More about financial crime

Is terrorist financing also money laundering?

The systems used for terrorist financing are very similar to money laundering. However, where laundering is about concealing the funds’ origins and giving them a legitimate use, the funds used for terrorist financing might be legal but their destination needs to be impossible to trace. Given the similarities in methods, when we identify an unusual transaction it is difficult to establish whether it involves money laundering or terrorist financing. Our Financial Intelligence Unit and the investigation services have more information, and it is their job to find out.

What is the link between human trafficking and money laundering?

Human trafficking is illegal and the money it generates is criminal money. Criminals often launder the funds that they earn from it. Human trafficking also involves criminal transactions, which banks endeavour to identify.

What is the hawala system?

Some money launderers deposit cash in one place, then withdraw it in another part of the world, using money transfers. No banks are involved. This can be done at the familiar high street phone shops, where the ‘hawaladar’ syphon off cash to other countries such as India. The cash flows are tracked using a ledger. This informal hawala system is a popular way for money launderers to deposit their cash, in particular for transactions to the Middle East.

What is a PEP?

‘PEP’ stands for ‘Politically Exposed Person’. Some PEPs abuse their positions of power by accepting bribes or embezzling public funds. Everyone has heard of corrupt government leaders who proved to have acquired vast wealth by robbing their country’s treasury. Where a client is a PEP, we carry out stricter KYC protocols and research the origins of the PEP’s wealth more closely. This also extends to the PEP’s immediate family and anyone with close business ties to the PEP.

What is a money mule?

Some money launderers work through third parties who give them access to their bank accounts. These third parties are called ‘money mules’. The criminal or the money mule deposits money into the bank account, then transfers it or withdraws cash and hands it over. While money mules are paid by the criminals, many of them are caught.

What is smurfing?

It is dangerous for criminals to make large deposits, because large sums of money draw attention. To avoid this, they break down large amounts into multiple small amounts, which they then deposit into different bank accounts one at a time and then transfer to one or more other accounts. This is called ‘smurfing’ or ‘structuring’.

Some money launderers are caught because of vague invoices in a company or organisation’s paperwork. How does this happen?

Some criminals use fictitious or false invoices as a way to make transfers appear legitimate, for examples where no goods or services were provided in return. Some invoices are for imaginary advisory services. False invoices often betray their true nature because the descriptions on them are minimal or overly generalised.

What money laundering methods are known?

Criminals launder their money in a variety of ways, and they think up new ways all the time. Some examples are described below.

  • Using straw owners and phony businesses
    Criminals hide behind straw owners and phony businesses to conceal the true owner of particular assets. To the outside world, the straw owner or phony company is acting independently, while in truth being no more than a puppet for the criminal. As a bank, we have the task of identifying every company’s ultimate beneficial owner (UBO) in order to rule out the possibility that it is being used as a front by criminals.
  • Money laundering using intricate constructions
    Criminal sometimes also use intricate constructions to launder their money, to conceal the owner and origins of the criminal funds. One example is the loan back system: a money laundering method in which criminals lend their income back to themselves in a way that makes it difficult to trace the original source of the loan. Criminals also set up networks of companies that conduct transactions with each other. Offshore companies are also used, where the criminal sets up a company in a country that has no rules for registering UBOs or cash flows and where the criminal can stash large amounts without drawing attention. Real estate transactions such as ABC transactions are another way of money laundering: the criminal buys real estate and then sells on the assets at least twice within a short space of time. Intricate investment transactions can also be used to launder money, if the criminals include numerous confusing steps. 
  • Cash spending
    The most obvious way to launder money is paying in cash whenever you make a purchase. The drawback is that paying cash for large amounts is suspicious, and paying small amounts in cash is slow going, particularly with cash becoming less and less common.
  • Fictitious casino winnings
    Casinos used to be a popular place for criminals to launder their money, by pretending that they had won big at the roulette table. Nowadays, however, casinos have strict anti-money laundering policies and this has become much more difficult.
  • Trade-Based Money Laundering
    International trade can cover up or be used for money laundering. Traded goods or services are used to move criminal funds around. The criminal manipulates the prices, volumes or quality of the goods or services to move money into or out of the country or between companies. Trade flows are high-volume and fast, and often involve complex financing constructions, customs authorities rarely exchange data, their checks are incomplete and it is relatively easy to tamper with invoices and paperwork. 
  • New Payment Methods
    New Payment Methods (NPMs) are also used to syphon away money. Prepaid debit cards and e-purses are two examples. Cryptocurrencies can also be used by criminals to launder money, although it is more difficult than most people think to convert these currencies into hard euros or dollars.
  • Charities
    Charities are sometimes used to transfer funds to developing countries, where it is difficult to trace what happens with the money. This is sometimes used for terrorist financing.