What is a technique often used to detect money laundering activities?

Identifying discrepancies in financial documents is a common technique used to detect money laundering activities because such discrepancies can indicate irregularities in financial transactions that warrant further investigation. Money laundering typically involves the concealment of the origins of illegally obtained money, often by passing it through a complex sequence of banking transfers or commercial transactions. This process can lead to inconsistencies in financial statements or documentation. When forensic accountants or compliance professionals find discrepancies—such as mismatches between reported income and cash flow, unusual transaction patterns, or altered records—it raises red flags that may suggest underlying criminal activities, prompting deeper analysis into the source of funds and the legitimacy of the transactions.

In contrast, simply reviewing only large transactions could overlook smaller transactions that are part of laundering schemes. Focusing solely on tax declarations might miss illegal activities that have not been reported for tax purposes. Assuming all cash transactions are legitimate disregards the fact that cash is often a method used in money laundering due to the anonymity it provides. By concentrating on identifying discrepancies, investigators can uncover layers of deceit that can lead back to the origin of illicit funds.