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Frequently Asked Questions
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.
ANTI-MONEY LAUNDERING
TRAINING AND ADVICE