Why is cash prevalent in money laundering?

Anonymity and privacy: one of the most compelling reasons for the continued use of cash is its anonymity. Unlike digital transactions, cash payments leave no electronic trail. This privacy appeals not only to those engaged in illicit activities but also to ordinary individuals who are concerned about surveillance, data breaches, or government overreach. For many, using cash is a way to protect personal freedom in an increasingly monitored financial system.

Accessibility and financial inclusion: a significant portion of the global population does not possess a bank account. For these individuals, cash is not a preference, but a necessity. Low-income households may rely on cash due to limited access to banking services, mistrust of financial institutions, or lack of digital literacy. As a result, cash remains the most practical and inclusive form of money.

Cultural and behavioral factors: cultural norms and long-standing habits also contribute to the persistence of cash. In some countries, cash payments are still expected for tips, small purchases, or informal labor. For many small businesses, especially in sectors like hospitality, retail, and personal services, cash is often easier to manage and sometimes preferred for immediate liquidity.

Avoidance of fees and delays: digital transactions can involve processing fees, especially for businesses, credit card companies, payment processors, and banks often take a cut from each transaction. Some vendors and services providers may choose to operate in cash to avoid these costs. Additionally, digital payment can be subject to delays or technical issues, whereas cash offers instant settlement without intermediaries.

Tax evasion and informal economies: In many parts of the world, cash use is tied to the informal economy, where transactions go unrecorded and untaxed. This not only includes small-scale street vendors but also larger operations that intentionally underreport income to reduce tax liability. Cash enables these activities to continue under the radar, creating fertile ground for financial crime, including money laundering.

Smurfing: smurfing involves breaking large sums of illicit cash into smaller amounts that fall below the reporting thresholds required by financial institutions. Thes small deposits are then placed into multiple bank accounts, often in different locations or under different names, to avoid detection.

The Black Peso exchange: this technique, used mainly by Latin-American drug cartels, involves the movement of illicit cash through a complex system of currency conversion and trade. A drug trafficker in the U.S. sells drugs and receives cash. A broker then buys that cash at a discount and uses it to pay businesses in Latin America that export goods to the U.S. The profits are returned to the cartel, appearing as legitimate business revenue.

Use of cash-intensive businesses: legitimate-looking businesses with high volumes of cash transactions, like restaurants, car washes, or laundromats, are ideal for laundering money. Criminals can blend illegal funds with real revenue and then deposit them into business accounts, as if they were earned legitimately.

Shell companies and false invoices: shell companies are legal entities that exist only on paper and have no legitimate business activity. Criminals use them to move cash by creating false invoices for nonexistent goods or services. The payments appear legitimate, but they are simply a method to transfer and disguise dirty money.

Trade-based money laundering: criminals manipulate international trade to move value across borders. This can include invoicing of goods, multiple invoicing, or falsely describing the nature of traded goods. While this technique may involve digital components, it often begins with or is backed by large volumes of illicit cash.