By becoming adept at identifying money laundering regulations while developing preventative measures against involvement in money laundering, you can help your business to prosper and grow.
When criminals generate large sums of money illicitly, they find ways to conceal or make the funds appear to have come from legitimate sources. The process in which they receive, possess, conceal or dispose of money is widely known as money laundering. While most of the time we use the term cash, money laundering can also include assets in various forms.
Due to technological developments and the rise of the dark web, criminals now have many ways to laundry money. Aiming to help our clients reduce their risk of being exploited by organised crime for money laundering, our due diligence specialists and financial fraud investigators joint up to create this article. Our intention is to help company directors and business leaders aware of the undesirable consequences of money laundering, plus how to prevent money laundering from affecting your business and your reputation.
This article highlights:
- The money laundering cycle and popular money laundering channels
- Money laundering cases
- How will money laundering harm your business and your reputation?
- Warning signs that money laundering is occurring
- Top four tips that could protect yourself from the risks of money laundering
The money laundering cycle and popular money laundering channels
To understand money laundering, it is worth discussing the three stages criminals usually use to launder money.
Placement means moving money from its source and putting it into a formal financial system, casinos and businesses locally and/or abroad. Some examples include:
- Using illicit funds to set-up companies
- Buying multiple foreign currencies below the mandatory reporting limits
- Purchasing assets
Layering means hiding the illicit funds under a maze of complex transactions involving multiple parties. The purpose is to make it hard for law enforcement agencies to detect, trace and uncover a laundering activity.
Investing the distanced funds further into legitimate business or using the money to purchase high-value goods.
At any of the stages above, criminals often use a few popular money laundering channels to launder money and they are:
- Financial institutions
- Money transfer or remittance services
- High-value goods
- Cash-intensive businesses
- Dark web
Recent money laundering cases
The case of Elias Preko
In September 2019, Elias Preko, an investment banker formerly employed by Goldman Sachs was convicted of laundering funds for a Nigerian state governor. Commenting on this case, Kim Kitney of the UK’s National Crime Agency said that, “Professional enablers of money laundering such as Preko, who use their legitimate roles within the finance sector to conceal illicit funds of criminals and corrupt elites, are the lynchpin of the billions of dollars laundered through the UK each year.” Preko was convicted and was ordered by Southwark Crown Court to pay back £7,324,268 or face a further 10 years in jail on top of his initial four-and-a-half-year sentence. The report also noted that because he had left Goldman Sachs before committing his crimes, the bank is not accused of wrongdoing.
The case of Brian Hartzer
In December 2019, Brian Hartzer, the CEO of Westpac Banking Corp, was forced to step down following a string of accusations including more than 23 million breaches of money laundering laws in Australia.
The case of Baljinder Kang and his associates
In July 2019, Baljinder Kang and 10 of his associates were jailed for laundering £1m in drug money which they generated through sham companies before sending the funds to a bank account in Dubai.
How will money laundering harm your business and your reputation?
In the UK, hundreds of billions of pounds are thought to be laundered through banks. In continental Europe, money laundering scandals have also rocked the banking systems as a lack of cooperation between authorities in different EU countries is well exploited by criminals.
While each country has its own penalty, in the UK, money laundering under the Proceeds of Crime Act can land you up to 14 years in jail or a large fine. The sentence depends on the amount of money involved.
When a business is accused of money laundering, the CEO and other C-level executives are often forced to resign. The business will inevitably lose reputation, which in turn will jeopardise business partnerships and future earning abilities. In severe cases, insolvency may also be unavoidable.
Companies that are involved in transactions mentioned below are particularly at risk:
- Buying/ selling property of business entities.
- Managing money or assets on behalf of clients.
- Opening/ managing current, savings or securities accounts on behalf of clients.
- Dealing with contributions that can be used for the creation, operation or management of a company.
- Creating, operating or managing trusts, companies or foundations.
Warning signs that money laundering is occurring
Regardless of the industry your business belongs to, criminals can trick you into laundering their money for them.
When you spot any of the warning signs mentioned below, you should be suspicious and report the transaction to the police when necessary. The warning signs can include but not limited to:
- An unusual transaction. For example, someone who lives in another continent is keen to do business with you or your company is asked to perform a task that not within your usual domain.
- Little or no information. The other party appears evasive and unwilling to provide much information about themselves and their business.
- They only want to deal in cash or pay from a variety of sources.
- A third party is suddenly involved to make payments.
- The sales price could be severely undervalued or highly inflated.
- Sudden change in ownership or how the transactions are being carried out.
Within your company, you can consider implementing the followings to lower the risks of accepting illicit money:
- Assessing the overall risk of your business being used by criminals to laundry money.
- Checking the identity of your customers.
- Appointing at least two senior members and they will be randomly selected to scrutinise transactions that involve large sums of money.
- Imposing cash limits.
- Introducing checks and balances.
- Conducting annual background checks on key members who are responsible for large transactions.
- Keeping all documents that relate to financial transactions securely.
Top four tips that could protect yourself from the risks of money laundering
1. Be mindful of the warning signs
The warning signs that we share in this article is by no means conclusive. Criminals now use the dark web to launder large sums of money and their methods are increasingly creative. Trust your gut instinct – if the transaction appears too good to be true, then it is best to walk away.
2. Ask questions
Criminals do not like to answer questions – the more questions you ask, the more agitated they may get. If they get impatient and rush you to complete a transaction quickly, it is best that you don’t proceed further.
3. Perform due diligence
Due diligence is the process that seeks to identify, verify and confirm the claims of another party before signing a contract, forming a partnership or buying a company. At Blackhawk Intelligence, our due diligence specialists can assist you in performing due diligence on individuals (directors, managing directors and authorised signatories) as well as corporations. If you want to know more about due diligence, follow the link to this article Due diligence isn’t just an option, it’s essential.
4. Train your staff
Ensure your staff are aware of the Money Laundering Regulations and can help to watch out for warning signs, thereby reducing the risks of your company getting exploited by criminals. When you suspect money laundering has taken place, contact the National Crime Agency immediately.
Blackhawk Intelligence can assist in due diligence and background checks
At Blackhawk Intelligence, our corporate investigators have helped companies in the UK and around the world with first-rate due diligence services, allowing them to minimise business risks including the risk of involving with criminals who launder money.
Our due diligence service is extensive, covering financial due diligence, legal due diligence, human resources due diligence, intellectual property due diligence, post-transactional due diligence and also environmental due diligence.
We can also perform background checks on certain individuals within your company, particularly those who handle large transactions or someone who appears to come into a lot of money suddenly.
For more information on how we can help, give us a call today on +44 (0)20 8108 9317.
If you found this article useful, take a look at:
- A useful guide to internal corporate investigation
- How can asset tracing help fraud victims
- Catch fraudsters red-handed with forensic accounting
This post is intended to provide information of general interest about current business issues. It should not replace professional advice tailored to your specific circumstances.