The money laundering process describes stages of money laundering by which ‘dirty’ money gained from criminal activity is disguised and reintegrated into the financial system for the criminal’s benefit.
Anti-money laundering authorities are concerned with both the source of the funds and the destination of funds as money laundering can be linked to terrorism financing.
The methods of breaching money laundering regulations can be very simple or extremely complex. These stages of money laundering are most typically used by financial criminals:
After getting hold of illegally acquired funds, financial criminals move the cash from its source by disguising it and then placing into the legitimate financial system. There are a number of ways the ‘dirty’ money can be entered into the financial system:
- Through businesses by blending the illegal funds with the legitimate takings. This is typically done through cash businesses such as tanning salons, car washes, casinos, and strip clubs as they have little or no variable costs
- By paying dummy invoices
- Through ‘smurfing’ – the act of breaking a large sum into smaller transactions below the reporting threshold
- By investing money in trusts and offshore accounts which hide the identity of the real beneficial owners
- By carrying small sums of cash abroad, below the customs declaration threshold, paying into foreign bank accounts and then sending back home
- Through aborted transactions by transferring money to a lawyer or accountant to hold until a proposed transaction is completed. The transaction is then cancelled and the funds are repaid to the criminal from an unassailable source
Once the funds have been placed into the financial system, the criminals make it difficult for authorities to detect laundering activity by obscuring the audit trail through the strategic layering of financial transactions and bookkeeping tricks.
This might involve moving money electronically between different countries using loopholes in legislation and by investing in ‘shell’ companies with a functional front.
Once the ‘dirty’ money has been placed and layered, the funds will be integrated back into the financial system. This is done very carefully from legitimate sources to create a plausible explanation for where the money has come from. The money is then often invested in property, high end cars, or other highly priced commodities.
How to Report Money Laundering
With a better understanding of these stages of money laundering, it can be easier to spot the signs and report illegal financial activity. More than 200,000 reports of suspected money laundering are submitted annually to authorities in the UK. The Proceeds of Crime Act requires businesses within the regulated sector of banking, investment, money transmission, etc. to report any suspicious financial activity to the authorities, whether they suspect staff or customers. Suspicious activity that may be linked to money laundering can be reported to HMRC or, if the activity is within your company, to your nominated officer.
Whether you have intentionally or unintentionally been implicated in a money laundering process, it’s important to seek legal advice as soon as possible to avoid facing charges. Our barristers are recognised experts in fraud cases, including financial fraud. Contact us today for support with your case.