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What is Money Laundering?

The term ‘money laundering’ evokes an image of cleaning-up one’s money, which very aptly describes what money laundering is designed to do. Money laundering is the process of legitimizing money or assets obtained criminally. For example, one might convert money obtained through the selling of drugs into legal assets by putting them into the housing market, selling properties and thereby converting their money into ‘clean money’. Of course, real money as an object, no matter where it has come from, cannot itself be deemed ‘illegal’; the purpose of money laundering is rather to have one’s assets traced back to legitimate transactions.

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Why is Money Laundering Illegal?

  • It incentivises crime
  • It threatens legitimate financial systems
  • It cash-flows criminals and their crimes

Financial regulation when it comes to money laundering is purposed to reduce or diminish the profitable nature of a crime, and increase legitimate business. The more difficult it is for crime to be rendered profitable, the less appealing the business of crime is. Anti-money laundering laws are thus intended to reduce financial crime-rates.

Three-step Process

The three common stages involved in money laundering are placement, layering, and integration. Placement is when the money is moved, usually to a legitimate institution in order to disguise its origin.

Layering is then done in order to cover-up the process of laundering. A common way of doing this is by asset purchasing, thereby transferring cash into valuable assets, such as property. In the case of transferring cash into property assets, the layering stage would be when you convert that cash into the form of the property as an asset, thus ‘laundering’ the money from dirty to clean.

The final stage, integration, is when the ‘newly-cleaned’ or laundered money is moved back into the economy. One might do this by selling the property that was bought as a means by ‘layering’ and selling it on, thus generating legitimate proceeds. Highly sophisticated money launderers might use international banks and tax-havens to protect their money, making them harder to prosecute against.

The concept of money laundering is described perfectly in this scene of Breaking Bad below. To give some context, Jesse Pinkman is a drug dealer and his dodgy lawyer Saul Goodman is helping him lauder his money effectively by putting it into cash businesses so that it eventually comes out looking ‘clean.’ The concepts of placement, layering and integration are explained very clearly below.

What are the Penalties for Money Laundering?

Money laundering is a serious crime, and is met with serious penalties. Under the law, money laundering penalties are applicable to those guilty of counselling, aiding or procuring the laundering process. It is up to the law to firstly prove that the laundered proceeds are ‘criminal property’; that they are derived from criminal conduct.

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Section 327 – Concealing Criminal Property:

The actus reus of the offence under S.327 is:

  • concealing criminal property;
  • disguising criminal property;
  • converting criminal property;
  • transferring criminal property;
  • removing criminal property from England and Wales.

A person found guilty of Section 327 is liable to a prison-sentence of either 14 years or a heavy fine, or even both.

Section 328 – Arrangements:

The prosecution has to prove:

  • that the defendant enters into or becomes concerned in an arrangement;
  • which he knows or suspects facilitates (by whatever means) the acquisition, retention, use or control;
  • of criminal property;
  • by or on behalf of another person.

A person found guilty of Section 328 is liable to the same penalties to that of Section 327; 14 years imprisonment and/or a heavy fine.

Section 329 – Acquisition, Use, and Possession:

The prosecution has to prove:

  • acquisition use or possession;
  • of property;
  • which was the benefit of criminal conduct;
  • and that the defendant had the necessary knowledge or suspicion that the property represented a benefit from criminal conduct.

The same penalties applicable to Sections 327 and 328 apply here also.

Section 330 – Failure to Disclose: Regulated Sector

The prosecution has to prove:

  • that information came to a person in the course of business in the regulated sector.
  • the information was information which the employee knew, suspected or caused the employee to have reasonable grounds for suspecting that another person is engaged in money laundering;
  • the employee failed to make the disclosure to a nominated officer

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Summary

Money laundering is considered a very serious crime, with very serious repercussions. Illicit money measured the United Nations Office on Drugs and Crime (UNODC), constituted approximated 2.7% of the global GDP in 2009. Less than 1% of these amounts are being seized, due to the difficulty with which proving cases of money laundering can be, given the sophistication of some methods. Money laundering encourages international and transnational organized crime (such as human trafficking, arms-dealing, and drug trafficking), undermining legitimate financial business, as well as putting persons in danger. Further, money laundering has widespread repercussions with regards to domestic and transnational economic stability; it has been reported, for instance, that a significant contributing factor to the London housing crisis is that properties are being bought and sold at far-higher prices in order to make dirty money clean. This means that properties are going up in price (criminals have the money to pay extortionate rates and further hike them up), and that properties are also sitting empty, being used as cash-carriers. It is thereby evidential that money laundering can have serious, widespread effects.

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