Anti-Money Laundering (AML) efforts in the EU are constantly evolving to address the sophisticated techniques used by criminals to conceal the origins of illicit funds. Understanding the various methods and regulatory frameworks is crucial in combating this global issue.
Common Money Laundering Techniques
Disguise: Concealing the origin of illicit funds to make them appear legitimate.
Money Mules: Individuals recruited to transfer illegally obtained money through banks on behalf of the launderer.
Smurfing: Breaking up large sums of money into smaller, less conspicuous amounts to evade detection.
Complex Company Structures: Using intricate and opaque company structures without a clear legitimate purpose, often indicating money laundering activities.
Under/Over Invoicing: Misrepresenting the value of goods in trade transactions to move illicit funds.
Transits and Holding Companies: Utilizing intermediary companies to obscure the true ownership and origins of business funds.
Businesses Used as Fronts: Operating legitimate-looking businesses to disguise criminal activities, especially those with high cash turnover.
Tax Evasion: Blurring the line between legal tax avoidance and illegal tax evasion to obscure financial flows.
Terrorist Financing: Channeling funds to support terrorist activities, often through legitimate-appearing financial transactions.
Global Framework for Combating Money Laundering
FATF (Financial Action Task Force): An international body that develops and promotes policies to protect the global financial system against money laundering, terrorist financing, and the financing of proliferation of weapons of mass destruction.
Criminals and Terrorists: Exploit global financial systems and have little regard for international boundaries, necessitating a coordinated global response.
Key Regulators and Legislation
UK Regulators:
- FCA (Financial Conduct Authority): Regulates financial firms to ensure market integrity and protect consumers.
- NCA (National Crime Agency): Tackles serious and organized crime, including money laundering.
UK Legislation:
- Terrorism Act (2000)
- Proceeds of Crime Act (2002)
- Money Laundering Regulations (2007)
Money Laundering Offences
- Failing to Report: Not reporting suspicious transactions.
- Tipping Off: Informing a suspect that they are under investigation.
- Knowingly Assisting: Helping to launder money.
- Acquiring, Using, or Possessing Criminal Property: Handling illicit funds.
- Concealing/Disguising Criminal Property: Hiding the true nature of illicit funds.
Terrorist Financing Offences
- Raising, Receiving, or Providing Money: Funding terrorism.
- Holding or Using Money for Terrorism: Managing funds for terrorist purposes.
- Arranging Terrorist Financing: Directly or indirectly facilitating financial support for terrorism.
- Facilitating Laundering of Terrorist Money: Assisting in concealing terrorist funds.
AML Legislation in Other Countries (outside UK/EU)
Countries around the world have enacted various laws to combat money laundering. For instance:
- USA:
- USA Patriot Act (2001)
- Money Laundering Control Act (1986)
- Code of Federal Regulations (31 CFR 500)
- International Emergency Economic Powers Act (IEEPA, 1977)
- Trading with the Enemy Act (1917)
Important Terms and Definitions
Potentially Exposed Persons (PEPs): Current or former officials in administrative or legislative positions who may be at higher risk of involvement in money laundering due to their influence. For example, James Ibori from Nigeria was involved in a significant money laundering case involving £160 million over 13 years (Feb 2002).
Correspondent Banking: When one bank (the correspondent) provides services to another bank (the respondent), enabling the respondent to offer cross-border products and services without an international network.
Trade-Based Terrorist Financing: Disguising criminal proceeds and transferring value through trade transactions to legitimize illicit origins.
Transaction Monitoring: Automated systems that review and analyze transaction patterns to detect suspicious activity.
Checks Conducted by Third Parties
- CDD (Customer Due Diligence) Checks: Standard verification of a customer's identity and assessing potential risks.
- EDD (Enhanced Due Diligence) Checks: In-depth investigation required for higher-risk customers and transactions.
Conclusion
Combating money laundering and terrorist financing is a complex, ongoing battle that requires cooperation at both national and international levels. Staying informed about the latest techniques and regulatory changes is essential for financial institutions and regulators alike.
