What is money laundering?

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Much has been written about money laundering and what it actually is – in terms of the concept itself and the offences of money laundering.

It seems simple – it has been drilled into employees, in financial services particularly, that money laundering is placement, layering and integration, a three-stage process that seeks to ‘clean’ ‘dirty’ cash – cash typically generated by the drugs trade.

Cash is ‘placed’ into the system by ‘smurfs’ acting on behalf of the criminal gangs using a series of ‘structured deposits’ where multiple small deposits are made into various, connected, bank accounts or where different branches of the same banking institution are used to avoid detection.

This cash then passes through a number of transactions, property, such as art, might be purchased to add ‘layers’ to the money trail to confuse law enforcement and the ill-gains are ‘integrated’ by being used for legitimate enterprise such as the purchase of a business, which generates legitimate income, having ‘washed’ the original drugs money.

Unfortunately, this basic rendition of money laundering is far from the truth.  Even the term ‘money’ laundering is a misnomer. Why?

The concept

The concept of laundering differs by jurisdiction.  Some jurisdictions will attribute laundering to proceeds of specifically identified ‘serious’ crimes (such as drugs smuggling or corruption), others (like the UK) have an ‘all crimes’ approach and refer to the concept of ‘criminal property’.  Any criminally derived benefit can then, technically, also be subject to UK anti money laundering provisions under the Proceeds of Crime Act 2002. It is therefore not just ‘money’ that can be laundered.

The process

The three-stage process has its place in explaining laundering but as a model is too simplistic to really deal with the reality of laundering:

  1. Laundering is not restricted to cash generation.  Some acquisitive crimes generate proceeds or benefits that are already ‘in the system’.  Think of tax evasion. You retain the benefit of the tax you didn’t pay. The value of that benefit is subject to laundering laws.  Crimes that generate a benefit already ‘in the system’ obviate the need for placement activity.
  2. It is not necessary to ‘place’, ‘layer’ or ‘integrate’ criminally derived funds to commit a laundering offence.  A laundering offence can be committed by the simple possession of criminal property. If you rob a bank and steal £3,000 and hide it under your mattress you haven’t placed it into the system and you haven’t layered it through multiple transactions.  The funds have not been integrated in any way as they were kept under the mattress. But you have criminally derived property in your possession. You have self-laundered the proceeds of your own crime.
  3. Even if the three-stage process was adopted e.g. by a drugs cartel, it would be almost impossible to identify all stages of the process as different actors play different parts.  What some might see as layering, others might see as integration. It is not a nice, clean process

Summary

There really is no ‘one size fits all’ approach to money laundering

Money laundering can be simple, or it can be incredibly complex.  It can involve the proceeds of serious criminal activity or what one might consider ‘nuisance’ crimes.

The key to understanding money laundering is to dispense with preconceptions about what it entails and to dispel the most common myths that money laundering must:

  • Include cash
  • Take part as a set process
  • Include an actual movement of funds