Financial crime and money laundering remain significant concerns for UK regulators, authorities and organisations, with criminals continuing to exploit the UK’s financial system for their own benefit, meaning this is having a detrimental effect on the economy.
Quite simply, organised crime in the UK is primarily driven by profit. Criminal activities, such as drug trafficking and fraud, generate substantial funds that are subsequently moved, concealed, and reinvested into further criminal enterprises.
Research from 2020 suggests that over £12 billion of criminal cash is generated annually within the UK. Alarmingly, it is estimated that over £100 billion is laundered through and within the UK or via UK-registered corporate structures each year. This vast scale of money laundering poses significant threats to the UK economy and society.
This article discusses the money laundering picture in the UK, the impacts of money laundering, how criminals exploit delicate balances, and the best approach for reporting and combating financial crime and networks.
The Detrimental Impacts of Money Laundering
Money laundering inflicts a range of harms. Legitimate businesses suffer financial hardship as they are undercut by illegitimate competitors operating with laundered funds. The property market experiences artificial inflation as proceeds of crime drive up prices, making housing less affordable for ordinary citizens.
The government faces substantial losses due to tax avoidance, and public trust in the UK’s financial sector is eroded. Crucially, investment in vital public and private services is diminished as resources are diverted to combat money laundering.
Money laundering networks continuously adapt and innovate. Alongside traditional methods, they are increasingly exploiting new technologies. Crypto assets are now frequently used to launder non-digital proceeds of crime, such as cash. These crypto assets are often acquired through cybercrime, including theft, malware attacks, and ransomware. This convergence of traditional crime and cybercrime presents a complex challenge for law enforcement.
Exploiting Corporate Structures and Financial Institutions
Vulnerabilities in the creation and oversight of UK corporate structures facilitate money laundering. Suspicious indicators include multiple companies registered at the same residential address and the proliferation of dormant companies. Implementing and enforcing the Economic Crime and Corporate Transparency Act are intended to mitigate the abuse of these structures.
Electronic money institutions and payment institutions, including money service businesses, are frequently implicated in money laundering investigations. Organised crime groups exploit these institutions to transfer criminal proceeds globally, attracted by the relatively simple and rapid account opening procedures.
The Role of Professional Enablers and Traditional Banking Methods
Working across various sectors, professional enablers play a crucial role in concealing and moving criminal assets. These individuals are often found within banking, payment service providers, accountancy services, estate agencies, legal services, wealth management, and trust and company service providers.
Despite the rise of digital finance, traditional over-the-counter methods, such as everyday banking at Post Offices, remain a significant avenue for introducing cash into the UK banking system. There is a real possibility that Chinese underground banking networks exploit these and other financial sector vulnerabilities to launder billions of pounds annually within the UK.
The Use of Money Mules and Cash-Intensive Businesses
Money mules are frequently used to introduce criminal proceeds into the banking system. They are often recruited and managed by mule recruiters who direct their activities. These mules play a crucial role in laundering the proceeds of organised fraud.
Cash-intensive businesses within the personal care, leisure, and hospitality industries are also exploited by criminals to disguise the origins of illicit cash. Organised crime groups mix legitimate and illicit funds within these businesses, making it more difficult for law enforcement to trace the criminal proceeds.
International Networks and Corruption
International controller networks offer professional money laundering services to criminals, employing various methods. They are increasingly facilitating the exchange of cash for crypto assets on behalf of global criminal networks, linking UK-generated proceeds of crime to transnational cybercrime impacting victims worldwide.
Sectors such as energy, extraction, construction, metals, defence, transport, and finance are particularly vulnerable to international bribery and corruption. The primary method for laundering the proceeds of corruption remains the layering and placement of assets through offshore corporate entities and trusts. Professional enablers offering company formation services online facilitate money laundering for corrupt, politically exposed persons.
Important to Stay Ahead of the Game With Innovations in Technology
The ongoing evolution of money laundering techniques requires constant vigilance and adaptation from law enforcement and regulatory bodies to effectively combat this pervasive threat to the UK economy and society.
Businesses operating within the law, property and financial sectors need to be the most alert, especially when validating who they are working with during the onboarding process. Failing to complete effective due diligence can have serious consequences for your business or firm, including fines, sanctions and reputational damage.
It’s essential you have effective procedures and protocols in place that ensure you are not only completing regular risk assessments but are practising compliantly within the regulatory guidelines and reporting any suspicious activity when onboarding your client. Discovering risks during the due diligence process can be hugely significant in combating financial crime and taking down money laundering networks.
Innovations in technology are helping firms and businesses combat fraud at much earlier stages. These early interventions are enabling authorities to clamp down on fraud and close down criminal networks. Legal technology innovations like Verify 365 enable solicitors, conveyancers, accountants, estate agents and businesses within the finance sector to complete enhanced due diligence on potential clients. With Verify 365, businesses can biometrically verify their client’s identity using facial recognition, liveness scanning and NFC technology.
In addition to this, you can validate your client’s address and verify source of funds data. Verify 365 accepts a vast range of documents, including utility bills and bank statements, which help authenticate your clients, confirming they live where they say they do. Through Verify 365, you can complete comprehensive due diligence by validating funds being used in any transaction. Our winning combination of open banking, advanced AI analytics and source of funds questionnaires help you analyse financial data, report any suspicious anomalies and activities as well as build a clear picture of exactly where the funds have come from. All our source of funds checks are regulated by the Financial Conduct Authority, which ensures the highest levels of security and protection.
Verify 365 is the ultimate AML and KYC client onboarding platform. Built within the framework of the SRA, our innovative technology is compliant and adaptable should any legislation changes be announced. We are an approved supplier of the Law Society of Scotland, ensuring all firms across the UK are completing their compliance and due diligence obligations.
The Future is Bright, but Plenty of Work Still to Do
The UK’s money laundering picture has clear signs of change with regulators determined to stamp out and tackle criminal networks and money laundering. However, laundered funds of over £100 billion pose a huge problem and a constant headache for authority figures. It highlights there is still work to be done but steps are being taken and the future looks bright, it’s all about staying ahead of the game and evolving as criminal networks attempt to be more sophisticated.
