Chasing dirty money: domestic and international measures against money laundering

Pages140-156
Published date15 May 2007
Date15 May 2007
DOIhttps://doi.org/10.1108/13685200710746857
AuthorAngela Veng Mei Leong
Subject MatterAccounting & finance
Chasing dirty money: domestic
and international measures
against money laundering
Angela Veng Mei Leong
International Compliance Association, Sutton Coldfield, UK
Abstract
Purpose – The purpose of this paper is to provide an overview and discuss the development of the
UK and international measures against money laundering.
Design/methodology/approach – This paper examines the anti-money laundering measures and
the activities of regulatory and professional bodies both domestically and internationally.
Findings – Despite the enormous efforts and co-operation by the governments, law enforcement
agencies, professional bodies and private financial institutions, money laundering and terrorist
financing remain as threatening issues. There is also the concern that stricter regulation will only add
burden on the financial industry.
Originality/value – This paper examines the development of different measures against money
laundering and thereby provides assistance to policy makers in the formulation and implementation of
effective anti-money laundering mechanisms.
Keywords Money laundering,Terrorism, Financing, Crimes,Laws and legislation
Paper type General review
Introduction
Money laundering is the process used by criminals to move, conceal and legitimise
their proceeds of crime. The purpose of money laundering is “to render it almost
impossible for evidence to be obtained which allow a court to establish the derivation
of the money” (Rider, 1992). “Dirty” money is put through a cycle of transactions or
washed, and is turned into legal and “clean” money when it comes out at the other end.
The money launderer can then use the proceeds for future legal or illegal activities
without fear of criminal or civil sanction. The processes involved in money laundering
are not necessarily harmful or abusive per se, simply keeping wealth secret may not be
intolerable in either a legal or moral sense, and it might even be prudent and beneficial
in certain circumstances (Rider, 2006). However, the money laundering process “will
inevitably involve resort to transactions, real or imagined, which will be designed to
confuse the onlooker and confound the inquirer” (Rider, 2006). Misrepresentation is
thus the key to the laundering process which involves three stages as portrayed by the
Drug Enforcement Administration namely placement, layering and integration. Such
traditional money laundering process takes a simplified and conventional view of the
mechanism. In fact, money laundering techniques vary in their degree of sophistication
depending on the purpose. The money laundering schemes can be more complex or
more basic, may involve any number of intermediaries and utilise both traditional and
non-traditional payment systems, offshore financial centres (OFCs) and overseas
companies, non-financial sectors and international trade system (Financial Action
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1368-5201.htm
JMLC
10,2
140
Journal of Money Laundering Control
Vol. 10 No. 2, 2007
pp. 140-156
qEmerald Group Publishing Limited
1368-5201
DOI 10.1108/13685200710746857
Task Force, 2006). The money laundering strategy adopted by the criminal
organisations depends on a number of factors including the:
.type and location where the acquisitive crime was committed;
.quantity of assets;
.structure and level of organisation of the criminal syndicate;
.amount of fear and intimidation a criminal enterprise can generate;
.educational, professional and business background of the criminal;
.availability of technology; and
.cost of hiring of financial experts in developing and implementing money
laundering schemes.
Money laundering is regarded as the world’s third largest industry after international
oil trade and foreign exchange (Robinson, 1995). The International Monetary Fund
(IMF) estimated the size of money laundering worldwide to be between US$600 million
and US$1.5 trillion, which is about 2-5 per cent of the world’s GDP (Camdessus, 1998).
The size and complexity of the financial sector and free movement of capital within the
European Union (EU) makes London a prime target for money laundering. The sums
involved in money laundering in the UK are not known. However, an estimate by the
Foreign and Commonwealth Office showed that within the UK alone the underground
economy accounts for up to 15 per cent of UK’s GDP (Foreign and Commonwealth
Office, 1999). It was estimated that the annual proceeds of crime in the UK to be at
somewhere between £19 billion and £48 billion, with approximately £25 billion
actually laundered. This amount would roughly equate to one-fifth of all undeclared
economic activity in the UK which is about 13 per cent of UK’s GDP, according to the
IMF estimates (NCIS, 2003). The use of internet to launder money in and out of the UK
also poses increasing threat though there is no data on the level of cyber money
laundering.
Terrorist financing is a more complicated subject due to the fact that part of their
funding might have come from legitimate sources, which is then mixed with their illicit
earnings, making detection more difficult. The terrorist-related laundering process is
sometimes known as “reverse money laundering” which refers to the use of “clean”
money for “dirty” ends (Graham et al., 2003; Cassella, 2003; Aufhauser, 2003). It is
therefore much harder for a financial institution to identify terrorist money laundering,
and it is extremely difficult to trace or prove the proceeds of crime before the crime is
committed.
As a result, numerous domestic, international and private measures have been
established to fight money laundering and terrorist financing. This pa per discusses the
relevant legislation and examines the activity of regulatory and professional bodies
both domestically and internationally.
UK domestic measures against money laundering
The UK plays an important part in deciding and promoting anti-money laundering and
counter-terrorist financing strategies given the role of London as a major international
financial centre. The anti-money laundering architecture in the UK involves the
Chasing dirty
money
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