What is Money Laundering?

In its simplest form, money laundering is the process criminals use to disguise the origin of financial proceeds which are obtained illegally. 

This is usually achieved by passing the money through various "washing" stages, so that it can be returned to the launderer and spent or invested legitimately. 

Money laundering enables and underpins the majority of organised crime; in the UK alone, it's thought that £90 billion is laundered every year. 

In order to process their cash, money launderers often take advantage of legal financial services or organisations, such as banks and estate agents, who are usually unaware of their environment. 

This is why it's crucial to make sure that your business is AML compliant. 

The Three Stages of Money Laundering 

The money laundering process can be broken down into three steps, which are as follows: 

1. Placement

This is when a criminal’s money initially begins to circulate in cash form. The money moves away from its original source, so that it can be disguised. There are several different methods used in the placement stage, including the purchase of valuable assets, large current exchanges or even bank complicity. Bank complicity refers to the role of a financial institution which is controlled or exploited by criminals.

2. Layering

In this second stage, money is passed through a sequence of transfers to make it harder for law enforcement to track where it came from. Cash might be moved abroad into offshore accounts, turned into monetary instruments (bank drafts, or cheques) or invested in other companies.

3. Integration 

The proceeds now return to the person who began the money laundering process. After it has been through stages one and two, the money is considered “clean” rather than “dirty”, and will bear no signs of criminal activity. This is the objective of laundering money; from this point, illegally obtained cash can be used in a legal capacity.

This is a top-line summary; some sophisticated money laundering operations have methods in place to avoid placing their proceeds into circulation in the first place, which makes them harder to detect.

Common Money Laundering Examples

Money laundering may not always appear as you'd expect it to. In the UK, money laundering is defined by the Proceeds of Crime Act 2002 (Or POCA), and includes the following: 

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  Tax Evasion

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  Theft

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  Fraud

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  Bribery

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  Corruption

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  Smuggling Funds

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  Modern Slavery

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  Human Trafficking

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  Drug Trafficking

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  Illegal arms sales

Challenges of Digital and Electronic Money Laundering

With the evolution of financial technology, criminals have found new, sophisticated ways to conceal and move illicit funds digitally. Online banking, mobile payment apps, and peer-to-peer (P2P) transfers now allow money to be shifted across borders in seconds, often leaving minimal traces behind.

Digital methods easily exploit technology such as anonymous software, encrypted communication, and proxy servers, making it significantly harder for authorities to detect and track suspicious activity. For instance, funds can move through layers of online transactions—sometimes via auctions, gambling platforms, or virtual gaming, where illegal proceeds are converted into in-game currencies before being cashed out as seemingly legitimate money.

Cryptocurrencies like Bitcoin have added to the complexity. While not fully anonymous, they still offer a heightened level of privacy compared to traditional finance, making it attractive to those seeking to obscure the origins of their money. Criminals may use these digital currencies in activities ranging from ransomware attacks to drug sales, complicating detection.

On top of all this, anti-money laundering (AML) regulations have historically focused on conventional banks, and have struggled to keep pace with the rapid growth of digital channels. This gap gives criminals a head start, making compliance and vigilance on digital platforms more important than ever for organisations hoping to stay a step ahead.

How are Cryptocurrencies and Virtual Currencies Used in Money Laundering?

As technology has evolved, so too have the methods used by criminals to clean illicit funds. Cryptocurrencies such as Bitcoin, Ethereum, and others are increasingly popular vehicles for money laundering, largely due to their relative anonymity and the speed of digital transactions.

Criminals may employ various tactics, including:

• Transferring funds through multiple digital wallets: By sending cryptocurrency through a series of wallets—a process sometimes called "chain hopping"—launderers make it more challenging for authorities to trace the original source of funds.
• Using “mixers” and “tumblers”: These services combine potentially tainted funds with large pools of legitimate transactions, obscuring transaction trails and making it harder to identify where the money originated.
• Converting between virtual assets: Moving between different cryptocurrencies or turning digital coins into in-game currencies, then back into cash or assets, adds layers of complexity to the process.
• Conducting transactions on online marketplaces or gambling websites: Funds can be funnelled through online auctions, betting platforms, or virtual gaming environments, further muddying financial trails.

While these techniques are clever, they all share the same goal: to make illegal proceeds appear legitimate and difficult to trace. However, it’s important to note that advancements in AML technology—as well as increased regulatory pressure on cryptocurrency exchanges—mean that these practices are under growing scrutiny from international authorities.

Understanding how virtual currencies can be misused is a vital part of keeping your business and clients safe from inadvertently becoming part of a money laundering scheme.

The five money laundering offences

The POCA also details the principal money laundering crimes, for which you can be prosecuted and charged. There are five main offences, which are outlined below:

• Helping an individual or a business to retain the proceeds of criminal activity.

• Obtaining, owning or using the proceeds of crime.

• Hiding or transferring the proceeds of crime, in order to avoid charges.

• Suspecting that money laundering is taking place, without disclosing it to the relevant authorities.

• Informing a person of interest that they are being investigated for suspected money laundering.

AML Compliance: Why is it important?

Simply put, AML regulations protect your business from exploitation by criminals. If these regulations apply to your business or organisation, then putting the necessary policies in place is an important step that will hugely reduce the risk of money laundering.

Until recently, AML regulations were determined by the four directives in place in the UK, including the POCA, but a fifth directive was implemented on January 10th 2020, which includes important updates. Firms are required to meet all AML regulations, but there is no set method for implementing them. The easiest way to ensure your business is AML compliant is using a complete AML service, like SmartSearch.

Failure to comply with AML regulations is breaking UK law, and can have serious consequences for your business. As well as damaging the reputation of your firm, you could incur a sizeable fine, face criminal charges and restrictions on future trading.

Global Efforts in the Fight Against Money Laundering

Money laundering isn’t a problem confined to one country’s borders—it’s a global challenge, and as such, it has prompted extensive international collaboration.

One of the leading groups working to combat money laundering worldwide is the Financial Action Task Force (FATF). Established by the Group of Seven (G7) nations, the FATF sets global standards and encourages the effective implementation of legal, regulatory, and operational measures to fight money laundering and, in more recent years, terrorist financing. FATF’s recommendations have shaped legislative frameworks in countries around the world, creating a more unified approach and making it harder for criminals to hide across jurisdictions.

In addition to the FATF, individual countries have their own laws and regulatory bodies aimed at stamping out money laundering. For example, the United States introduced a number of key pieces of legislation—among them, the Bank Secrecy Act and the USA PATRIOT Act—that require financial institutions to be vigilant and report suspicious activity. Similarly, the UK's POCA (Proceeds of Crime Act 2002) forms part of its robust AML framework.

Authorities such as the Financial Crimes Enforcement Network (FinCEN) in the US, as well as international cooperation channels, enable sharing of intelligence and best practices. These efforts are bolstered by initiatives from organizations such as the United Nations, the European Union, and various financial intelligence units (FIUs), all working together to close gaps that money launderers seek to exploit.

By coordinating these actions and sharing information, the global community is continually strengthening its defences against this ever-evolving risk.

SmartSearch can help

In order to protect the businesses made vulnerable by money laundering, AML regulations are constantly changing, and this can make it difficult to keep up with the requirements of AML compliance.

SmartSearch provides an end-to-end AML solutions, including initial checks, screening for sanctions and PEPs, and ongoing monitoring, all accessible from one user-friendly platform.

So whether you’re a small business, completely new to AML regulations, or a large accountancy firm with a solid grounding, SmartSearch can help you monitor your clients, be ready for auditing and prevent fraud.