Money laundering is a complex issue that businesses need to be aware of.
If you’re not familiar with anti money laundering (AML) laws, you could be in for a world of trouble.
In this blog post, we will discuss what money laundering is, the different types of AML laws, and how to comply with them.
What are Anti Money Laundering Rules
Anti money laundering (AML) laws are designed to prevent criminals from using the financial system to launder money.
Money laundering is the process of disguising illegally-obtained funds so that they appear to have been obtained from legitimate sources. This can be done through a variety of methods, including hiding money in offshore accounts, using shell companies, or making false investments.
AML rules are important for businesses because they help to prevent criminals from using the financial system to launder money. Money laundering is a serious problem that can have devastating consequences for businesses and economies. By complying with AML laws, businesses can help to protect themselves from being used for money laundering activities.
Dirty Money and Clean Money
Criminal activity generates ‘dirty’ money, which launderers attempt to make look legal through various methods. Some of these ways to break regulations or launder money are very simple, while others are much more complicated.
The Crown Prosecution Service divides the complex methods into three stages:
1. Placement
The process of placement is getting criminal money into the financial system. Common methods include using cash to buy high-value items, such as luxury goods or property, which can then be sold on and the proceeds deposited into a bank account.
False invoicing is another way of getting criminal money into the financial system. This is where a business creates a fake invoice for goods or services that were never provided, and then uses the invoice to request payment from a customer. The payment is then deposited into the business’s bank account.
Similarly, smurfing is a method of getting criminal money into the financial system. This is where a large amount of cash is divided into smaller amounts and then deposited into multiple bank accounts over a period of time.
2. Layering
Layering is where the money is moved around to create distance between the criminal activity and the ‘clean’ money. It is the process of moving money through a complex web of financial transactions, often involving offshore companies. This could involve sending money through multiple bank accounts, investing in assets such as property or shares, or using shell companies.
Money is also moved between different bank accounts, using multiple currencies, and making investments in complex financial instruments.
3. Integration
Integration is where the ‘clean’ money is reintroduced into the economy. This has to be done in a way that does not capture the attention of law enforcement or tax authorities. This could involve withdrawing cash, making investments, or using the money to purchase goods and services. It is usually done through investment in real estate.
From the criminal’s perspective, paying taxes on their laundered money makes it look more legitimate, and they’re often okay with only getting half of the original amount back.
So they register fake employees, over-report business expenses, or inflate the cost of goods and services. This type of integration is called ‘legal integration’.
Criminals may also use ‘illegal integration’, which is where the money is used to purchase illegal goods and services, such as drugs or weapons. The money may also be invested in criminal enterprises, such as money laundering.
Different Types of AML Laws
There are a variety of different AML laws that businesses need to be aware of. These laws vary from country to country, but some of the most common include the Bank Secrecy Act (BSA) in the United States, the Proceeds of Crime Act (POCA) in the United Kingdom, and the Money Laundering and Terrorist Financing Prevention Act (MLPTA) in Canada.
Proceeds of Crime Act (POCA)
The Proceeds of Crime Act (POCA) is a law in the United Kingdom that was enacted to prevent money laundering. The POCA requires businesses to take measures to prevent their customers from using them to launder money. This includes conducting due diligence on customers, keeping records of transactions, and reporting suspicious activity to the authorities.
The Proceeds of Crime Act replaced the Drug Trafficking Act 1994 and the Criminal Justice Act 1988 as the primary law governing confiscation. These Acts still apply to POCA cases where the crimes were committed before 2003.
The Proceeds of Crime Act 2002 states that POCA proceedings must be commenced in the following circumstances:
- A defendant is convicted of an offence by the Crown Court or where a defendant’s case is committed to the Crown Court for sentence; and
- The prosecution enquires about commencing POCA proceedings with the court, or if the court deems it appropriate to commence POCA proceedings itself.
POCA proceedings are mandatory when the prosecution requests to move forward with confiscation at a POCA court hearing. The Magistrates’ Court lacks the power to make confiscation orders; this is something that can exclusively be done by the Crown Court.
How can Businesses Comply with Anti Money Laundering Rules?
Businesses need to take measures to comply with AML laws. This includes conducting due diligence on customers, keeping records of transactions, and reporting suspicious activity to the authorities.
1. Conducting Customer Due Diligence
Conducting customer due diligence is one of the most important things businesses can do to prevent money laundering. This process involves verifying the identity of customers and ensuring that they are who they say they are.
Businesses should also assess the risks posed by customers and take measures to mitigate those risks.
2. Keeping Records of Transactions
Keeping records of transactions is another important compliance measure. Businesses need to keep records of all transactions, both customer and internal, in a safe and secure place. These records need to be kept for at least five years.
3. Reporting Suspicious Activity
Businesses are required to report any suspicious activity to the relevant authorities. This includes transactions that seem unusual or out of character for the customer, as well as any attempts to launder money.
Consequences of not Complying with AML
The consequences of not complying with AML laws can be severe. Businesses that fail to comply with the law can be fined, and individuals can be jailed. In some cases, businesses may also have their licences revoked.
Complying with AML laws is essential for protecting businesses from being used for money laundering activities.
The maximum sentence for a Proceeds of Crime Act conviction is 14 years. This only applies to crimes where the amount stolen is valued at over £1 million.
The amount of money you are ordered to pay under a confiscation order will dictate the severity of your Proceeds of Crime Act sentence. If the defendant doesn’t adhere to the terms of the confiscation order, a default sentence is set by the court.
Conclusion
Anti money laundering laws are complex and ever-changing. Businesses need to take measures to ensure compliance, such as conducting customer due diligence, keeping records of transactions, and reporting suspicious activity. Failure to comply with AML laws can result in severe consequences, including fines, jail time, and the loss of business licences.
Complying with AML laws is essential for protecting businesses from being used for money laundering activities.
