Money Laundering

INTRODUCTION

Money Laundering is a global issue that affects all countries and jurisdictions. By its very nature it is a hidden activity and needs the vigilance of all members and all levels of employees to ensure its detection.   Failure to detect the laundering of the proceeds of Crime allows criminals to benefit from their actions, high levels of detection is the best deterrent available.

An effective AML regime within a company should be a major priority for any firm who has contact with any aspect of International Travel within the UK, EU and many worldwide jurisdictions. It is a principle of good business and is an essential tool to the detection of any involvement in any money laundering and its associated activities

An AML system needs to be established and used to assist, prevent and detect money laundering and thus maintain the highly valued reputation of the company.

2. PURPOSE OF THESE GUIDANCE NOTES

These guidance notes are designed to assist all client interfacing and back room employees not only comply with the company AML policy but clarify and explain the general requirements of AML laws and Regulations. Any company who does not appear to be doing so leaves themselves open to be made accountable to the relevant supervisory body who may seek an explanation of the company’s conduct. This can give rise to enforcement actions under applicable legislation. We as a company wish to cooperate fully with law enforcement and uphold our duties under the appropriate laws.

Employees of all levels must understand that “Money Laundering” activity encompasses terrorism financing and all employees must apply these guidance notes to new business relationships, existing customers and one-off transactions.

3. WHAT IS MONEY LAUNDERING?

It is a direct or in-direct benefit of crime which is channeled through the economy/financial system to conceal the true origin and ownership of the proceeds of criminal activities. The process of laundering such money normally involves the moving of money in a series of complex transactions, without arousing suspicion, which has the intention of disguising the criminal source of the money. The ultimate aim is to allow the money to enter the economy making the funds legitimate. These “dirty” funds become “clean” if they succeed.

4. WHY DO WE NEED TO PREVENT MONEY LAUNDERING?

The success of the world’s financial systems and the removal of barriers to the free movement of capital have meant it has become easier for criminals to wash their dirty money through the system and legitimise that money. This has a huge negative effect on real legitimate money, diluting its value to all. Left unchecked the continued laundering of money will undermine the entire financial sector. In combating Money Laundering, it reduces criminal activity as it has no worth if the money gained from crime cannot be legitimised.

5. METHODS OF MONEY LAUNDERING

There are many crimes which produce illegitimate money, ranging from drug trafficking to direct robbery they, in the most part produce actual cash or goods which are sold for cash. The common factor is that the illegal money must be turned into legitimate money for the crime to succeed.

There are three recognised money Laundering methods: –

• The placement of the proceeds of crime into the financial system.
• “Layering”- which is the separating of the illegal funds from their source by creating several complex layers of financial transactions which are designed to disguise the audit trail and give anonymity to the proceeds leading to their eventual legitimisation.
• Integration – this is the provision of apparent legitimacy to wealth derived from crime. If the layering process is successful, integration schemes place the laundered money back into the legitimate economy and make them appear as normal business funds.

The three phases can overlap and the manner in which they are carried out are often not distinct or often not distinguishable.

Examples are; –

Placement – cash paid for service, payment of an invoice for from other jurisdictions than that which is the home jurisdiction of the person or company,  by means of money transfer services.

Layering – the wiring of monies from abroad (often through shell companies) which disguising the money as legitimate business proceeds or cash deposits made from overseas through overseas banking systems, often in less regulated jurisdictions.

 Integration – the purchasing of services and any subsequent refund into a different bank account

6. EARLY IDENTIFICATION

Certain transactions have been identified in the Money Laundering process which criminals are unable to avoid, these are the “vulnerable” areas which if monitored closely allow early detection; –

• the payment of cash into the financial system
• cash from multiple jurisdictions
• international transfers for payment of invoices   

7. HIGH/LOW RISK FINANCIAL AREAS

High risk financial areas are known to be areas which relate to products or services were unlimited third party funds can be freely received or where funds can be regularity paid to, or received from third parties whom are not identified. Some examples are; –

• Money transfer facilities through telegraphic transfers
• Payments from third parties for Services Supplied

Low risk financial areas can be somewhat deceiving, for example where monies are paid from a client and where monies can only be returned to the different account, despite their apparent low risk they must still be monitored. Such things as geographical location and customer base will have an effect on the risk levels.

8. COMPLIANCE

The route to compliance and vigilance is, get to know your client, ask questions and if credible answers fail to be given make further enquires until satisfied or alternatively do not take them on as a client. If suspicions are raised report them. The “Know Your Client” (KYC) principal is the basis of prevention and detection; –

• Establish and independently verify the client’s identity
• Understand the nature of the client’s business – this suffice to be satisfied that the source of the client’s funds are legitimate
• asses money laundering risks and monitor client.

Internal controls set up within the company should be regularity reviewed and a MLRO
(Money Laundering Reporting Officer) appointed from senior management, this is a requirement under the UK Money Laundering Regulations 2007.

9. REPORTING

Any person who suspects any money laundering activities must report this to the appointed MLRO, he/ she will then investigate and make a decisions whether or not to report the activity to the UK National Crime Agency (NCA) by sending a “Suspicious Activity Report” ( SAR ).

The considerations to be given when sending a report of suspicious activity to the MLRO are; –

* an exceptionally large cash payment made by a client
* an unusable or strange request made by a client i.e. a non-commercial request
* any unusual transaction which raises concerns

Report the activity to the MLRO, who will then make his/her own investigations and decide whether to make a report to the NCA.

Full Government guidance may be read at here.