Money Laundering Policy Guidance

What is Financial Crime?

Financial crime, as defined by the FCA and FSMA is any kind of criminal conduct relating to money or to financial services or markets, including any offence involving: –

(a) Fraud or dishonesty; or

(b) Misconduct in, or misuse of information relating to, a financial market; or

(c) Handling the proceeds of crime; or

(d) The financing of terrorism

Money laundering is the term used to describe the process or act of disguising or hiding the original ownership of money that has been obtained through criminal acts such as terrorism, corruption or fraud. Monies are then moved through legitimate businesses and sources to make it appear ‘clean’.

Money laundering does not always involve the deliberate attempt to hide the original source of the funds and can arise from smaller, relatively minor crimes such as benefit fraud or tax evasion, through to major crimes involving large scale laundering techniques.

The UK has numerous Acts made by Parliament and regulations that govern money laundering and terrorist funding. These include: –

• The Terrorism Act 2000 and Proceeds of Crime Act 2002
• Serious Organised Crime & Police Act 2005
• Anti-Terrorism, Crime & Security Act 2001
• The Serious Crime Act 2007
• The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (inc subsequent amendments)

Who Do The Money Laundering Regulations Apply to?

The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR17) and The Money Laundering and Terrorist Financing (Amendment) Regulations 2019 (MLR 2019) provide a list of which types of businesses have obligations under the Money Laundering Regulations. The list is made up of the industries and business types that exchange money and/or assets as part of their activities.

The money laundering regulations and legislation apply to the below entities: –

• Credit institutions
• Financial institutions
• Auditors, external accountants and tax advisors
• Notaries and other independent legal professionals
• Trust or company service providers
• Estate agents and letting agents
• Other persons trading in goods to the extent that payments are made or received in cash in an amount of EUR 10,000 or more, whether the transaction is carried out in a single operation or in several operations which appear to be linked
• Casinos and providers of gambling services
• Providers engaged in exchange services between virtual currencies and fiat currencies
• Custodian wallet providers
• Persons storing, trading, or acting as intermediaries in the trade of works of art

The Money Laundering Process

The principal money laundering legislation in the UK comes from The Proceeds of Crime Act 2002 (POCA), which is an act of Parliament, providing for the confiscation and/or civil recovery of any proceeds from crime.

POCA suggests that most sophisticated money laundering schemes will involve 3 stages: –

• Placement – the process of getting criminal money into the financial system. This is where the ‘dirty’ money enters the financial system, enabling it to transfer from the hands of the criminals and into legitimate businesses. Examples of how money/assets are ‘placed’ can be via loan repayments; gambling; buying assets and currency exchanges.

• Layering – where large and/or complex laundering schemes are involved, layering is often essential due to the large quantities of money being placed and moved. Layering is the process of moving money into the financial system through complex webs of transactions. This involves multiple purchases and transactions as opposed to using the illegal funds in just one placement.

• Integration – the final stage in the process where the money is either returned to the source and/or criminal or to the end recipient (such as a creditor when the funds have been used to pay off debts or loans.) This is when the money becomes absorbed into the economy and can get lost in the system as legitimate funds.