Unit 1

• Money laundering


  The process of disguising the illegal origins and ownership of criminal property to make it appear to have come from a legitimate source
• Traditionally, money laundering was associated with making physical cash which was criminally derived appear legitimate
• The modern assessment recognises that the majority of money laundering involves assets which are abused and manipulated through weaknesses in our financial system
• Types of assets that can be used for money laundering

  • Real estate
  • Luxury goods
  • Investments
  • Digital currencies
• Criminals exploit vulnerabilities in financial systems to conceal the origins and ownership of these assets, making it difficult to trace and identify the illicit proceeds
• Placement


  The placement of funds generated from crime into the financial system, either directly or indirectly
• Layering


  The process of separating illicit proceeds from their source by creating complex 'layers' of financial transactions designed to disguise the audit trail and provide anonymity
• Integration


  The provision of apparent legitimacy to criminally derived wealth
• If the layering process has succeeded, integration schemes place the laundered proceeds back into the economy in such a way that they re-enter the financial system and appear to be legitimately earned or acquired funds
• Criminally derived property can be laundered through an infinite number of methods, involving all financial services and products
• No financial sector product or service is too simple or too complex to be used for a money laundering scheme
• The three-stage model of placement, layering and integration is an over-simplification as it is rare for a single financial institution or its employees to see, or be able to identify, all three stages related to a single case
• It is not even necessary for criminals to use all three stages of the model to legitimise criminal property
• In its widest definition, money laundering occurs whenever there is any form of relationship or arrangement involving property derived from criminal activity
• In circumstances where an institution or practitioner in the regulated sector enters into a relationship involving criminally derived property, it/they will be engaged in laundering activity – although not necessarily committing a criminal offence
• Predicate offence


  Any crime that is a part of a greater crime. In a money laundering context this would be an offence that creates monetary proceeds
• FATF Recommendation 3 requires that countries should apply the crime of money laundering to all serious offences, with a view to including the widest range of predicate offences
• Approaches to defining predicate offences

  • Describing predicate offences by reference to all offences
  • Describing predicate offences by a threshold linked to a category of serious offences or the penalty of imprisonment
  • Describing predicate offences by a list of predicate offences
  • A combination of these approaches
• Corruption


  The abuse of entrusted power for private gain
• Corruption and money laundering are strongly linked, as corruption allows criminal property to be laundered more effectively and any financial benefit gained through corruption needs laundering
• Costs of corruption


  • Political
  • Economic
  • Social
  • Environmental
• The measures taken by countries to combat money laundering and terrorist financing are powerful tools that are also useful in the fight against corruption
• The United Nations Convention against Corruption (UNCAC) recognises the importance of fighting money laundering in the anti-corruption context
• US Foreign Corrupt Practices Act (FCPA)


  Prohibits the payment of bribes to foreign officials to assist in obtaining or retaining business
• The FCPA applies to US nationals, citizens or residents acting anywhere in the world, US businesses acting anywhere in the world, foreign business trading securities on the US exchange, and non-US national or legal entity acting in the US
• The FCPA excludes foreign officials from prosecution and excludes the liability of US corporations and citizens for payments meant to secure the performance of 'routine government action'
• Enforcement actions under the FCPA

  • Flutter Entertainment plc paid a $4 million civil penalty
  • Rio Tinto plc agreed to pay a $15 million civil penalty
  • Honeywell International Inc. agreed to pay more than $81 million to settle charges
• UK Bribery Act 2010


  Covers active bribery (giving, promising, and offering of a bribe) and passive bribery (requesting or agreeing to receive or accept a bribe), including bribery of foreign public officials, and a corporate offence of negligently failing to prevent bribery
• The UK Bribery Act applies to UK nationals, citizens or residents worldwide, UK businesses worldwide, foreign subsidiaries of UK businesses performing services for the UK parent company, and non-UK nationals or legal entities acting in the UK
• The UK Bribery Act does not exclude 'grease' payments (small payments to facilitate action)
• Organisations are required to put in place adequate policies and procedures to prevent bribery under the UK Bribery Act
• Consequences for committing an offence under the UK Bribery Act include individual prison sentences of up to 10 years, unlimited fines, and forfeiture of related income and accrued interest
• Entities covered by the UK Bribery Act


  • UK subsidiaries performing services for the UK parent company
  • Non-UK nationals or legal entities acting in the UK
• Grease payments


  Small payments to facilitate action, also considered offences under the UK Bribery Act
• The UK Bribery Act, unlike the US FCPA, does not exclude such grease payments
• To be considered a bribe under the UK Bribery Act, the individual or entity that offered the bribe must have intended to bring about or to reward an improper practice of a function or activity
• Consequences for committing an offence under the UK Bribery Act


  Individual prison sentences of up to 10 years, unlimited fines, and forfeiture of related income and accrued interest related to the bribery offence
• Tax evasion


  The illegal non-payment or under-payment of taxes
• Offshore tax evasion


  Using a non-UK jurisdiction with the objective of evading UK tax, including moving UK gains, income or assets offshore to conceal them from HMRC, not declaring taxable income or gains that arise overseas, or taxable assets kept overseas, and using complex offshore structures to hide the beneficial ownership of assets, income or gains
• The link between a poor AML framework and tax evasion is well established