The prevention of money laundering and combating the financing of terrorism
1 - What is meant by the proceeds of crime and money laundering
The terms 'proceeds of crime' or 'criminal proceeds' refer to all property which a person benefits from by being party to criminal conduct, either directly or indirectly.
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.
The term money laundering is often misunderstood
It is defined in section 340 of the Proceeds of Crime Act 2002 (POCA) (opens in new tab). It covers a wide range of circumstances, involving any activity concerning the proceeds of any crime.
For example, this may include:
- trying to turn money raised through criminal activity into 'clean' money (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.
Classic money laundering usually consists of the following stages:
Stage one: placement
Money laundering of criminal proceeds is often needed because of the cash-intensive nature of the underlying crime. For example, drug dealing, where payments are often small amounts paid in cash. Money is placed into the financial system or retail market, or 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.
Stage two: layering
Layering is an attempt to conceal or disguise the source and ownership of the criminal proceeds by creating complex layers of financial transactions. These layers obscure the audit trail and provide anonymity. The purpose is to disassociate the criminal proceeds from the criminal activity which generated them.
Layers are usually created by moving monies in and out of accounts and by using electronic fund transfers.
Stage three: integration
Integration involves integrating the criminal proceeds into the legitimate economic and financial system. Therefore, assimilating it with other assets.
Integration of 'clean money' into the economy is achieved by the the money launderer making it appear legally earned or obtained.
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 cash is widely used. The remote gambling industry may seem less vulnerable as electronic transfers are required for placements. However, identity theft and identity fraud can enable the money launderer to move criminal proceeds anonymously. The use of multiple internet transactions can also facilitate the layering stage of money laundering.
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). It may not include all the typical stages of the laundering process, if any at all.
Last updated: 12 November 2020
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