AML for MSB. 1. What is money laundering and terrorist financing?

Bad. That’s what it is.

“Money laundering is the process through which criminals disguise the criminal origin of money and assets they earned through criminal activity.”*

“A person or an entity commits an act of Terrorist Financing if they;

  • fund-raise or are involved in fund-raising, using or possessing money or other property for the purposes of terrorism
  • conceal, transfer or remove from jurisdiction, any money or other property used to finance terrorism
  • facilitate the retention or control of money, which is destined for, or is the proceeds of terrorism
  • do not comply with a prohibition imposed by a freezing order or enable any other person to contravene the freezing order
  • deal with, or make available funds or economic resources which are owned, controlled by or benefiting designated person (under the Office of Financial Sanctions Implementation List)”*

There you go, simple.

OK. Let me illustrate. I, the crook, have a carrier bag full of £5 and £10 notes, that I obtained from selling drugs in my local bars and nightclubs. I go to a bureau de change, looking to exchange them for 200€ notes. Already, it's difficult to link me to the sale of the drugs. Further, I have turned a carrier bag of swag into a wallet full of high-value notes. Handy too, for resupply from my supplier, who comes over on the ferry from Rotterdam, and is quite partial to Euros.

Terrorist financing is, in some ways, the opposite. The money is very often “clean”; it’s the intended purpose, that’s dirty. Examples that I have seen, are money transfers that don’t feel right. When money appears to be coming from a poorer country to a richer one, for example. Perfectly possible, of course, but why? Terrorist financing is caught through curiosity.

Primary UK Legislation

These are the laws, or at least the main ones:

  • Proceeds of Crime Act 2002 (POCA)
  • Terrorism Act 2000
  • Criminal Finances Act 2017
  • Terrorist Asset-Freezing etc. Act 2010
  • Anti-terrorism, Crime and Security Act 2001
  • Counter-terrorism Act 2008, Schedule 7

Got all that? Scary.

Regulation

Designed to codify all of the above into something, we mere mortals can understand:

  • The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (The Regulations)

It’s an over-simplification, but following The Regulations, is what keeps businesses safe. While they’re far from perfect, following them, and the guidance that accompanies them, constitutes a defence in court. In short, The Regulations are our friend.

From time to time, clients complain to me that The Regulations are difficult to understand. I send them off to read one of the Acts. They come back much more enthusiastic about The Regulations.

Next, “What is a MSB?”

*Quotes taken from HMRC Guidance for Money Service Businesses