Operating without licenses or following legal protocols, illegal Money Service Businesses (MSBs) fly under the radar, creating fertile ground for criminal activity. This lack of oversight allows criminals to conduct transactions with dubious documentation, jeopardizing both individual users and the entire financial system. 

These unlicensed MSBs act as gateways for illegal cash to enter the financial system disguised as legitimate funds. By evading mandatory reporting, like filing Suspicious Activity Reports (SARs), they facilitate a crucial stage in money laundering: layering. This involves breaking down “dirty money” through numerous financial transactions, making its origin and trail difficult to trace. 

Examples of such illegal MSBs include unlicensed foreign exchange services, unauthorized digital currency exchanges, and shell companies.