Money laundering
Also called laundering the proceeds of crime
Money laundering is the process of disguising money made from crime so it appears to come from a legitimate source. Criminals move funds through accounts, companies and assets to hide where the money started. In most countries it is also an offence simply to hold, use or transfer criminal property while knowing or suspecting its origin.
How it works
Laundering is usually described in three stages. Placement puts cash or criminal funds into the financial system. Layering moves it through transfers, shell companies or trade deals to break the audit trail. Integration returns it to the criminal as apparently clean money, often through property or business income. Banks see most of this activity in payment flows and account behaviour.
For a regulated firm, the risk is being used as a channel. Staff who handle funds they suspect are criminal can commit an offence unless they report it. That is why firms train employees to spot red flags, escalate concerns to the MLRO and, in the UK, seek a defence against money laundering from the National Crime Agency before proceeding with a suspicious transaction.
The rules
Makes it an offence to conceal, arrange, acquire, use or possess criminal property, and requires regulated sector staff to report knowledge or suspicion of laundering.
All persons; extra reporting duties for the regulated sectorSets a common definition of money laundering offences, a list of predicate crimes, minimum prison terms and liability for legal persons.
EU member statesMakes it a federal crime to conduct financial transactions with proceeds of specified unlawful activity to conceal their source or promote further crime.
All persons subject to US jurisdictionRecommendation 3 requires countries to criminalise money laundering on the basis of the Vienna and Palermo Conventions, covering the widest range of predicate offences.
Countries, which apply them to regulated firms through national lawCommon questions
What are the three stages of money laundering?
Placement, layering and integration. Placement introduces criminal funds into the financial system, layering moves them through transactions to hide their origin, and integration brings them back into the legitimate economy as apparently clean money.
What is a predicate offence?
A predicate offence is the underlying crime that generated the money being laundered. Examples include drug trafficking, fraud, corruption, tax evasion and people smuggling. The UK treats almost any criminal conduct as a possible predicate offence.
Can a bank employee commit money laundering?
Yes. In the UK, staff who process funds they know or suspect are criminal property can commit an offence. Making an internal report to the nominated officer is the main protection for employees in the regulated sector.
Is money laundering the same as terrorist financing?
No. Laundering hides the criminal origin of money. Terrorist financing concerns the destination, and the funds can come from legal sources. Firms use the same controls to detect both, which is why rules usually address them together.
