Money Laundering - Some Measures To Prevent It

The primary purpose of organised crime is to make profits. Like any business, the purposes of profit are to enjoy it and re-invest it in future activity. For the organised criminal, however, profit close to the source of the crime represents a particular vulnerability and unless the criminal can effectively distance himself or herself from the crime which is the source of the profit they remain susceptible to detection and prosecution. Hence the need to launder their illicit profits to make them appear legitimate.

The biggest source of illicit profits comes from the drugs' trade and it was drug trafficking that provided the initial catalyst for concerted international efforts against money laundering. The drugs' industry is a highly cash intensive business and "in the case of cocaine and heroin the physical volume of notes received is much larger than the volume of drugs themselves". In order to rid themselves of this large burden it is necessary to use the financial services industry and in particular, deposit-taking institutions.

The Financial Action Task Force (FATF) on Money Laundering has identified certain ‘choke’ points in the money laundering process that the launderer finds difficult to avoid and where he is vulnerable to detection. The initial focus has to be on these areas if the war against the launderer is to proceed successfully.

The choke points identified are:

1. entry of cash into the financial system;
2. transfers to and from the financial system; and
3. cross-border flows of cash.

The entry of cash into the financial system, known as the ‘placement’ stage is where the launderer is most vulnerable to detection. Because of the large amounts of cash involved it is extremely hard to place it into a bank account legitimately.

The UK’s system of reporting suspicious transactions to the authorities along with the procedures adopted by deposit-takers are powerful weapons against money launderers. In particular, the emphasis being placed on the importance of deposit-taking institutions ‘knowing their customer’ has severely curtailed this activity to such an extent that one of the favourite methods for money launderers to ‘place’ their money is to smuggle the money out of the country. There are penalties attached to the various money laundering offences for the deposit-taking institutions and these have provided for a powerful incentive for reporting suspicions to the National Criminal Intelligence Service (NCIS).

However, cross-border flows of cash is one of the areas mentioned above where the launderer is vulnerable to detection. In the UK, legislation provides the police and customs service with the power to seize cash they believe could be the proceeds of drug trafficking. Part III of the Criminal Justice (International Co-operation) Act 1990 (CJICA) introduced the powers for customs and police officers to seize cash being brought into or out of the United Kingdom, where they have reason to believe that such money represents the proceeds of drug trafficking or is intended to be used in drug trafficking. The power operates in respect of consignments of cash of £10,000 or more. Additionally, the courts are empowered to order the confiscation of such cash, where they are satisfied, on the balance of probabilities, of the alleged link with drug trafficking.

These measures overcome the difficulty of custom officers coming across large amounts of cash with no reasonable explanation for their export/import but, at the same time, with no hard evidence of links to drug trafficking it allows the detention of the cash pending an investigation. Due to this, couriers limit the amount they carry out of the country at any one time and the risk is seen as being less than passing the money into a financial institution.

The reporting of suspicious transactions is not limited to cash in the UK. Transfers to and from the financial system are also under the umbrella of ‘reporting of suspicious transactions’ and this can provide useful information on the ‘layering’ stage of the money laundering process. The keeping of comprehensive transaction records (part of the procedures) by financial organisations provides a useful audit trail and gives useful information on people and organisations involved in laundering schemes once discovered.

It is important, therefore, to ensure that complacency does not creep into our financial institutions at this stage, now that the measures are in place to deny money launderers open access to these same institutions.