Money laundering part 1

This week we commenced a new series which looks at the law relating to money laundering. Many people have heard of the law relating to money laundering, and have heard of reference to money laundering, but they probably have a fairly dramatic idea of what that means (for example the proceeds of serious drug trafficking) when in fact under English law scope of money laundering offences is far wider.

One theory is that the term money "laundering" came from US gangster activities where laundry businesses were a front for organised crime and, being cash businesses, were a way of apparently earning money when the true origin was very different. This was perhaps most memorably demonstrated in the 1955 film "Love me or leave me" which was a fictionalised account of singer Ruth Etting's rise to stardom (played in the film by Doris Day), and her relationship with Chicago gangster Marty "Moe the Gimp" Snyder, her manager and sometime husband (played in the film in a memorable performance by James Cagney). Snyder operated his protection business through a "laundry".

A criminal frequently needs to be able to disguise where the criminal proceeds have come from in order to be able to use them. A key aim is to disguise what the source of the proceeds is. This is both to enable use of the criminal proceeds, and also to avoid the various penalties which can be levied for wrongful use of criminal proceeds. It is thus vitally important for the criminal to try and ensure that the cash proceeds of crime is disguised.

Criminal proceeds are usually in the form of cash for obvious reasons. People buying drugs do not normally pay by cheque or credit card. The proceeds of robberies or burglaries will be cash or stolen property. Unless there is an apparently legitimate origin, stolen property will frequently be disposed of for cash. Neither party will be particularly keen on there being an identifiable trail of payment for criminal proceeds. Particularly having regard to the money laundering provisions, as will be seen, there is a limit to what you can do with cash. Although cash is king, especially in a recession, there are limits to what you can do with it without it being placed in an account. You could go out for dinner and pay cash, or you could buy clothes etc, but try buying a car for cash, or depositing a substantial amount of cash in a bank account without there being any apparent legitimate source to explain where the cash came from. In those circumstances almost certainly a warning will (and should) be triggered to the Serious Organised Crime Agency regarding this unusual activity. In broad terms, as we will see, the policy of the law here is to effectively impose obligations on those to whom the cash might be transferred with a view to policing the potential laundering of proceeds.

Money laundering traditionally is seen as taking three steps. The first step is placement, which is where the cash is converted into assets which are not cash. Once you have money in a bank account then, assuming it is a legitimate bank account, you will be able to utilise it for various transactions because it will be regarded as being from a legitimate source. (Because it will be expected that efforts to identify the legitimacy of the monies will have been undertaken before they get into the bank account, if there is anything potentially suspicious, so once it is in it will be regarded as legitimate). This can happen in a number of different ways. It is not unknown for bogus businesses to be set up to it with a view to giving an apparent reason for receipt of substantial cash amounts. Of course one would expect many retail businesses to sell items in the main by way of credit card. However, that is relatively easily dealt with by imposing large surcharges for credit card use. Whilst the proceeds may have to mirror goods coming into the business, if those have apparently come from abroad then they may never have existed or that may be part of the fraud itself. One way for example of laundering proceeds is to set up a company abroad which purports to have provided valuable goods or services which in fact are wholly fictitious but which justify the payment out of substantial sums to them.

Of course cash businesses such as laundries or taxi firms or any number of other types are ones which lend themselves to laundering. (This of course is not to say that the vast majority of such businesses are anything other than legitimate: it is to point out that where wrongful conduct occurs, it is the type of business likely to be used). The business may be legitimate rather than run by a criminal, but in some instances whether through threats or bribery cash may be laundered through an otherwise legitimate business. Once that happens, usually the procedure is that payment will be made out to a third party acting on the criminal's behalf. Once money is into a bank account it can then passed between other bank accounts without being regarded as suspicious.

Next week we will look at the second step in the traditional money laundering process.