Money Laundering Awareness

What is Money Laundering?

Money laundering means the exchange of money or assets that were obtained criminally for money or other assets that are “clean”. The clean money or assets do not have an obvious link with any criminal activity. So the source and ownership of criminally derived wealth & property is changed to give it a perception of legitimacy.

From the point of view of the criminal, the basic requirements are a need to conceal the true ownership and origin of proceeds, the need to maintain control of proceeds and the need to change the form of proceeds.

Money laundering also includes money that’s used to fund terrorism, however it’s obtained.

Taking part in money laundering activities, even unwittingly, is a crime.

The International Monetary Fund has estimated that two to five per cent of the worldwide global economy involved laundered money. Other bodies generally regard the annual amounts globally in billions of US Dollars making laundered money bigger than some major economies.

International agencies and experts coined the joint acronym AML/CTF, which stands for anti-money laundering and counter terrorist financing.  The two are often talked about together, especially since the September 11 terrorist attacks, although where “dirty money” is always the proceeds of crime, terrorist financing may originate from legitimate sources.

Definition

Money laundering is generally defined as the process by which the proceeds of crime, and the true ownership of those proceeds, are changed so that the proceeds appear to come from a legitimate source.

Under The Proceeds of Crime Act 2002, the definition is broader and more subtle. Money laundering can arise from small profits and savings from relatively minor crimes, such as regulatory breaches, minor tax evasion or benefit fraud. A deliberate attempt to obscure the ownership of illegitimate funds is not necessary.

There are three acknowledged phases to money laundering: placement, layering and integration. However, the broader definition of money laundering offences in POCA includes even passive possession of criminal property as money laundering.

Placement

Cash generated from crime is placed in the financial system. This might be done by breaking up large amounts of cash into less conspicuous smaller sums that are then deposited directly into a bank account, or by purchasing a series of monetary instruments (cheques, money orders, etc.) that are then collected and deposited into accounts at another location. This is the point when proceeds of crime are most apparent and at risk of detection. Because banks and financial institutions have developed AML procedures, criminals look for other ways of placing cash within the financial system.

Layering

Once proceeds of crime are in the financial system, layering obscures their origins by passing the money through complex transactions. These often involve different entities like companies and trusts and can take place in multiple jurisdictions. This use of widely scattered accounts for laundering is especially prevalent in those jurisdictions that do not co-operate in anti-money laundering investigations. In some instances, the launderer might disguise the transfers as payments for goods or services, thus giving them a legitimate appearance.

Integration

Once the origin of the funds has been obscured, the criminal is able to make the funds reappear as legitimate funds or assets. They will invest funds in legitimate businesses or other forms of investment, often using you to buy a property, set up a trust, acquire a company, or even settle litigation, among other activities. This is the most difficult stage of money laundering to detect.

Scale of Money Laundering

Money laundering is an illegal activity carried out by criminals and occurs outside of the normal range of economic and financial statistics. Along with some other aspects of underground economic activity, rough estimates have been put forward to give some sense of the scale of the problem.

The United Nations Office on Drugs and Crime (UNODC) conducted a study to determine the magnitude of illicit funds generated by drug trafficking and organised crimes and to investigate to what extent these funds are laundered. The report estimates that in 2009, criminal proceeds amounted to 3.6% of global GDP, with 2.7%  (or USD 1.6 trillion) being laundered.

This falls within the widely quoted estimate by the International Monetary Fund, who stated in 1998 that the aggregate size of money laundering in the world could be somewhere between two and five percent of the world’s gross domestic product.  Using 1998 statistics, these percentages would indicate that money laundering ranged between USD 590 billion and USD 1.5 trillion. At the time, the lower figure was roughly equivalent to the value of the total output of an economy the size of Spain.

However, the above estimates should be treated with caution. They are intended to give an estimate of the magnitude of money laundering. Due to the illegal nature of the transactions, precise statistics are not available and it is therefore impossible to produce a definitive estimate of the amount of money that is globally laundered every year.

(Reference: FATF Money Laundering FAQ, 2012)

Typologies & Risk Areas

Techniques of laundering, known as typologies, are numerous and vary from the basic to the highly sophisticated. The following typologies are currently those of most concern to United Kingdom law enforcement, based on intelligence and investigative experience:

  • cash/value couriering;
  • abuse of “gatekeepers” (e.g. accountants and lawyers);
  • abuse of money laundering transmission agents;
  • cash rich businesses and front companies;
  • high value assets and property; and
  • abuse of bank accounts and other over-the-counter financial sector products.

(Reference: Money laundering and the financing of terrorism – European Union Select Committee, 2009)

In its 2008/09 threat assessment of serious organised crime, the Serious Organised Crime Agency identified the following specific risk areas where the legitimate and criminal economies intersect: laundering money through businesses. It also highlighted the movement of illicit cash and the purchase of assets: “Serious organised criminals invest in property, shares, trusts, and pensions as well as accumulating high value goods, such as jewellery, vehicles, art and other collectable items. These assets may be held in the names of friends or family to conceal the true ownership. Investment in private and commercial property, including overseas, is especially attractive because it appreciates in value over time.” (The United Kingdom Threat Assessment of Serious Organised Crime 2008/9, paragraphs 103-110)



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