Money laundering poses hidden dangers to our economy, national security and financial institutions. The impact and consequences can be severe, so it’s important to be aware of the warning signs to ensure you or your business aren’t affected.
What is money laundering?
Money laundering involves disguising the proceeds made from illegal activities as legitimate funds. It provides a huge threat to our society, as the impact can cause a lack of trust in the economy, uneven wealth distribution across the board, and the potential to finance unorganised crimes.
There are three main steps involved to disguise money that has been earned illegally, which include:
- Placement: The money is introduced into the financial system
- Layering: The money is shuffled around to create distance between the cash and the offender
- Integration: The money is then returned to the offenders as legitimate income
Studies show that an estimated £88 billion is laundered every year in the UK, meaning that our country is placed second in the rankings for global money laundering.
What are the methods of money laundering?
Money launderers use various methods to ensure the source of the money is hidden.
A Smurf is used to describe a money launderer who is attempting to avoid government scrutiny. By using the three main steps outlined above, large sums of illegally sourced money are deposited through small transactions into different banks.
Mules are people who are hired by the original offenders to assist with their money laundering schemes. Mules may be enticed by being promised large amounts of money in return, and often the most vulnerable people are targeted.
Shells are companies that don’t have any actual business activity or operations. However, they are classed as legitimate business entities that are primarily used to raise money for start-up companies.
Usually though, these Shells are created by offenders who are looking to hide their illegal activities or avoid paying taxes.
How does money laundering occur in businesses?
Invoice fraud is one of the most common techniques used to transfer illegally-earned money. This could include over-invoicing or under-invoicing, falsely describing goods or services and phantom shipping, where no actual items have been dispatched and false documentation was provided to the customer.
It can also occur by a blending of funds, where a business blends the illegal funds with their legitimate takings. This usually occurs with ‘cash-only’ businesses, such as car washes, tanning salons, and strip clubs.
How can businesses protect themselves from money laundering allegations?
It’s always important to be vigilant with your business operations. Allegations of money laundering and other fraudulent and illegal activities can be seriously damaging to your business, which is why it’s important to seek legal advice if this is a challenge you’re facing.
Be sure to do your research if you’re dealing with a new client in particular, understanding why they chose your business. Also, review transactions regularly to spot any suspicious activity and watch out for unusual sources of large funds into your business.