Why lenders need to be more vigilant than ever to the threat of money laundering

Many think of it as a ‘victimless crime’ but money laundering is anything but. In fact, it is estimated that the vast majority of the proceeds of serious and organised crime – from drugs and cybercrime through to people trafficking - is laundered through UK banks and other UK business.

The National Risk Assessment (NRA) says there is ‘a marked overlap’ between money laundering and terrorist financing, while the National Crime Agency’s says previous estimations of the scale of the problem of money laundering in the UK has been significantly underestimated.

According to the NCA, previous figures of £90bn in the UK could be way off the mark, while the International Money Laundering Information Bureau (IMLIB) states that Money Laundering is the world’s third largest industry by value.

Just like all other crimes, money laundering is becoming increasingly more digital. As technology advances, so do the technological skills of the criminals. Money launderers are becoming more and more sophisticated and employ a wide range of techniques and technologies to clean their dirty cash with former US Secretary of State George Shultz stating that today’s money launderers make the Capone crowd and the old Mafia “look like small time crooks".

This shift to more online based laundering means that financial institutions, including banks and other lenders, need to be ever more vigilant about the threat of money laundering and the different ways they risk being targeted.

As we have seen with the misuse of data by legitimate companies like Facebook, the total absence of regulation of the Internet allows money launderers to transfer money with no audit trail, which is why Anti Money Laundering (AML) procedures need to be one step ahead.

So what is the threat to lenders? Surely money launderers are not using mortgages and loans to launder money.

Well actually, yes, money laundering is a hugely complicated process with many layers of corruptions, and while the concept of borrowing in order to launder may not seem like one of the biggest threats, which is exactly why it should ring alarm bells. In fact, the latest UK AML regulations, which came into force in June 2017, warning that “mortgaged property as a money laundering vehicle may become more popular” as criminals start to take advantage of what has, up until recently, been a fairly underutilised route for money launderers to take. 

So how would it be done? By taking out a mortgage, there are a number of ways that a money launderer can clean their money. Firstly, using the dirty money as a deposit, which with ever sophisticated fraudulent documents passing Know Your Customer checks, may become more prevalent.

But more likely is the use of dirty money to overpay a loan. The launderer takes out the mortgage through legitimate means and then uses dirty money to make either regular overpayments or a one-off overpayment.

There is also the potential for money launderers to target a lender to secure a buy-to-let mortgage, and then launder money through rental income.

So if money launderers are becoming more technically savvy and starting to target borrowing, how can their ever more sophisticated methods be thwarted?

Well, as the money laundering world turns more to technology, so too should AML.

Thousands of banks and lenders along with all the other sectors at risk of being targeted by money launderers are turning to electronic AML platforms to complete their AML checks, Global Sanctions and PEP screening.

Electronic verification is now widely recognised as the most reliable, secure and efficient source of information for identity solutions and will eventually rid the need for manual checks that are open to errors.

With a one-stop shop AML verification system you can use one platform to do all anti-money laundering checks and searches, validating documents and making electronic identification verification quickly and easily. And not only is using an AML platform quicker and easier than manual checks, but it is also much more reliable, as it can match documents with information from major data suppliers like Experian, Equifax, Dow Jones and Companies House.

Sean Wood, treasurer of the IMLIB warns, “with the increase in financial traffic through the internet, now is the time to take steps towards protecting your company's financial assets,” so it has never been more important for firms to ensure they have appropriate AML systems in place.