What are money laundering and terrorist financing?

What are money laundering and terrorist financing?

Contents

Money laundering and terrorist financing are serious threats to society, losing revenue and endangering life, and fuelling other criminal activity.

Money laundering

Introduction

Money laundering is generally understood as the process by which assets illegally obtained are 'cleaned' to give them apparent legitimacy to enable their subsequent use. It involves the purported legitimisation of any asset that is illegitimately obtained, through disguising its true origin. The proceeds of crime, and the true ownership of those proceeds, are changed so that the proceeds appear to come from a legitimate source.

The process typically involves three stages - placement, layering and integration - but these are not clear cut distinctions and money laundering may become a seamless blend of all three.

  • Placement - Cash or assets generated from crime are placed in the financial/banking system. The intention is to change the identity of the illegitimate cash/asset. This is the point when proceeds of crime are most apparent and at risk of detection. Because banks and financial institutions have developed anti-money laundering procedures, criminals look for other ways of placing cash/assets within the financial/banking system. Professionals, such as solicitors and accountants, can be targeted because they commonly deal with client money.
  • Layering - 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. Sometimes the transactions may have no legitimate economic purpose, but simply result in money/assets moving around. The intention is to hide the origins of the illegitimate asset, making it difficult to trace and recover. Professionals may also be targeted at this stage and detection can be difficult.
  • Integration - Once the origin of the funds has been obscured, the criminal seeks to make the funds reappear as legitimate funds or assets. They will invest funds in legitimate businesses or other forms of investment, often using professionals to buy a property, set up a trust, acquire a company, or even settle litigation, among other activities. This is the most difficult stage of money laundering to detect.

The ingredients of money laundering in more detail

In UK law the definition of money laundering is broader and more subtle than how it may commonly be understood. It includes all forms of handling of or possessing 'criminal property', including possessing the proceeds of one's own crime, and facilitating any handling or possession of criminal property. Criminal property is property which is, or represents, a person's benefit from 'criminal conduct', where the alleged offender knows or suspects that it is such. Criminal conduct is conduct which constitutes an offence in any part of the UK or would, in most cases, constitute an offence in any part of the UK if it occurred there. Criminal property may take any form and may be in the UK or abroad.

An accumulation of small amounts obtained or retained by tax evasion, regulatory breaches or benefit fraud (for example) would be criminal property for these purposes.

Money laundering activity may range from a single act, e.g. 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.

Terrorist financing

Terrorism is taken to be the use or threat of action designed to influence government, or to intimidate any section of the public, or to advance a political, religious or ideological cause where the action would involve violence, threats to health and safety, damage to property or disruption of electronic systems.

Terrorist organisations require funds to plan and carry out attacks, train militants, pay their operatives and promote their ideologies. The Terrorism Act 2000 (as amended) criminalises not only the participation in terrorist activities, but also the provision of monetary support for terrorist purposes and certain other types of involvement in the funding of terrorist activities or dealings with funds intended or likely to be used for terrorist purposes or funds that represent the proceeds of terrorist activities.

All dealings with funds or property which are likely to be used for the purposes of terrorism, even if the funds are 'clean' in origin, is a terrorist financing offence.

These terrorist financing offences are considered in more detail at article on Terrorist financing offences.