Your friend is lying to you. If you do this enough times, the bank automatically flags the account for money laundering. It's very basic and standard money laundering procedures.

"I don't believe it'd be realistically possible to stop this from occurring." - It already happens and is already stopped so you're wrong on that one.

1/ he never said his friend’s account was not flagged. It may take some time. 2/ his cash was already clean, so it’s not part of money laundering, if anything it’s called criminal/terrorism funding.

There is no such thing as "already clean" money from a banks perspective. Money in a bank is constantly and always monitored as if it's potentially dirty.

You can be abetting someone to evade tax. If you do it knowingly, you might also be culpable.

How is it money laundering when the money is already in the bank and thus accounted for?

Being flagged for money laundering and it actually being money laundering are two different things.

Obviously it would then lead to them asking why he was choosing to pay the builder in such a manner, rather than just doing a bank transfer. Ultimately could lead into an investigation of some sort.

Money laundering is when you can't justify the origin of the money. Not when you withdraw them to pay cash. You may spend them in prostitutes, or just giving them away. The bank has no business in asking you what you do with them, aside from putting some fail safes to makes sure no one is stealing from your account.

Mob boss has lots of money and needs to launder it.

Mob boss starts a building company, paying the employees with dirty cash (but hey, no income tax, so no ones complains).

Building company charges customers, but asks for it in cash.

Dirty money goes out to construction employees, clean cash comes in from customers. The Bank flag is just saying there is laundering occurring near the money.

If all revenue is in cash, and all payments are also in cash he doesn't need a Bank in the first place.

Laundering money is almost always done through b2c businesses where it's harder to trace all the customers. You start a cafe, and then you say you had 1.000 customers daily when you really had 100. You pay the tax for the remaining 900 coffees and now your money are clean.

If he was laundering money he would prefer to be paid by check or wire but would pay employees in his ill gained cash. Customers paying with cash would just introduce the same problem of having a bunch of cash around.

I know for a fact this happened and it was 2006/7 so nothing happened

So why did the person you know need to pay the builder in that manner, rather than just transferring him the money?

Well, the builder might gave him a lower price if paid in cash to avoid taxes.

Contractors prefer cash in hand, you can get a good discount.

Repeatedly taking out the daily limit seems like it would attract some additional attention.

My typical month I pull about $2k from the ATM. Some months I pull as much as $8k in a single day from the ATM when dealing with larger purchases. I've been doing that for years.

Then again, my ATM withdrawals are in another country, so maybe it's treated differently since it looks like a remittance.

You don’t think an algorithm can flag up a person for an audit?

And what happens then? You're legally paying someone - it's their job to report it appropriately.

That's called structuring and will cause all kinds of trouble.

“Structuring”