Money Laundering

Introduction

Money Laundering is a way of covering up money, where it has originated, or processing it when it has been gained from unlawful purposes or in an illicit way. It is thought in fact that up to 5% of worldwide money is subject to money laundering. Many financial institutions have introduced ways to spot money laundering to try to apprehend culprits so bringing them to justice. Money launderers try to camouflage what they are doing in many ways becoming more and more sophisticated as time goes on.

Types of Money Laundering

There are three basic types of money laundering

  1. Bank Methods
  2. Currency Exchanges
  3. Double Invoicing

More Detail

Smurfing or structuring is where launderers divide their money into smaller deposits so as not to arouse suspicion.

Cash smuggling in bulk is where launderers take their money in bulk to place in off shore banks that have much less money laundering monitoring.

Invoice alteration is where invoices are made to look bigger than they should be in order to disguise money movement.

Businesses that generally deal in cash will put money both legally and illegally obtained through their books to disguise it.

Round Tripping is where money is deposited in a controlled foreign offshore corporation, usually in a tax haven so as not to be detected. It can then be brought back as a foreign direct investment.

Gambling is another way, in casinos where chips are bought for cash then cashed in. As a cheque is given for the chips it can then be deposited without suspicion as it looks like legitimate winnings from the casino.

How Do Financial Institutions Monitor for Money Laundering?

Staffs that work in banks, building societies or any financial institution are all trained in the facts regarding money laundering plus what to do if they suspect it is happening. They are required to report any activity that appears suspicious to them such as deposits of huge amounts of cash. Getting to know customers is the way to go as knowing who you are dealing with and what is their natural depositing pattern is crucial to detection.

Most banks and building societies have anti-money laundering software fitted that will highlight suspicious transactions. Customer’s names may be flagged up and ultimately the bank will file a report to the appropriate government department.

United Kingdom Money Laundering Legislation

There are four sections to this act

  1. Terrorism Act 2000
  2. Anti-terrorism Crime and Security Act 2001
  3. Proceeds of Crime Act 2002
  4. Serious Organised Crime and Police Act of 2005

Recent Cases in the News

Two brothers from Failsworth near Oldham in Lancashire posed as executives from Greggs and McDonalds in a 20 million pound credit scam, while the wife of one of the brothers helped launder the cash. Many recognisable names in the electronics world fell for the scam over a two and a half year period.

The scam worked as follows, the brothers using false executive names persuaded companies such as Samsung, Argos, Sanyo and Sony to send them electrical goods on credit. As the brothers pretended to be from two high profile companies the electrical giants did not suspect anything was afoot. All the items were delivered to places throughout Manchester but none were paid for.

One of the brothers had a £350,000 house that his wife paid the mortgage on with cash gained from the sale of the electrical goods. They also had an apartment in Spain plus two flashy cars. The fraudsters also laundered money through bank accounts. Now the gang are facing jail after being discovered and charged with money laundering and fraud.

A Bradford Nightclub Owner was jailed for tricking businesses into buying into the marketing rights to a fake new energy drink. The man who absconded during his trial faces seven years in prison when he is apprehended for money laundering plus intimidating witnesses. The defendant went to Dubai and Hungary in order to pay off witnesses to the scam.

The scam entailed persuading business men to invest in the marketing rights to new energy drinks which were in fact eight thousand dummy cans! The defendant had laundered £300,000 of duped money and lived the high life taking trips to Dubai and driving fast cars. On apprehension the defendant will serve a five year sentence.

Frequently Asked Questions

Why is Money Laundering Illegal? Money laundering was made illegal to try to stop a profit being made from crime. It is deemed wrong for any organisation to assist a criminal in the laundering of money that has been gained by fraud or other means.

How is Money Laundered? Money is laundered in three ways namely, Placement this is when the illegally gained money is introduced in to the financial system. Layering this is where the money is “cleaned “disguising who owns it and where it came from. Integration this is the last stage of laundering money where the cash is reintroduced into the legal economy.

Organised Crime & It's Involvement

The aim of all organised crime is to of course make money. This money gained by criminal gangs is a headache for them as they need to process the money in order to make it legitimate again. Having huge sums of cash around arouses suspicion and makes it difficult to spend. It also increases the risk of gangs being discovered by the law.

Cash is very bulky to use too and in huge amounts looks suspicious especially in this day and age when everyone pays for expensive items by card. When large sums of cash enter the economy it is very recognisable so arouses suspicion all round. Some criminals specialise in money laundering. These are usually more sophisticated gangs but are in the minority as most criminals launder their own ill-gotten gains.

The specialist money launderers however can launder much larger sums in one session making them popular with some criminals who find it hard to launder their cash. These specialists do charge commission but for the criminal with a large amount of cash to launder it is worth paying a third party for the service.