Money laundering crops up in most of my forensic accounting assignments. This can range from tracing money stolen by the fraudsters or providing a balanced response for a defendant to a proceeds of crime confiscation. At the other end of the scale I could be advising a business how to implement a suitable anti-money laundering framework. I also deal with many cases brought by the authorities involving highly organised international money laundering gangs, who are systematically laundering billions of street cash each year on behalf of drug dealers, robbers, tax evaders and extortionists every year.
In the last year alone I have worked on a couple of major cases where hundreds of millions were being sent abroad. This is a couple of cases out of many that the police are currently investigating. There are likely to be many more that they do not know about! So it is clear how massive a problem the authorities are facing trying to put a halt to criminals placing their ill gotten gains into the otherwise legal financial framework.
Much of the large scale money laundering in the UK is controlled by well organised gangs based abroad. Money is collected from the criminals in the UK and collated by agents working on behalf of the foreign controllers. It is then passed to specialist transmitters who are responsible for placing the cash into the financial system. There appear to be two main and distinct ways in which this is usually done:
Cuckoo Smurfing The Proceeds Of Crime
If an individual walks into a bank with a wad of cash and pays the money into a bank account, no questions will be asked so long as the sum is modest, say a couple of £1,000, and is not repeated again and again. In some cases it is possible to put the money into an envelope along with a deposit slip and leave it with the bank almost anonymously. If this process is repeated in a busy city centre high street visiting all the different bank branches, it is easily possible for somebody to pay in £50,000 in a day. Paying this amount in all at once would trigger anti- money laundering alarm bells, but in this case the criminals have practiced a process that is termed ” cuckoo smurfing” by the authorities. The criminals have paid substantial sums in “dirty street cash” into the bank while remaining just under the radar. Once it is in a bank account, it has taken on a legitimate veneer.
Cuckoo smurfing often depends on the criminals identifying enough legitimate persons in the UK who are expecting funds. Therefore they hijack money transfer businesses sending money from abroad to the UK. For example, a foreign businessman pays a money transfer agent £2,000 in local currency to be sent to a UK company for goods he is buying. The UK Company ships the goods and receives the payment into his bank account. He does not know that the actual funds were used to pay for drugs the week before! The cash paid by the foreign businessman abroad is passed to the criminal gang and the books balance. Crooks in the UK have sent money abroad without actually moving any money!
Using Money Service Businesses And Hawala Banking
Cuckoo smurfing relies on matching a large number of legitimate transactions to the sums of money to be laundered. This becomes a problem when tens of thousands need to be moved on a daily basis. The crooks sometimes simply hijack or set up their own money transfer businesses in the UK to send large sums of money through the conventional banking system on a regular basis. Hawala Banking is a particular style of Money Service Business, and when properly registered and regulated in the UK is completely legitimate.
However, it is relatively straight forward for someone to set up a money service business that seems on first appearances properly run. Then it can be used to pay in large sums of money without raising a banks suspicions. Banks will even provide zipped bags for quickly depositing £25,000 cash at a time, comfortable in the knowledge that the payer has been certified and monitored by the Financial Conduct Authority and HMRC. The trouble is that such a business can run for many years before it eventually gets caught within a particular Police operation. A cash handover of perhaps £100,000 is forfeit, an acceptable cost of doing say £500,000 of business every week!
The Police work hard to detect these operations, tracing money from the streets to the money service businesses and trying to catch money exchanges as they take place. These occasional successes means that one money laundering tentacle is stopped for a while, having transferred perhaps £100,000,000 over a five year period. It would be far better if the UK regulators were able to monitor these Money Service Businesses better. At present, HMRC will visit such a business and examine the books and records before making a highly critical appraisal of the anti-money laundering control framework that is in place. They will provide a long list of remedial actions they believe the business needs in order to implement an effective control environment. The trouble is, this is all fine until they come across the organisation established purely to launder money. Then all the records will be tailored to present a legitimate front, and the anti-money laundering controls will be a sham for appearances sake.
Further Regulation Needed For Money Service Businesses?
Perhaps the answer is to provide the regulators with a tighter framework for them to monitor? If it was harder for Money Service Businesses to obtain and maintain accreditation, then the risk of rogue operators would be reduced. The Hawala Banking and alternative money transfer systems have been recognized for some years by global authorities as high risk areas for money laundering and terrorist funding. The need for additional stricter and possibly simpler legislation is a common theme that I have heard from the likes of hard working Police officers and HMRC managers I have encountered. They recognize the issues but feel hampered within the existing framework to effectively counter the problem. Billions of criminal funds are being channeled through regulated UK financial entities every year, clearly the current system of monitoring at the point of entry is largely ineffective.
However, all this regulation in the UK is rendered completely useless so long as the matching framework in destination countries is made similarly robust. I see many cases where naive recipients expecting the proceeds of a property sale from abroad are instructed to collect the cash from an unknown courier in a car park. They only realize something is wrong when the police swoop to intercept the handover! The sender has used a local money transmitter to send the proceeds to the UK. The apparently legitimate transmitter has (knowingly or otherwise) utilized the services of a money laundering gang. While the UK system may become strong enough to reduce this activity outwards, it can never prevent people trying to bring money inwards in this way. Perhaps a public education programme is required?