Banks are traditionally seen as pillars of the economy, we depend on them to process payments, save money, and lend money. As such, money is constantly moving between banking systems, an action that money laundering aims to take advantage of. Money laundering has the aim of disguising criminal money so that it appears to be legitimate. Banks are one way for criminals to do this because of the sheer amounts of money and people they deal with every day. This is why banks and other financial institutions are at the forefront of the battle against money laundering.
Money Laundering in Banking
Money laundering is the term used to describe the act of making illegal money produced from one source look like it came from somewhere else. The money/assets produced from the crime (also known as the proceeds of crime) are made to appear legitimate by blending in with every day financial practices, such as investments or gambling. By doing this, the trail that links the crime and the money is obscured, so that no one ever knows the original source of the money.
The term "laundering" comes from the fact that criminals are making 'dirty' (criminal) money seem 'clean' (legal). They disperse the money gained from the crime into the banking and financial system making it much more difficult for the authorities to trace it back to the crime.
Reverse money laundering is as straightforward as the term would imply compared to regular laundering. The reversed quality comes from the fact, in this scenario, criminals use legitimate money for illegitimate purposes, e.g. terrorist financing.
Banks have a legal obligation when it comes to the prevention and detection of money laundering. The most important step is to remain vigilant, and take the right steps when there are suspicious transactions taking place. Banks should provide their staff with anti-money laundering awareness training so they may recognise suspicious customers/transactions, and report them to the relevant authorities in a timely manner.
The UK has recently cracked down on the issue of money laundering after it uncovered Russian scams worth around £65 billion taking place. HSBC, Barclays, and RBS are among the groups that have been accused of facilitating criminals and corrupt officials.
The scam worked by money being moved out of Russia, in an attempt for the criminals to shake people off the trail that linked to the money to criminal activity. Moving the cash around meant they were hiding the money on the journey between multiple accounts making it seem 'clean' and unsuspicious.
The process used a series of 'front' companies in the UK, a term that means that the actual owners would remain hidden behind the scenes. The criminal syndicate then conducted fake business deals between themselves, and sued each other in courts in Moldova, demanding the repayment of hundreds of millions of pounds of loans at a time.
Once the money was laundered, it was being spent in designer stores in London on diamonds, furs, chandeliers, and even being used to pay bills for Millfield, a prestigious public school in Somerset.
Shadow Chancellor John McDonnell called for the scandal to be investigated by the National Crime Agency. He argued that "Britain cannot be a haven for the criminals of the world who are looking to hide their money." He also pointed out that the British banks clearly don't have strong enough protocol in place in order to deal with the problem of money laundering.
The government are now thought to be preparing a new landmark piece of legislation that will allow banks to share the information they receive. This increased level of cooperation and communication means that it will help uncover launderers at a greater pace and also give law enforcement agencies a new level of power to bring criminals to justice.