Money laundering entails a number of complex processes and while the ultimate aim is to ‘clean’ the laundered funds– the social and economic issues which derive from this criminal activity cannot be taken lightly. Peter Lilley throws the spotlight on an ever-present issue of global proportions.

The perception that still endures of money laundering is that of a suspicious character turning up at the counter of a bank with a suitcase (probably helpfully labelled Swag) overflowing with used notes. Until recently even more sophisticated analyses of the problem have attempted to reduce the process to a neat three stage technique – placement, layering and integration. It is perhaps only now becoming clear that money laundering is a robust, corrosive, all-consuming and dynamic activity that has far reaching consequences and effects.

Traditionally money laundering has been viewed (in isolation) as the cleaning of dirty money generated by criminal activity: in the collective mindset these crimes are probably associated with the illegal drugs trade. Of course, money laundering is this, but it is also a whole lot more.

To understand and appreciate the all-consuming power and influence of money laundering one needs to go back to the purpose of crime. The vast majority of illegal acts are perpetrated to achieve one thing: money. If money is generated by crime, it is useless unless the original tainted source of funds can be disguised, or preferably obliterated.

The money laundering dynamic lies at the corrupt heart of many of the social and economic problems experienced across the globe.

Money Laundering is obviously a natural by-product of financial fraud; but simultaneously fraud is also a continuance, in some cases, of laundering where the fraud itself is financed by the proceeds of an earlier crime.

Terrorists and Entire Countries Love Money Laundering…

Terrorist groups need to launder funds, but parallel to this are the claims that such groups are active in widespread organised criminal activity (predominantly drug running) sometimes in league with more recognised criminal groupings. Such claims have been made about the PLO, KLF, ETA and the IRA, to name just a handful.

Entire countries have been brought to their knees by criminal activity and the requirement to convert the resultant ill-gotten gains into a universally acceptable currency (which is predominantly US Dollars). Colombia is an obvious example; Mexico is fast approaching the same situation. Elsewhere in South America, Bolivia is the world's third largest producer of cocaine. The cultivation of the coca leaf in the country has led to numerous serious socio-economic and political issues.

In Russia the influence of criminal groupings is all-pervasive from street level to the upper echelons of the Kremlin itself. In Myanmar (Burma) it is widely believed that the military junta itself is involved in drug trafficking – and this country is merely one of a group of suspected “narco states”.

Money laundering is an essential follow-on from such activities as human trafficking, the sex trade, extortion, blackmail; but more crucially once the funds have been cleaned they are re-invested in such activities, thus perpetuating the most vicious of circles.

Money laundering is the dynamic that enables criminal activity of all descriptions to grow and expand. This process – the delivery channel of cleaned funds – is now so embedded in the “normal” business environment that we may well have little chance to control it, never mind eradicate it.

Where It All Began….

The term ‘money laundering’ appears to have originated in the United States in the 1920s. Criminal gangs then were trying to do much the same as today: disassociate the proceeds of their criminal endeavours from the activities themselves. To do this they took over businesses with high cash turnovers – such as launderettes and car washes. They then proceeded to mingle the cash generated from nefarious activities with legitimate income, thus simultaneously creating a logical commercial reason for the existence of large sums of cash.

Whilst the term laundering is today stressed for the word’s association with washing and cleaning, the original criminal link was because of their use of the laundering businesses. In essence then, as cash rich businesses are still high on various warning lists issued by regulatory authorities (particularly in the United States) little has changed in the intervening 80 years.

Evil Is the Root of All Criminal Money

The money laundering world is based on a subversion of the old maxim, because in the murky environment of financial dirty dealing, evil is the root of all money. Unfortunately the well-used phrase ‘money laundering’ has become almost meaningless as it does not adequately convey the method by which the vast amount of funds involved across the world have been generated.

Laundering is the method by which all proceeds of crime are integrated into the banking systems and business environments of the world: black money is washed so it ends up whiter than white (hence the descriptive French terminology Blanchiment d’argent).

This is the process whereby the identity of dirty money which has been the proceeds of crime, and the real ownership of these assets, is transformed so that the proceeds appear to originate from a legitimate source. Criminal amassed fortunes held in unstable locations and/or currencies are metamorphosed into legitimate holdings in centres of financial respectability.

In this way the origins of the funds disappear forever and the criminals involved can reap the benefits of their hard work. Money is the lifeblood of all criminal activities: the process of laundering can be viewed as the heart of the process as it enables the money to be purified and pumped around the body to ensure health and survival.

The Proceeds of Crime

Proceeds of crime which need to be laundered originate from a vast and growing assortment of oppressive yet extremely profitable activities including:

The Illegal Drugs (Narcotics) Trade

We are not talking about low level street operations but the manufacturing of illegal substances on a highly organised and commercial basis. If money laundering was only related to income derived from illegal drugs that would be catastrophic enough in itself.

It has been estimated that the knock on effects of drug usage in the United States cost $1.25 trillion annually. This figure includes drug-related illness, crime and death. Since 1999, 841,000 have died in the United States as a result of a drug overdose.

Illegal Sales of Arms

Although media coverage has focused on the illegal sales of nuclear material and weapons from the former Soviet Union, the more mainstream illegal dealing in weapons of death and destruction continues unabated: from hand grenades through to small arms and high-tech weaponry.

Prostitution & Sex Trafficking

Again, I am not referring to isolated incidents such as one girl offering her body on a dark street corner somewhere, but the trade in women and children where they are permanently kidnapped or “sold” and forced to perform sexual acts for money until they are effectively too exhausted or ill to be of any further use.

This isn’t only happening in far flung locations: Russian pimps and girls, for example, are active in all major European cities.

Terrorism

Virtually each day brings news from some outpost of the globe concerning the latest terrorist outrage. All of these groups need money – and the ability to use it – to support their infrastructures and buy weapons and equipment.

Corruption

Corruption as defined by the World Bank, is a form of dishonesty or criminal offense undertaken by a person or organization entrusted with a position of authority, to acquire illicit benefit or abuse power for one's private Gain. Clearly any funds which are generated by corrupt activities need to be "cleaned".

Fraud

Every type of successful financial crime and other fraudulent activity generates funds which need to be infiltrated into the banking system. Example fraud types include mortgage fraud, advance fee fraud, credit card fraud, pyramid schemes and insurance fraud.

Large Scale Theft of Money

One of the first major cases that revealed how easy laundering is to achieve was the Brink’s-Mat robbery in the United Kingdom where on 26 November 1983, £26million worth of gold bullion was stolen from Brink’s-Mat warehouse near London’s Heathrow Airport.

Blackmail and extortion

Activities which, if successful, usually result in payments being made which the criminals hope, or ensure, will be untraceable.

Art and antique fraud

Read about money laundering risks in the Art Sector here.

Smuggling of historical icons or works of cultural importance

This has been particularly prevalent from the former Soviet Union and war zones.

Smuggling – of illegal alcohol and tobacco which invariably results in Customs and/or VAT fraud.

Large scale theft and illegal exportation – of either new or used vehicles.

Trafficking in human beings

People are not only trafficked in the sex trade but also as the modern equivalent of slave labour.

How Proximal Consulting Can Help You to Identify Money Laundering

Proximal Consulting has been assisting our clients since 1999 delivering enhanced due diligence reports which will confirm whether a customer or partner (prospective or existing) is providing complete and accurate information. Our detailed research will also uncover the existence of criminal activity such as money laundering, corruption, terrorist financing or fraud.

Through a combination of extensive and proven investigative tools, together with reliable associates providing in-country intelligence, we can determine the legitimacy of an individual or legal entity in any jurisdiction. Whilst in some countries the investigations into private individuals can be severely restricted, over the years we have gained considerable expertise in successfully conducting investigations in these, more guarded areas.

For more information, or to discuss your AML & KYC requirements, you can contact Proximal Consulting on enq@proximalconsulting.com & +44 (0) 1672 516725

About Peter Lilley

Peter Lilley, the founder of Proximal Consulting, is an acknowledged AML expert with over thirty years’ experience of KYC, complex international fraud/ML investigations, anti-money laundering (AML) and fraud prevention.

He is the author of "Dirty Dealing: The Untold Truth About Global Money Laundering" (three editions) and "Hacked, Attacked & Abused: Digital Crime Exposed".