By Peter Lilley
Acknowledged AML Expert
Founder & Owner of Proximal Consulting
Author of "Dirty Dealing: the untold truth about global money laundering"
What is Money Laundering
The perception that still endures of money laundering is of a suspicious character turning up at the counter of a bank with a suitcase (probably helpfully labelled swag) overflowing with used notes. Amazingly in some countries - and with some banks - this may still happen, but nowadays most money launderers run very sophisticated global operations.
The most widely accepted analysis of this problem has attempted to reduce a complex and global process to a neat three-stage technique (placement, layering and integration). It is perhaps only now that it is becoming clear that money laundering is a robust, corrosive, all consuming and dynamic activity that has far reaching consequences and effects.
Traditionally, money laundering is viewed (in isolation) as the cleaning of dirty money generated by criminal activity; initially in the collective mind set, these crimes were associated with the illegal drugs/narcotics trade. Of course, money laundering is this, but it is also a whole lot more.
Just as relevant as criminal money is the need for individuals who have achieved substantial personal enrichment as a result of corruption to legitimize their ill-gotten gains.
To understand and appreciate the all-consuming power and influence of money laundering and the people who launder money, one needs to go back to the purpose of the original crimes.
Relevant criminal offences are perpetrated to achieve one thing: money. If dirty money is generated by crime, it is useless until the original tainted source of funds can be disguised or preferably obliterated. Thus, the dynamic of money laundering lies at the corrupt heart of many of the social and economic problems experienced across the globe.
Why Is The Process Called Money Laundering?
The phrase probably originated in the United States in the 1920's. Criminal gangs were trying to disguise how they got their money so they took over businesses with high cash turnovers such as launderettes and car washes. Then they mingled their dirty cash with genuine clean cash receipts.
Thus whilst laundering today is associated with washing criminal funds, the original use of the phrase is because of the actual use of real laundering businesses. The techniques that were used in the beginning are very similar to those of today: co-mingling dirty money with clean funds and passing them off together as legitimate business receipts.
Where Does The Dirty Money That Needs To Be Laundered Come From?
Dirty money comes from every kind of criminal activity on a global basis such as the drugs (illegal narcotics) trade, illegal arms trading, illegal sex businesses, corruption, fraud, forgery, armed robberies, blackmail, extortion, arts and antiques fraud, internet fraud, smuggling, tax fraud and trafficking in human beings.
What Kinds And Amounts Of Money Are Involved?
In truth, nobody knows how much dirty money is being laundered or attempted to be laundered on a global basis. I like to think of it like this: Any and every criminal act anywhere on this planet that involves obtaining money illegally produces funds that need to be laundered.
Why Is Money Laundering Such A Global Problem?
Crime can only fully succeed if the dirty money generated can be utilized without their true source being known. Moreover, criminal activities continue to expand because the washed funds are then reinvested in the businesses. Money laundering is the critical tool to enable this to happen.
Isn't All This Stuff About Global Organized Criminal Activity A Bit Of An Exaggeration?
In fact, probably the exact opposite is true – this is no media hype story. Numerous organized crime groups are active in each country and on a global basis – the successful ones are being run as effectively as global corporations. In fact, it could be argued that the clever criminals are running their businesses far more efficiently and effectively than a normal legitimate business.
These are highly organized and sophisticated operations – David Blunkett when he was UK Home Secretary commented that criminal groups are probably more organized than the official bodies trying to fight and defeat them.
Are There Any Businesses Which Are Particularly Susceptible To Money Laundering?
Yes there are, so much so that clever launderers have in the past created dummy businesses just as a front to launder funds.
Traditionally, these are businesses that have a large cash turnover such as Bureau de Change, bars, night-clubs, fairgrounds, car parks and petrol garages.
However, the connected global world of the 21st Century means that any company could be set up anywhere as a front for launderers. False invoices can be issued from country A to country B seeming to represent legitimate transactions. The proliferation of on-line businesses also presents a remarkable opportunity for criminals to create front companies.
Where Is It Easiest To Identify Potential Money Laundering Activity?
It is actually getting more and more difficult to identify suspicious activity because criminals are becoming increasingly clever in how they wash their dirty money. However, there are some basic steps that form the part of any AML regime.
Two essential anti money laundering procedures are Know Your Customer (KYC) and identifying red flags that signify money laundering such as unusual transactions, large cash payments and movements of funds that have no real logic.
Why Are Offshore Financial Centres Frequently Mentioned In Relation To Money Laundering?
Offshore financial centres ("OFCs"), offshore jurisdictions, tax havens – call them what you will, have always played a vital part in money laundering. However, we should not forget that there are other onshore financial centres such as London that act as large offshore financial centres to non-UK citizens.
OFCs provides products and services in which the actual account holder (the ultimate beneficial owner or UBO) is not disclosed thus making money laundering and the hiding of assets easier.
If The Money Laundering Problem Is So Serious What More Can Be Done To Control It And Ultimately Stop It?
Clever criminals, who are generating substantial sums through their activities, realized a long time ago that if you transfer these funds through numerous countries, you create a very difficult trail for law enforcement agencies to follow.
Money laundering is a world-wide activity. Criminals have embraced the 21st century global economy rather more effectively and quicker than governments and lawmakers. Countries still think of this problem in national rather than international terms.
Money laundering can only effectively be fought through continuous and effective co-operation between countries and their organizations through such topics as common laws, sharing of information and co-operation between police forces and other effected countries
Proximal Consulting have unrivalled experience in providing KYC enhanced due diligence background reports on individuals and companies on a global basis. We also offer a complementary range of services including AML training, country risk reports and bespoke investigations.