Money laundering investigations: 7 things investigators are looking for

Money laundering investigations: 7 things investigators are looking for

Money laundering is the practice of ‘cleaning’ money obtained through criminal activities in order to achieve the illusion of legitimacy for it to be used, often in connection with yet more criminal activities including drug trafficking, modern slavery, fraud and even terrorism.

In 2018, the National Crime Agency estimated that money laundering was responsible for the loss of hundreds of billions of pounds to the UK economy each year.

For these reasons, the UK has some of the strictest money laundering legislation in the world, with severe penalties for those convicted. If you have been made aware you have been implicated in any investigation under the Proceeds of Crime Act 2002, the experienced money laundering solicitors at Purcell Parker can help.

What’s involved in money laundering cases?

Money laundering is usually instigated by professional criminal organisations, often operating internationally and using highly sophisticated techniques in order to benefit from the proceeds of crime. One unfortunate result of this is that it’s possible for honest businesses to get caught up in the web with the result of facing money laundering charges.

Unfortunately, accidental involvement in money laundering is not a valid legal defence and can result in penalties including fines, loss of professional licences and even prison sentences.

In order to raise awareness of the enormous problem of money laundering, the government recently launched the Flag It Up campaign in order to raise awareness of suspicious activity that could indicate money laundering and the need to both report it and to ensure best practice in the prevention of this criminal activity.

What are the signs of money laundering?

The Flag it Up campaign was designed to raise awareness in the accountancy, legal and property sectors. This is because they are a common target of professional criminals who seek to use these professions’ trusted reputations in order to gain a veneer of respectability for dirty money. Also, criminals often need to go through these channels in order to make financial transactions. However, money launderers do not restrict their targeting to these industries, so it is important for many types of UK businesses to have a policy in place to make relevant staff aware of the signs of money laundering and what they should do if they spot any suspicious activity. This is particularly true for businesses that handle large amounts of cash such as convenience stores, takeaways, car washes, nail bars and restaurants.

Red flags to look out for include:

1 Advance payment scams

In order to give an illusion of legitimacy to their ill-gotten gains, criminal organisations require a paper trail. One relatively straightforward way for them to obtain this is to place an order with a company and pay for it in advance, only then to request a refund. The resulting paperwork is then used to try and prove that the money that has ended up back in their bank account is there as the result of a legitimate business transaction.

Businesses vulnerable to this kind of activity need to train staff to be alert to patterns of this kind of behaviour, particularly if the order doesn’t seem to make any commercial sense or is of an unusually high value. In short, any business who regularly supplies goods or services to another business needs to undertake due diligence to make sure their customer is who they say they are.

2 Fake franchises

Another tactic employed by criminals is to set up a fake business selling a product online, such as software. People who take up what they perceive to be a legitimate business opportunity are in fact being duped into opening up a channel for money laundering. This is because the fake company is structured in a way that the parent company controls payment and the fulfilment of orders. When the new fake franchise is opened, the ‘owner’ will see a number of orders and payments start to flow in. These payments are in fact the result of large-scale credit card fraud and of course, the product and the order do not exist.

3 Unexplained wealth

Recently the government introduced Unexplained Wealth Orders (UWOs), which can be issued by a High Court judge in order to investigate those suspected of spending funds that are disproportionate to their income. The first UWO made headlines as it involved the case of Zamira Hajiyeva, the wife of Jahangir Hajiyev, an Azerbaijani banker convicted in his home country for embezzlement and fraud. The UWO forced Mrs Hajiyeva to explain how she came to own £22 million worth of UK property and had spent £16 million in Harrods over a period of 10 years, including £30,000 on chocolates in one day.

Clearly, this is an extreme example and in normal circumstances patterns of extravagant spending can be much harder to spot. Currently, the government is working on introducing a register of non-nationals who own UK property in order to try and curb the ownership of property by international criminal organisations, particularly in London. They have also put in place due diligence guidelines for high street estate agents to help ensure that properties are not bought with the proceeds of crime. Bankers, solicitors and accountants also have a legal duty to adhere to codes of best practice when it comes to identifying any suspicious financial transactions.

4 Dishonest employees

In a business that handles a lot of cash, organised gangs may plant a staff member to accept cash which is then paid back (minus the criminal employee’s cut) alongside fake paperwork purporting to be the payment for goods or services. This paperwork does not appear on the company’s records; however, the criminal organisation uses it as a way to justify the existence of the cash.

For this reason, it is advisable for businesses who regularly handle large cash sums to take their responsibilities when it comes to due diligence extremely seriously, including running random checks where appropriate.

5 A legitimate company used as a front

Most large-scale and sophisticated criminal organisations will include a legitimate business as part of their operation. This ostensibly honest company exists to allow the illegal activity taking place in the background to hide in plain sight as the illicit money is mixed with the legally-acquired profit in order to ‘clean’ it.

As a result of this, other businesses can be unknowingly become involved with money laundering as a supplier to or customer of the so-called legitimate business. Even if there is no question of criminal involvement, at best this kind of relationship can cause an honest business reputational damage by association if the illegal activities are discovered and made public.

Signs that a business could be connected to money laundering can be:

  • A company that seems consistently able to offer ‘too good to be true’ prices or terms.
  • A business such as a shop or restaurant remaining open over a period of years despite never seeming to have any customers.
  • A business repeatedly showing an usually high turnover in comparison to competitors.

The use of shell companies has also become increasingly popular and not just within the confines of large-scale international money laundering. A shell company is a company that exists in name only without any business operations or assets. It can be set up for legitimate purposes (for example to be used in the future) or for the purposes of money laundering and/or tax evasion with the shell company used as a front to create a seemingly legitimate paper trail of business transactions.

6 Reluctance to show transparency

Any company which is unwilling or unable to be transparent with clients or professionals such as accountants, bank staff or solicitors regarding its affairs can be regarded as suspicious. This can include:

  • A reluctance or inability to provide necessary and fully completed legal documents or business information.
  • An unwillingness to disclose the identity of owners or partners in the business.
  • Unusual transactions; for example where there is no obvious business link between the parties or where transactions involve HM Treasury’s list of high risk jurisdictions.
  • An unwillingness to explain or inability to justify an unusual or overly-complicated company structure.

7 Smurfing

Smurfing (or structuring) is a type of money laundering offence where criminals break a large sum down into smaller amounts in order to make multiple deposits in an attempt to avoid detection. At the time of writing the case is being heard at the Old Bailey of Bin Bin Ding, a 25-year-old student at Aberystwyth University who is accused of using smurfing to run a £100,000-a-week money laundering operation from his room in a hall of residence. Mr Bin Bin is accused of using a money transfer app to encourage other Chinese students to use their bank accounts in exchange for being able to change Chinese currency into sterling in his smurfing scam.

What should I do if I suspect a money laundering offence is being committed?

If you have reason to believe money laundering may be going on either in an organisation you work for, or in another business you are connected with, it is your legal duty to report it under the 2017 Money Laundering Regulations, otherwise you may run the risk of being implicated in any criminal proceedings that eventually are put in place. More information about submitting a Suspicious Activity Report (SAR) to the National Crime Agency can be found on their website.

What should I do if I am facing money laundering charges?

As we have seen, being implicated in a money laundering offence is an extremely serious matter and you do not have to actively be involved in any crime in order for this to happen. As soon as you are made aware of any investigation against you, it’s essential to contact a specialist money laundering lawyer at Purcell Parker on 0121 236 9781.

Alternatively, if you are concerned about due diligence within your business, we can advise you in setting up a policy to safeguard you and your employees from the threat of money laundering to your business.