How easy is it to get away with money laundering?
Money laundering is the process of concealing the origins of illegally obtained capital, typically by means of transfers involving foreign banks or legitimate businesses. On the whole, money laundering sees the return of “clean” money to the launderer in an exceedingly ambiguous and indirect way.
The money obtained from crimes such as drug trafficking, extortion, illegal gambling and insider trading is fundamentally “dirty” and thus it is vital that it is it is “cleaned”. Typically, this process involves three steps: placement, layering and integration. The first step sees the illegitimate funds being cautiously introduced into the legitimate financial institution. Following this, the money is often wired or transferred through a great number of accounts. This is done to create confusion for the banks. Finally, the money is integrated into the financial system through additional transactions until the once “dirty” money looks to be “clean”. “Cleaning” the money allows it to appear to have been derived from legal activities, thereafter, reducing the suspicions of banks and other financial institutions.
Whilst the scale of money laundering is extremely difficult to measure, estimates of the criminal activity predict that the crime is widespread and used to a significant extent. The United Nations Office on Drugs and Crime, the UNODC, predict that a shocking 2 to 5% of the world’s GDP is laundered each year. This sees money laundering generating between EUR 715 billion and 1.87 trillion per annum. The magnitude of this criminal endeavour hints that money laundering is exceptionally easy to get away with and more pervasive than one may think.
The horrific 9/11 attacks on the twin towers in 2001 became the impetus for a global response to money laundering in order to contest the financing of terrorism. The G7 formed the Financial Action Task Force on Money Laundering in 2002 which saw multiple governments upgrade surveillance and monitoring systems of financial transactions.
In response to this shift, the UK enacted the Proceeds of Crime Act in 2002 which encompasses the chief UK anti-money laundering legislation. It mandates that businesses within the "regulated sector", banking, investment, money transmission to name a few, report to the authorities’ suspicions of money laundering by customers or others.
So, did this make money laundering harder? In short, no.
Although a grand total of 200,000 reports of alleged money laundering are submitted to UK authorities each year, most of these reports are submitted by financial institutions such as banks. In 2010, of the 240,582 reports of money laundering, 186,897 reports were from within the banking sector. The use of banks in combatting money laundering can be ineffective as money is also often laundered through online auctions, gambling websites and even virtual gaming sites, where “dirty” money is converted into gaming currency and then transferred back into real money that is untraceable and “clean”. In cases like these, banking regulations prove to be ineffective and hence allow money launderers to proceed in their criminal activities with ease.
Whilst in 2010, 5,108 different associations reported their suspicions of money laundering to the authorities, it is shocking that only four organisations submitted approximately half of all reports and that the top 20 organisations contributed for three-quarters of all accounts. This illustrates that whilst it appears that there is a multitude of agencies fighting against money laundering, in actuality there are only a handful, and these are largely ineffectual in catching and prosecuting the financial criminals.
Moreover, the effortlessness with which one can set up a limited company makes the UK a haven for money laundering. The unique attractions to forming companies in the UK is that a person does not have to be a citizen to do it. Only a sole signature is needed to start a business. With very few checks to see who the supposed business owner is, the United Kingdom facilitates the perfect environment for a criminal looking to “clean” money with little pushback from regulators.
In an interview with the Organised Crime and Corruption Reporting Project, David Clarke, the chairman of the UK’s Fraud Advisory Panel and former director of the National Fraud Intelligence Bureau, outwardly expresses his disapproval towards those who regulate the formation of new companies. Clark is outspoken against what he deems to be the apathetic approach that financial regulators take to possible money laundering cases. In response to the ease at which criminals can create their own companies which proceed to go unchecked, Clarke states “In the last year  there were only 23 reports [of money laundering] from company formation agents. 23!” Clarke continues by saying, “No agent has ever been prosecuted for not regulating the companies that they are making… so what are the incentives for the CFA to do the right thing?” This indicates that money launderers are able to escape the grasp of the law due to the ineffective nature of the institutions put in place to catch them.
Financial institutions have increased anti-money laundering regulations and stepped up enforcement, but they remain behind the criminal curve. Launders have embraced the illusive nature of anonymous online payment services and online banking, making the detection of their illegal acts astronomically harder. Combined with the consistent failure of regulators to fulfil checks on possible money laundering rings, money laundering both within the UK and the wider world is simply getting easier.
With the financial reward for such activities continuing to grow exponentially and little chance of being caught, I can only anticipate that money laundering will become more extensive in the years to come.