charges & Penalties

Red Flags Banks Watch for (FinCEN Guidance)

FinCEN publishes official red flags used by banks to detect suspicious activity. Here are 14 signs that trigger SAR (Suspicious Activity Report) filings.

1. Large cash deposits over $10,000

2. Multiple transactions just below $10,000

3. Use of shell companies with no employees

4. Multiple foreign wire transfers with no business purpose

5. Sudden increase in account activity

6. Structuring deposits into smaller amounts

7. Inconsistent business revenue

8. Rapid movement of funds internationally

9. High-volume cryptocurrency transfers

10. Real estate purchases made with cash

11. Use of prepaid debit cards

12. Casino transactions with minimal gambling

13. Frequent deposits from different U.S. states

14. Multiple accounts opened under similar names

When banks notice these, they must file a SAR within 30 days.

How U.S. Authorities Catch Money Launderers?

The United States uses a combination of technology, human investigators, banking data, and international coordination to catch offenders. Here are seven methods law enforcement uses.

1. FinCEN Monitoring

Every major financial institution sends electronic data to FinCEN daily. FinCEN collects CTR report,s SAR filings, Wire transfer data and Cross-border cash movements. They maintain one of the largest AML databases in the world.

2. IRS Criminal Investigation (IRS-CI)

IRS agents investigate such as tax evasion, crypto transfers, offshore accounts and fraud schemes. In 2023, IRS-CI investigated 2,676 money laundering cases nationwide.

3. FBI Investigations

The FBI focuses on organized crime, terrorist financing, cyber laundering and banking fraud. The FBI works with over 52 international offices to intercept laundering networks.

4. Homeland Security Investigations (HSI)

HSI investigates such as drug cartels, human trafficking operations and cross-border cash flows. HSI seized more than $6 billion in illicit assets during the last 3 years.

5. Suspicious Activity Reports (SARs)

SARs trigger 80% of U.S. money laundering investigations.

6. Crypto Blockchain Tracking

Federal agencies use chainalysis, TRM Labs and elliptic. These tools track Bitcoin and other crypto transactions with 90%+ accuracy.

7. Undercover Operations

Agents create fake companies, fake investors and recorded transactions. This strategy is common in cases involving drug trafficking and real estate laundering.

How U.S. Businesses Can Avoid Money Laundering Charges?

Here are 10 practical ways for companies of all sizes to avoid being linked to laundering.

1. Verify customer identity (KYC)

Collect government IDs, business documents, and proof of address.

2. Check ultimate beneficial owners (UBO)

Every business must know who truly owns or controls the company.

3. Report suspicious activity

File SARs when warning signs appear.

4. Train employees

Banks, real estate offices, car dealerships, and accountants must receive AML training every 12 months.

5. Monitor high-risk clients

High-risk industries include:

• Casinos
• Money service businesses
• Crypto firms

6. Track large cash transactions

Any cash over $10,000 requires a CTR.

7. Maintain internal records

Keep AML records for 5 years.

8. Use third-party AML software

Tools like Verafin, Actimize, and Unit21 detect patterns.

9. Perform enhanced due diligence (EDD)

EDD applies to:

• Foreign clients
• Politically exposed persons (PEPs)
• High-risk jurisdictions

10. Cooperate with federal agencies

Cooperating early can reduce penalties.

Conclusion

Money laundering is far more than a crime committed by drug cartels or offshore bankers—it affects ordinary Americans, weakens financial institutions, and fuels dangerous illegal activity across the country. The United States enforces some of the toughest penalties worldwide, with prison terms reaching 20 years, fines exceeding $500,000, and a long list of additional consequences.

Whether you work in banking, crypto, real estate, accounting, or you’re simply a cautious individual, understanding how laundering works is essential for staying compliant and protecting your business. The more informed you are, the easier it becomes to avoid risky transactions and identify unusual financial behavior before it turns into a federal investigation.

FAQs