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How to identify and report money laundering

 identify and report money laundering

Money laundering is the process of hiding the origins of ‘dirty’ and often illegally obtained money, potentially by using it as part of a legitimate transaction. If a business is found to be laundering money, the consequences can be severe.

It’s important to have a thorough understanding of what this kind of fraud is, plus how to recognise it and report it to authorities.

Understand the essential parts of detecting and reporting money laundering can help you and your business avoid becoming a victim of fraud.

For those who require in-depth training, First4lawyers offers a selection of training seminars to help you learn about money laundering from a certified expert.

How to identify money laundering

There are three main steps for identifying and reporting money laundering:

  1. Assess a client and their transactions: are they suspicious or unusual?
  2. Contact your business’s nominated officer with your concerns.
  3. They will contact the National Crime Agency with their evaluation.

What is money laundering?

Money laundering is a way to disguise ‘dirty’ money, usually because it has a link to criminal activity, such as drug trafficking, smuggling, insider trading, or tax evasion.

Sometimes, people will launder legally gained money to hide their true wealth for personal reasons, such as avoiding paying high tax, or if they are getting divorced and want to avoid their ex-spouse gaining access to the funds.

Whatever the reason, money laundering is illegal, and can have a massive negative impact on the business that is victim to the scheme. Money laundering is broadly made up of three steps:

1.       Placement – Physically moving the money from the source and placing it into circulation.

2.       Layering – Making the source of the funds difficult to detect.

3.       Integration – The money is used in place of a normal business transaction, such as fronting a company, or dealing in large transaction sales, such as property.

How businesses are used for money laundering

Businesses are used to make the money appear legitimate. The possibilities are endless, and can be very difficult to trace and detect before the fraud has been committed.

One example could be two people working together could target an auctioneers. One person may put an item up for auction, which the other person will buy with the money that needs to be laundered. This ‘washes’ the money by being used in an otherwise legitimate transaction.

How to identify potential money laundering

Technologies have been developed that can help to reduce the risk of money laundering, thanks to the rise of internet banking and the reduction of large cash-in-hand transactions. However, there are traditional methods that can be useful.

Primarily, identifying money laundering may rely on following your instinct and using your business knowledge to recognise suspicious behaviour.

One of the first steps is to recognise a client is being suspicious or secretive. The cash transaction amount itself can also provide cause for concern. Ask yourself the following questions:

  • Are they avoiding meeting you face-to-face, or based far away from your business?
  • Do they have unusual instructions or ask you to do something your business doesn’t have expertise in?
  • Is the transaction unusually large or made frequently?
  • Are the transactions complicated to process?
  • Do they pay cash where an electronic transaction is more common?
  • Is the client trying to take an unusual risk, where failure or loss of money is a strong possibility?

These are not definitive ways to identify money laundering, but they may give you some indication that suspicious activity is occurring.

How to report money laundering

Suspected money laundering should be reported to the National Crime Agency (NCA). To contact the NCA, you must tell your nominated officer (someone who is trained in your business to evaluate evidence) who will then decide if the issue needs to be reported to the NCA.

The NCA will look at the transactions and business, and assess whether money laundering activities are being undertaken.

To learn more about the NCA’s financial intelligence activities, contact the Suspicious Activity Reports line.

Want more help with money laundering?

Money laundering is a complex and ever-evolving crime, which can leave employees feeling uneasy or even fearful.

It’s helpful for all businesses – whether they’re made up of one employee or one hundred – to receive training for money laundering identification, and is required by law for any business that comes under The Money Laundering Regulations.

Contact First4lawyers to arrange an expert seminar for yourself or your staff, or see our other anti-money laundering services, with advice on how to set up an anti-money laundering policy.