An exclusive article by Fred Kahn

Virtual International Bank Account Numbers (vIBANs) have emerged as a game-changer in global finance, offering businesses greater flexibility and operational efficiency. Unlike traditional IBANs, virtual IBANs allow companies to streamline payments, receive funds in multiple currencies, and manage accounts without requiring physical banking infrastructure. However, this convenience comes with a dark side—virtual IBANs have increasingly become a tool for financial crime, especially money laundering.

Financial criminals exploit virtual IBANs to create complex layers of transactions, making illicit money movements harder to trace. With weaker Know Your Customer (KYC) and Anti-Money Laundering (AML) controls in certain jurisdictions, these digital accounts can be abused to funnel illegal funds across borders. This growing threat is raising alarms among regulators and compliance professionals worldwide.

How Criminals Exploit Virtual IBANs for Money Laundering

Virtual IBANs can be a financial boon for legitimate businesses, but for money launderers, they offer an opportunity to obscure the origins of illicit funds. Here are the main ways criminals misuse virtual IBANs:

• Layering of Transactions – Criminals can move illicit money through multiple virtual IBANs across different jurisdictions, making it nearly impossible for authorities to track the source of funds.
• Shell Companies and Fake Businesses – Fraudsters set up fake companies with virtual IBANs to create a false trail of business activity while laundering money.
• Use of Third-Party Payment Processors – Many payment service providers (PSPs) offering virtual IBANs operate with minimal regulatory oversight, allowing criminals to conduct transactions with little scrutiny.
• Cryptocurrency Integration – Some money launderers convert illicit funds into crypto assets via virtual IBANs, further complicating efforts to trace and recover illegal proceeds.
• Rapid Cross-Border Transfers – Virtual IBANs allow criminals to quickly move money across different countries, taking advantage of regulatory gaps and delays in interbank communication.
• Smurfing Techniques – Criminals may divide large transactions into smaller amounts across multiple virtual IBANs to evade AML detection systems.
• Trade-Based Money Laundering (TBML) – Some criminals use virtual IBANs to facilitate fraudulent invoicing or over-invoicing schemes in international trade, making illicit money appear as legitimate revenue.

The Role of Regulators and Compliance in Mitigating the Risk

Governments and financial regulators have started tightening their grip on virtual IBANs to prevent abuse. The European Union’s AML directives, the Financial Action Task Force (FATF) recommendations, and individual country regulations all play a role in strengthening oversight.

Financial institutions and payment service providers must enhance their AML and KYC processes to mitigate these risks. Some key steps include:

• Enhanced Due Diligence (EDD): Institutions should conduct thorough due diligence on customers using virtual IBANs, ensuring they have a legitimate business purpose.
• Transaction Monitoring: Implementing AI-powered transaction monitoring systems can help detect unusual patterns indicative of money laundering.
• Real-Time Risk Assessment: Continuous risk assessments for transactions made via virtual IBANs should be a priority for compliance teams.
• Stronger Regulatory Collaboration: Governments must work together to close regulatory loopholes that allow virtual IBAN misuse.
• Increased Transparency: Mandating disclosure of ultimate beneficial owners (UBOs) behind virtual IBANs can help authorities identify suspicious activities.
• Improved Cross-Border Data Sharing: Financial intelligence units (FIUs) must collaborate more effectively to track suspicious cross-border movements involving virtual IBANs.
• Stricter Licensing for Virtual IBAN Providers: Some regulators are now considering licensing requirements for PSPs offering virtual IBAN services to ensure compliance with AML policies.

Are Virtual IBANs Still Safe for Businesses?

Despite the risks, virtual IBANs remain a valuable tool for businesses operating globally. Their ability to streamline payments and enhance cash flow efficiency is undeniable. However, companies must choose their financial partners carefully, ensuring that their virtual IBAN provider follows strict compliance protocols.

To mitigate exposure to financial crime risks, businesses should:

• Partner with financial institutions that comply with stringent AML regulations.
• Regularly audit their payment processes to detect irregularities.
• Ensure their own compliance team is well-versed in AML risks associated with virtual IBANs.
• Implement internal controls to prevent their accounts from being exploited by illicit actors.
• Monitor transactional behavior to identify and flag any anomalies that could indicate fraudulent activity.
• Stay updated with evolving AML regulations and ensure continuous staff training on virtual IBAN risk management.

Conclusion: The Future of Virtual IBANs in AML Compliance

The financial industry cannot ignore the rising risks associated with virtual IBANs. As financial criminals evolve their laundering techniques, banks, payment processors, and regulators must remain vigilant. Striking a balance between financial innovation and robust compliance is crucial.

Virtual IBANs can be safe if accompanied by strong AML controls, continuous monitoring, and enhanced global cooperation. Without these safeguards, they will continue to serve as a preferred vehicle for money launderers. Businesses, regulators, and financial institutions must work together to ensure that innovation does not come at the cost of financial integrity.

Related Links

• Financial Action Task Force (FATF) on Virtual IBANs
• European Banking Authority’s AML Guidelines
• How the EU is Fighting Financial Crime
• Understanding Layering in Money Laundering
• Best Practices for Virtual IBAN Compliance
• Regulatory Challenges of Virtual Banking
• How Payment Service Providers Can Strengthen AML Measures
• Virtual IBAN Compliance Requirements

Other FinCrime Central Articles about Best Practice

• 7 Reasons Why a Feature-Based Approach to AML System Selection Works
• 3 Proven Strategies to Scale Digital KYC Workflows
• How to Tackle AML Compliance Challenges in 2025: Key Strategies for Success