The prevention of money laundering and combating the financing of terrorism
What is meant by the proceeds of crime and money laundering?
1.3 Broadly, the term 'proceeds of crime' or 'criminal proceeds' refers to all property from which a person benefits directly or indirectly, by being party to criminal conduct, for example, money from drug dealing or stolen in a burglary or robbery (this is commonly referred to as criminal property). It also includes property that a person gains by spending the proceeds of criminal conduct, for example, if a person uses money earned from drug dealing to buy a car or a house, or spends money gained in a bank robbery to gamble.
1.4 Money laundering is a term that is often misunderstood. It is defined in section 340 of the Proceeds of Crime Act 2002 (POCA) (http://www.legislation.gov.uk/ukpga/2002/29/contents) and covers wide ranging circumstances involving any activity concerning the proceeds of any crime. By way of example, this may include:
- trying to turn money raised through criminal activity into ‘clean’ money (that is, classic money laundering)
- possessing or transferring the benefit of acquisitive crimes such as theft and fraud, and funds generated from crimes like tax evasion (this includes the possession by an offender of the proceeds of their own criminal activity)
- possessing or transferring stolen goods
- being directly involved with any criminal or terrorist property, or entering into arrangements to facilitate the laundering of criminal or terrorist property
- criminals investing the proceeds of their crimes in the whole range of financial products.
1.5 Typically, classic money laundering consists of a number of stages:
1.6 Placement is the first stage in the money laundering cycle. The laundering of criminal proceeds is often required because of the cash-intensive nature of the underlying crime (for example, drug dealing where payments take the form of cash, often in small denominations). The monies are placed into the financial system or retail market, or are smuggled to another country. The aim of the money launderer is to avoid detection by the authorities and to then transform the criminal proceeds into other assets.
1.7 Layering is the next stage and is an attempt to conceal or disguise the source and ownership of the criminal proceeds by creating complex layers of financial transactions which obscure the audit trail and provide anonymity. The purpose of layering is to disassociate the criminal proceeds from the criminal activity which generated them. Typically, layers are created by moving monies in and out of various accounts and using electronic fund transfers.
1.8 Integration is the final stage in the process. It involves integrating the criminal proceeds into the legitimate economic and financial system, and assimilating it with other assets in the system. Integration of the 'clean' money into the economy is accomplished by the money launderer making it appear to have been legally earned or obtained.
1.9 There is potential for the money launderer to use gambling at every stage of the process. The land-based gambling industry is particularly vulnerable during the placement stage as the use of cash is prevalent and the provenance of such cash is not always easy to determine. Although the remote gambling industry might appear less vulnerable as electronic transfers are required for placements, identity theft and identity fraud can enable the money launderer to move criminal proceeds with anonymity. Furthermore, the use of multiple internet transactions can facilitate the layering stage of money laundering.
1.10 Casino operators should be mindful that the offence of money laundering also includes simple criminal spend (the use of criminal proceeds to fund gambling as a leisure activity), and may not include all the typical stages of the laundering process (if any at all).
Next chapter: Legal background