Money Laundering Explained
Money laundering covers financial transactions, both small or large in value, where there exists an attempt to disguise money or the monetary value of other assets which have been illegally obtained, with the intent of subsequently releasing that money onto the marketplace in a manner which makes it appear to be legitimate.
In every day parlance, money laundering means the ‘washing’ of ‘dirty money’ for subsequent re-introduction into the legitimate financial market.
For more than twenty‑five years, KANGS has developed extensive expertise through advising and defending clients charged with money laundering allegations of every conceivable nature. This depth of experience has built a strong national reputation for excellence, and recognition by the leading legal directories, Chambers UK and The Legal 500.
We have regularly referred to many aspects of the crime of ‘money laundering’ in articles published on this site.
However, through discussion with clients, it is apparent that many people still remain unclear as to what constitutes money laundering and the various ways in which it can be committed. All too often, we have represented clients who have unwittingly been drawn into situations that result in criminal investigation.
In this article, John Veale a Partner at KANGS explains varying aspects of money laundering and statutory obligations designed to defeat it.
The Legal Definition of Money Laundering
The Proceeds of Crime Act 2002 (‘POCA’) defines money laundering as the:
‘process by which the proceeds of crime are converted into assets which appear to have a legitimate origin, so that they can be retained permanently or recycled into further criminal enterprises.’
POCA states that a person commits an offence if he:
S.327
-conceals, disguises, converts, transfers or removes from the UK, criminal property.
S. 328
-enters into or becomes concerned in an arrangement which he knows or suspects facilitates (by whatever means) the acquisition, retention use or control of criminal property by or on behalf of another person.
S.329
-acquires, uses or has possession of criminal property.
The Three Stages of Money Laundering
When criminals seek to integrate illegally obtained funds into the legitimate economy in order to ‘wash them’ and, effectively, disguise them as having been lawfully acquired they, typically, pass through three stages being, placement, layering, and integration.
The funds may arise from numerous illegal sources, with prime examples being drug trafficking, VAT fraud and organised crime generally.
Placement in Money Laundering
Placement in Money Laundering refers to the introduction of the illicit funds into the financial system. Whilst historically this was regularly accomplished by depositing cash into bank accounts or other financial instruments, the development of technology now enables more sophisticated processes, such as disguise through the use of crypto currencies.
Layering in Money Laundering
The origin of the funds may be disguised in numerous ways such as by the purchase of high-value assets such as artwork, real estate, or financial instruments like stocks and bonds.
With the enormous amounts of money now being disguised by those involved in organised crime, the engagement of Offshore Trusts managed by ‘shell companies’ throughout the world, together with cryptocurrency mixers that mask the origin of funds, are regularly used.
Integration in Money Laundering
Once the ‘dirty money’ has been washed or ‘laundered’ through the system, it will inevitably have to be reintroduced into the economy to enable those involved to benefit from the proceeds of their crime.
At this stage, the criminal proceeds of the original crime(s) will ostensibly appear legitimate, until such time as its provenance is challenged.
Identifying Potential Money Laundering Activity
Those tasked with investigating the legitimacy of transactions suspected of being tainted with money laundering will, amongst other steps, take note of ‘red flags’ which are associated with potential money laundering activity, and which include:
- transactions that, seemingly, make no commercial sense,
- unnecessary involvement of intermediaries,
- activity in high-risk jurisdictions,
- the processing of large amounts of cash or excessive involvement with high-risk assets, such as non-immobilised bearer bonds,
- transactions involving a politically exposed person or a close connection of one,
- sudden and unexplainable changes in income or expenses.
Statutory Obligations Designed to Prevent Money Laundering
Duty to Disclose
POCA makes it an offence not to disclose information concerning money laundering.
S.330 Regulated sector.
A person commits an offence if he:
- knows or suspects or
- has reasonable grounds for knowing or suspecting
that another person is engaged in money laundering and
that the information, or other matter,
- on which his knowledge or suspicion is based, or
- which gives reasonable grounds for such knowledge or suspicion
came to him in the course of business in the regulated sector and that
- he can identify that other person or the whereabouts of any laundered property or
- he believes, or it is reasonable to expect him to believe, that the information will or may assist in identifying that other person or the whereabouts of any of the laundered property and
that he fails to make the required disclosure as soon as is practicable.
S.331 makes similar provision for the duties of nominated officers in the regulated sector.
Duty of Businesses to Avoid Facilitation of Money Laundering
All businesses have a duty to avoid knowingly facilitating the movement of illicit funds.
Additionally, The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 set out obligations of private sector firms working in areas of higher money laundering risk, to stop criminals using professional services to launder money.
Regulated businesses are required to adopt safeguards to manage money laundering risks, supervise anti-money laundering measures and adopt a ‘risk-based’ approach to financial services with the appropriate level of due diligence being applied
Suspicious Activity Reports
Any suspicion of money laundering should be reported through a Suspicious Activity Report (SAR) to the National Crime Agency.
This duty applies even if the transaction is not completed and an SAR should include details of the suspicion and any relevant supporting evidence.
A detailed explanation of the nature and operation of SARs is contained within the a previous article entitled ‘Understanding Suspicious Activity Reports in UK Law.'
Penalties for Breach
Money laundering is a serious criminal offence and the Proceeds of Crime Act provides that anyone convicted may face up to fourteen years’ imprisonment.
Fines may be imposed according to the seriousness of the crime. At the lower level of harm and culpability, Band A provides for a fine of between twenty-five and seventy-five per cent of income whereas, at the most serious end of the spectrum, Band F imposes fines of between five hundred and seven hundred per cent of weekly income.
The seriousness of the crime will be judged according to the level of culpability of the defendant and the harm inflicted by the offence.
At the lowest end of the scale, Category 6 provides for offences involving less than ten thousand pounds, whilst Category 1 caters for offences involving more than ten million pounds.
How Can We Assist You?
As mentioned at the beginning of this article, we find that some clients find themselves unwittingly engaged in money laundering activity or charged with activity into which they voluntarily entered without realising that it amounted to a criminal offence.
If you believe that you may have been involved in activities connected to money laundering, it is essential that you obtain immediate legal advice. The experienced team at KANGS will be on-hand to assist in mitigating any potential consequences you may face.
To speak to a member of our team, contact us using the details below:
Tel: 0333 370 4333
Email: info@kangssolicitors.co.uk
We provide initial no obligation discussion at our three offices in London, Birmingham, and Manchester. Alternatively, discussions can be held through video conferencing or telephone.
Top ranked by leading legal directories Chambers UK and the Legal 500.
