In this report I will go on to discuss the topic of money laundering in thefollowing order; firstly, I will begin by explaining what is money laundering?,why it is done?, and how it is done? I will then go on to explain the effectsof money laundering and the institutions/organisations that are at risk fromthese activities. I will also be discussing the current situation in the UKregarding money laundering and whether anything can be done to prevent orrestrict laundering activities, and will then go on to conclude my findings. Money laundering is the process by which criminals attempt to conceal the trueorigin and ownership of the proceeds of their criminal activities. If they aresuccessful they can then maintain control over the proceeds and, so, provide alegitimate cover for their source of income. J. D.
Mclean defined moneylaundering in the International Judicial Assistance as:”Although the proceeds of crime will be kept as capital for further criminalventures, the sophisticated offender will wish to use the rest for otherpurposes. If this is to done without running a risk of detection, the moneywhich represents the proceeds of the original crime must be “laundered”; putinto a state in which it appears to have an entirely respectable provenance”It is important to bear in mind that money laundering is a process (often ahighly complex one) rather than a single act. In an effort to expose andanalyse this phenomenon it has become common to use a three-stage model whichencompasses an ideal money laundering scheme. The three stages are as follows:* Placement StageThis is where cash derived directly from criminal activity (e.
g. fromsales of drugs) is first placed eitherin a financial institution or used to purchase an asset. * Layering StageThe stage at which there is the first attempt at concealment or disguiseof the source of the ownership of funds. * Integration StageThe stage at which the money is integrated into the legitimate economic andfinancial system and is camouflaged with all other assets in the system. Money launderers try to prevent authorities from tracing the source of theirill-gotten gains by moving their funds around financial and economic system. The funds are then spent as if they were legitimate money.
The more blatant bythe money launderer will directly involve a person or a business in the crime. i. e. A launderer could simply ask someone for permission to use their accountfor deposits in return for a fee. Another scenario is for the money laundererto approach a business and ask them to set up transactions in which a sum ofmoney is regularly deposited in the company’s account.
The business will thensend the money back as a fictitious payment for non-existent goods. Althoughthis method is very popular amongst the criminal underworld, there are otherways of laundering money without a business becoming aware of being involved ina crime. e. g. The money launderer could place an order for an industrialmachine/robot to be manufactured to a specific standard. The company may askfor a 60% deposit with the understanding that the order won’t be put through forthree months.
Before the three months are up the money launderer cancels theorder and gets the deposit refunded minus a penalty. The money launderer willalways be willing to pay the penalty because although he/she will want to get asmuch back as possible, what he/she really wants is the money back clean. Money Laundering is said to be the third biggest industry by value world-wide. Research in the USA has shown that 90% of currency bills in circulation arecontaminated with narcotics. In the UK, similar research showed 40% to becontaminated.
In 1994, about 15,000 suspicious transactions were reported tothe National Criminal Intelligence Service’s (NCIS) economic crimes unit. Aboutone in five was found to have some criminal connection. In the UK the following organisations are most vulnerable to fall prey to themoney launderers:* Deposit-taking institutionsBecause of the money launderers need to get rid of cash, deposit takinginstitutions are particularly vulnerable to being used. i. e. Banks,Building Societies, Post offices etc.
Hence, many of the efforts to combatmoney laundering have concentrated on the procedures adopted by deposit takers. * Non-bank financial institutionsThe introduction of measures to prevent banks being readily used for purposes ofmoney laundering has, without doubt, made life more difficult by increasing thecosts and the risks for those involved. These are businesses that provide bank-like services, but are historically less closely supervised than traditionalfinancial institutions. i. e. Bureau de Change, cheque cashers, moneytransmission services, commodities brokers etc.
The law is, as in so many areas, complex and set out in various differentstatutes and regulations. It deals with the proceeds of drugs trafficking,terrorist crime and non-terrorist crime slightly differently, but the thrust ofthe law for each is similar. Offences are created for those who launder themoney and those who assist them in any way. It also obliges those in thefinancial community to take preventative measures. The Criminal Justice Act 1993widened the law by extending the expression “criminal conduct” to any indictableoffence committed in the UK.
The preventative measures are contained in theMoney Laundering Regulations 1993 (“the Regulations”) which implement the ECMoney Laundering Directive. There are five money laundering offences. These are: assistance, concealment,acquisition, failure to disclose and tipping off. Assistance occurs where aperson is involved in an arrangement with another person and knows or suspectsthat the other person is or has been involved in or has benefited from drugtrafficking or criminal conduct if the arrangement helps the other person toretain or control proceeds directly or indirectly or enables the other person touse the proceeds or to invest them for his benefit. Concealment is disguising, removing or transferring proceeds (direct or indirectof drug trafficking or criminal conduct) in order to avoid or help someone elseto avoid prosecution. The offence is committed by a person who assisted in theoffence if he/she knows or has reasonable grounds to suspect the nature of theproperty.
Acquisition is the offence of use or possession of assets which youknow or have reasonable grounds to suspect to be the proceeds of drugtrafficking or criminal conduct and have acquired at less than full value. The Act now makes it a specific and separate offence in cases involving drugs orterrorism not to report a suspicion if the information came to the person’sattention in the course of his trade, profession, business or employment. Effectively the duty to report is extended to employees of business institutionswhere it is the institutions who may become involved in the arrangements and notthe employees themselves. The question arises as to whether disclosure is awaiver of professional privilege or a breach of any express or implied duty ofconfidentiality owed to a customer or client. It is clear that disclosure to thepolice (although not third parties) will not constitute a waiver of professionalprivilege nor will it give actionable grounds for a claim for breach ofconfidence.
Reporting to the police is not much help if the suspect is tipped off about theinvestigation. Tipping off, therefore, constitutes an offence when informationor any other matter which might prejudice an investigation is disclosed to thesubject of the investigation (or anyone else) by someone who knows or suspects(or, in the case of terrorism, has reasonable cause to suspect) that: a policeinvestigation into money laundering has begun or is about to begin, or thepolice have been informed of suspicious activities, or a disclosure has beenmade to another employee under internal reporting procedures. The Regulations require any person who carries out relevant financial businessin a business relationship or a one-off transaction with an applicant forbusiness to maintain certain administrative and training procedures designed toprevent money laundering occurring. It is a criminal offence not to maintainthe necessary procedures although it is a defence if the person concerned tookall reasonable steps and exercised all due diligence to avoid committing thisoffence.
This applies to banks and building societies, investment businesses andinsurance business. Clearly some of this laundering will be assisted by people who know what theyare doing but may not know of the penalties they are risking if they are caught. Some of it will be helped by people who are not sure what is going on but areprepared to turn a blind eye for the commission they will earn. Many adviserswill be representing clients who appear to be running perfectly respectablebusinesses but are not. The dirty proceeds of drugs trafficking alone throughout the world are estimatedto be around 500bn annually.
2bn each year is thought to be laundered throughBritain. Businesses must know their legal obligations and in particularproviders of financial services must be aware of the new rules they must obey. Even though you can take effective steps to prevent hackers breaking into yourcomputers, financial crime often involves insiders. Even using the uniquefeatures of a computer security system, you can only prevent fraud where aperson acts outside his authority.
No system prevents a senior officer withfull system access walking off with money or records in his custody. But now athreat is posed not only by the staff member setting out to steal from you butalso to staff members being susceptible to third party pressure to use your bankto launder money – by doing nothing outside their normal authority. Another major problem with the prevention of money laundering is that it is nowspread over an international network and this makes it very difficult to controlor regulate. One countries regulation may prevent/decrease money laundering butwill just drive it towards unregulated territories or economies that have a varyrelaxed attitude towards money laundering. E.
g. In exchange for a minimum $10m”subscription”, the Seychelle islands will grant diplomatic status to”investors”, making them invulnerable to action by international law enforcers. This clearly becomes a haven for drug barons and crime bosses, where they canlaunder millions and escape prosecution. The world’s third largest industry continues to grow rapidly and uncontrollably. Factors that affect this growth are the increasing emerging technologies,international barriers being removed, improved communications networks and lastbut not least individual/organisational greed that allows blind eyes to beturned in order to keep revenue coming in.
BibliographyDirty Money William C. GilmoreMoney Laundering – A practical guide to the new legislation Rowan Bosworth-Davies and Graham SaltmarshCrooks paradise Frank Kane, Adrian Levy, and Steve Haynes Sunday Times, 14thJanuary 1996. Steps against cash crime Jimmy Burns The Times, 5th June 1996. Governments gunning for money launderers Oliver August The Times, 1st October1996.