How do financial institutions detect and prevent money laundering?

Financial institutions detect money laundering through Know Your Customer (KYC) procedures, which verify client identities and backgrounds. They monitor transactions using anti-money laundering (AML) software that flags suspicious patterns like large cash deposits, frequent wire transfers, or unusual activity. Banks report suspicious activities to government agencies such as the Financial Crimes Enforcement Network (FinCEN). Cryptocurrency exchanges now implement similar KYC/AML requirements, requiring users to verify identity before trading. Red flags include round-number transactions, structuring (breaking large amounts into smaller deposits), and rapid fund movement. Compliance teams conduct regular audits and employee training. International cooperation through frameworks like the Financial Action Task Force helps combat cross-border laundering. These measures aim to prevent criminals from disguising illegal money as legitimate income.