The money laundering activity may range from a single act, for example being in possession of the proceeds of one’s own crime, to complex and sophisticated schemes involving multiple parties, and multiple methods of handling and transferring criminal property as well as concealing it and entering into arrangements to assist others to do so. Businesses and individuals need to be alert to the risks of clients, their counterparties and others laundering money in any of its possible forms.
Money laundering is generally defined as the process by which the proceeds of crime, and the true ownership of those proceeds, are changed so that the proceeds appear to come from a legitimate source.
Under the Proceeds of Crime Act 2002 (POCA), the definition is broader and more subtle. Money laundering can arise from small profits and savings from relatively minor crimes, such as regulatory breaches, minor tax evasion or benefit fraud. A deliberate attempt to obscure the ownership of illegitimate funds is not necessary.
There are three acknowledged phases to money laundering: placement, layering and integration. However, the broader definition of money laundering offences in POCA includes even passive possession of criminal property as money laundering.
Cash generated from crime is placed in the financial system. This is the point when proceeds of crime are most apparent and at risk of detection. Because banks and financial institutions have developed AML procedures, criminals look for other ways of placing cash within the financial system. Organisations that handle client’s money, for example solicitors, are potential targets for placement.
Once proceeds of crime are in the financial system, layering obscures their origins by passing the money through complex transactions. These often involve different entities like companies and trusts and can take place in multiple jurisdictions. Again organisations that process client’s money or payments to other companies may be susceptible at this point.
Once the origin of the funds has been obscured, the criminal is able to make the funds reappear as legitimate funds or assets. They will invest funds in legitimate businesses or other forms of investment, often using organisations to buy a property, set up a trust, or acquire a trading company, among other activities. This is the most difficult stage of money laundering to detect.
Adapted from The Law Society
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