What is Money Laundering?

You ask a common person the question that what is money laundering? and they will answer that it is the process of 'cleaning the dirty money'. In layman words money laundering is the process of cleaning the dirty money. However, it does not explain the real nature of money laundering and how it affects the global financial sector. With advancement in technology and financial knowledge criminals and terrorists have become more aware or the controls and systems which financial institutions have in place. Criminals are always looking for loopholes and new methods to launder their money.

You will be shocked to know that there has been a steep rise in businesses and professionals getting unintentionally caught in money laundering because of the poor controls and systems in place. This may lead to reputational damage or criminal prosecution.

Controls and systems which can prevent money laundering and terrorist financing is essential for good governance and business survival. Businesses which are more vulnerable to money laundering are:

• Banks
• Investment businesses
• Insurance companies
• Solicitors and Accountants
• International money transfer services
• Betting firms
• Reals estate agencies
• Jewellers and Art dealers

Lets consider an example to increase our understanding of money laundering: Example 1: A drug dealer makes £50K in cash from dealing drugs. He then gives the money to 5 of his associates. They then deposit this money in their bank accounts. After few months the drug dealer goes to an art auction and buys fine art worth of £50K and his associates pay for the art.

Now who is laundering the money?

• Drug dealer
• 5 Associates
• The Bank
• Art dealer

In theory they all are part of the money laundering activity. However, the bank and art dealer does not know or suspect that the source of the funds have come from illegal activities. There is no criminal offence being committed by the bank and the art dealer in this process. However, the bank and the art dealer should have better controls in place to raise an alarm.

According to a BBC news article written by Dominic Casciani (2019): a wife of a banker from Azerbaijan managed to spend £16m in Harrods without raising suspicion. The first reaction would be how can this even be possible? Zamira Hajiyeva used 54 credit cards – many of which were issued from the bank where her husband used to work. She went on a massive spending spree at the Harrods over a decade and was finally caught. The international Bank of Azerbaijan, American Express and Harrods - all parties should have better controls and systems in place which raise flags of any suspicious activity. This does not stop here; she bought a house worth £11.5 million in London Knightsbridge via a British Virgin Islands registered company called Vicksburg Glabal Inc. Mrs Zamira is now facing proception in the UK which can result in punishment, fine or loss of assets, if found guilty.

What are the key money laundering objectives?

• Disguise proceeds of a criminal activity
• Disguise proceeds of a criminal activity
• Control and enjoy benefits from the proceeds of crime

What are the stages of money laundering?

• Placement: In this stage the illegal money is placed into the financial system
• Layering: This involves a series of transactions to hide true ownership and the source of funds in order to confuse the regulators and other stakeholders.
• Integration: The process of reintroducing the laundered funds into the legitimate economy.

What is intermingling?

In the movie 'The Accountant' Ben Affleck plays a character of Christian Wolff. Christian is a forensic accountant mostly working for drug cartels and corrupt corporates. He accepts different forms of payments which include fine arts, real-estate and cash. He owns a series of laundromats under different aliases to clean his dirty money. What he is doing is that he is trying to conceal criminally generated cash by mixing it with legitimately generated cash. This process is called intermingling.

Business which generate large quantities of cash such as car wash, cash & carry, tanning salons, restaurants, or foreign money changing services are popular for intermingling.