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Underground Banking: Legitimate Remittance Network or Money Laundering System?

NCJ Number
Rob McCusker
Date Published
July 2005
6 pages

This report provides an overview of underground banking and the potential for criminal abuses.


In underground banking, money is transferred through informal rather than formal mechanisms. It represents one of the major ways in which workers from overseas transfer legitimate remittances to their home countries. The informal mechanism of underground banking, unfortunately, makes it a perfect conduit for money laundering by criminal organizations and terrorist networks. In order to retain the use of underground banking for legitimate purposes while thwarting the attempts of criminal organizations, a regulatory balance must be struck. Following a description of how underground banking systems work, this report focuses on the potential for criminal organizations to exploit underground banking for their illegal activities. The various regulatory responses that have been employed are analyzed and both general and specific economic solutions are offered. Governments are cautioned to avoid overregulation as there is a danger of driving underground banking even further underground, causing a larger problem from a public safety perspective. One solution may be to alter the economic conditions that make underground banking an attractive alternative to formal banking. Figures, references