How can you help catch a money launderer?

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A suspected Russian nerve agent attack on British soil (again!) will be likely to (again!) provoke calls for the UK to step up its fight against dirty Russian money flowing through its financial centres. Some key points on how to help catch a criminal then:

1. Follow the money 

Time and again, we get confirmation that fighting money laundering means fighting also against crime and terrorism. One only needs to look to the efforts being undertaken to introduce so-called Magnitsky powers across the globe to see the connection.

Bill Browder, CEO of Hermitage Capital Management, has been fighting Russian corruption since the death of his lawyer, Sergei Magnitsky, who had conducted an investigation into massive tax fraud related to Browder’s Hermitage Capital that was abetted by corrupt state officials. Magnitsky was found dead in prison after he had been arrested for the tax evasion he had been investigating!

Since then, Browder has been campaigning against Russian corruption and its enablement by other countries. In December 2012, for example, the United States adopted the Magnitsky Act, which enables it to withhold visas and freeze assets of Russian officials suspected of being involved in human rights violations. Browder is campaigning for various governments around the world to adopt similar laws, including the UK.

2. To be able to successfully identify suspicious behaviour, you have to remember the three stages of money laundering: placement, layering, integration. 

These aren’t just abstract concepts, but they relate to how money laundering actually works, and interestingly, on how best to stop it.

If you are a Narcos fan, you will remember scenes of cash being buried underground, in fields in the middle of nowhere sometimes! Pablo Escobar, the infamous drug lord and star of the Netflix series, was a hideaway master. Like all criminals who are ‘good’ at what they do, he knew that the first step in successfully laundering your ill-gotten gains is to conceal its origin – what in AML jargon we call placement. This allows for the crime in which this money originated to be forgotten! 

A money pit of Pablo Escobar’s – the infamous drug lord who was known to have such money pits all over Colombia where he could bury illegally gained cash.

After some time has passed, you can start layering your cash by buying up assets that conceal the link to the crime from which they originated. For example, Escobar’s Medellin cartel set up fake jewellers to make cash deposits for gold they’d supposedly sold (placement stage). They then made wire transfers to banks all over the world pretending to buy gold for this purpose (layering stage). Once in the banks, the money could then be used as ‘legitimate’ money to buy or invest in whatever they wanted (integration). 

Once the dirty money is integrated into the legitimate economy, it is pretty much too late to do anything about it! Hence the importance of Knowing Your Customer and being on the lookout for suspicious behaviour and red flags if you work in financial services, and especially in banks! This is where the importance of all-staff training on AML comes in!

3. The earlier you act, the better. 

The UK has recently introduced laws that target corrupt individuals. Unexplained Wealth Orders (UWOs) can be used when there is an obvious gap between the value of an asset that is worth more than £50,000 and the income of the person who appears to own it, like a government official. Instead of law enforcement having to prove the link, the new rules mean that the asset owners have to produce evidence of how they came into owning the specific asset. The law is said to target Politically Exposed Persons (PEPs) and serious crime suspects.

But might this be too little too late? If a UWO is issued, the asset in question is frozen and will be confiscated if found to not be owned by legitimate means. Critics say that it does not give power to put anyone in jail for crimes associated with the purchase of the asset. 

Speaking about the difficulty of tracing dirty Russian money in the UK financial system, a veteran investigator emphasised the lack of resources that law enforcement are facing and the resource-heavy requirements of successful fraud investigations: 

“The time when we might have been able to do something about this was 20 years ago, when it wasn’t particularly sophisticated, and the large sums of money were just arriving in the country,” he said. By ignoring the provenance of dirty cash, and allowing it to be spent on property, British authorities have cleansed it of its taint: it is legitimate investment now. “Unpicking all that is a real challenge. The reality is that it’s probably the hardest area to penetrate in the world.” (Source: The Guardian)

Once the money is in the system, it’s in, as things stand!

Professionals working in financial services will be happy to hear, then, that they play a crucial role in the international fight against money laundering. AML is not just about abstract concepts that you learn once a year in training and then forget. It is about actually getting to know what counts as suspicious behaviour there and then in your line of work. The more examples and case studies you are exposed to, the better you can know when to spot a red flag and report it! This is better not just for you, but also for your firm and wider society! 

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