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FAQs

What is money laundering?

Money laundering is the process by which criminals seek to disguise the illicit origins of their funds, so that they can enjoy the fruits of their labours without awkward questions being asked.  In short, laundering is the method by which criminals seek to break the link between the crime and the money.  It is called "laundering" because it turns "dirty" money into "clean" money by taking away the stain of criminality. Successful money laundering achieves two outcomes: it enables the criminal to retain control of his money, and it provides him with a good cover story in case anyone does ask those awkward questions.

How big a problem is money laundering?

It is impossible to put a figure on the amount of money laundering that goes on throughout the world.  Criminals do not submit tax returns that adequately reflect their earnings, and no-one has yet designed a model that will accurately tell us how much money is earned through crime each year. What we do know is that the vast majority of money that is earned through crime will need to be laundered at some point.  And conservative estimates say that money laundering is the third biggest "industry" in the world, with only oil and agriculture generating more income. In a statement issued recently, HM Revenue & Customs estimated that £57 billion is laundered every year through the UK.  When you consider that that figure represents the laundering through just one country in just one year, it is easy to see that we are talking about seriously large sums of money.

Why is money laundering wrong?

There is a school of thought that holds that money laundering should not be classified as a crime - that it is only a bit of clever money moving, and that no-one is really hurt by it. However, money launderers are greedy and ambitious people.  If you let them into your institution, they will soon want more and more from you, and could well end up in control.  There have been situations where launderers have managed - through corruption and threats - to take over control of entire countries. It is also important to remember that money laundering allows criminals to keep the money that they have earned illegally.  The crimes they commit range from the commonplace to the heinous - and you have no way of knowing which you are dealing with.  If you let the criminals keep their money, you're giving them all the encouragement and funding they need to get bigger and nastier.

Why are governments so concerned about money laundering?

For years, law enforcement agencies around the world have expended huge amounts of effort and resources in trying to bring criminals to justice, and to imprison them.  However, recent thinking suggests that a more effective and efficient way to deal with senior criminals is to take the profit out of crime. The "Mr Bigs" of the criminal world are almost impossible to bring to justice, surrounded as they are by layers of protection and any number of minions who will do the time for them.  What does hurt them, however, is the freezing and confiscation of their assets - so this is where law enforcers and governments are now focusing their attention.  In other words, the emphasis has shifted from chasing the criminals to chasing their money.

Why do I need to provide anti-money laundering training to my staff?

Under the law of the UK - and that of many other jurisdictions - financial institutions (and frequently others) are required to provide certain groups of their staff with anti- money laundering training. This training should explain what money laundering is, what the law says about it, what are the personal obligations of the staff and the corporate obligations of the institution, how to recognise a suspicious transaction, and how to report suspected money laundering.  By providing this training, institutions are complying with the law, and providing themselves with protection from money laundering by having staff who are aware of the issues and how to react.

What is “suspicion”?

Anti-money laundering legislation and regulations in most jurisdictions refer to "knowledge" and "suspicion".  Knowledge is a relatively clear-cut concept - it requires certainty.  Suspicion, on the other hand, is a much more slippery customer.  The definition of suspicion is usually thrashed out in court, and recent cases have looked at this in some detail. In NJ2 Ltd v Cater Allen (21 January 2006, unreported), Nelson J noted that "suspicion does not have to have a long history of misdoing before it arises.  It may arise in an otherwise seamless period of good conduct from one important new piece of information." In R v Da Silva [2006] All ER (D) 131 (Jul) (a decision at the Court of Appeal), Longmore LJ said that the defendant must "think that there is a possibility, which is more than fanciful, that the relevant facts exist.  A vague feeling of unease would not suffice.  But the statute [in this case, the Criminal Justice Act 1988, now superseded by the Proceeds of Crime Act 2002] does not require the suspicion to be 'clear' or 'firmly grounded and targeted on specific facts', or based upon 'reasonable grounds'." In the 2006 edition of their Guidance Notes, the UK's Joint Money Laundering Steering Group were of the view that suspicion should have some foundation, such as "a degree of satisfaction and not necessarily amounting to belief but at least extending beyond speculation as to whether an event has occurred or not".

Why should I worry about money laundering, when I don’t deal in

cash?

The idea that money laundering involves only cash and banks is a dangerously outdated one.  Laundering can be committed with any sort of value, and through any type of financial service provider (including professionals such as lawyers and accountants, who look after client funds).  Money launderers are intelligent, canny people who are always looking for new ways to conduct their business.  If you think that you are immune to them, then you are their ideal target - they love the complacent and the unaware.

What about terrorist financing - is it the same as money laundering?

Since the attacks in America and Spain, terrorist financing has been in the world's headlines.  It's no surprise to financial investigators, of course, but it turns out that one of the best ways to track terrorists - particularly those who are planning an attack - is by following the money.  Terrorists spend money on accommodation, transport, supplies, communications and training, and it can be these unusual patterns of spending that give them away. However, tracking terrorist funds is not easy.  "Normal" money laundering involves the processing of dirty money to turn it into clean money.  Terrorist financing, on the other hand, frequently involves clean money from the start - money that has been donated or earned legitimately.  In fact, some experts are of the opinion that terrorists will steer clear of crime to avoid drawing attention to themselves and to minimise the risk of being detained before they can commit their terrorist activities. Governments around the world have realised this, and changes have been made to legislation.  The definition of money laundering has been adapted to include funds that are used to pay for terrorist activities, and not just funds that are generated by crime.  This is a fast-moving area, so keep an eye on your local definition of money laundering and its associated offences.
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