For years there have been suggestions that a vast amount of illegal money is being laundered, particularly by drug dealers and international gangsters. The events of September 11th 2001 drew attention to just how much money laundering is going on in the world. It showed that international terrorists were moving cash around with great ease and that existing controls were not particularly effective. It’s an industry estimated to be worth over $500 billion p.a. worldwide.

Various governments around the world have also realised that money laundering is contributing significantly to both tax evasion and the ‘black economy’. As a result of these concerns, rules and regulations are being tightened in very many ways and effort is being concentrated on money laundering to a quite unparalleled extent.

Anyone running a business needs to have some knowledge of what the issues are, and how they could easily find themselves on the wrong side of the law.

What is Money Laundering and how does it work?
Essentially it is the process by which the true identity of criminal proceeds and the true ownership of funds is changed, so that the proceeds seem to originate from a legitimate source. If a drug dealer went along to a bank on Monday morning and tried to pay in the weekend’s takings, the bank would notice it and report it unless the sum was relatively small. One way that criminals launder money is by finding a legitimate business to help them by taking the cash and pretending that it is the business’s money being paid into the bank (in exchange for a proportion!).

What sort of criminal conduct is covered by the new rules?

Why you need to look out for Money Laundering and why criminals might try to use your business.
Criminals are constantly searching for new contacts to help them with their money laundering. Certain types of businesses are more vulnerable than others. Any business that uses or receives significant amounts of cash can be particularly attractive. The more obvious businesses and organisations would include:

- Retail shops generally.
- Specifically antique dealers, jewellers & classic car businesses.
- Cafes, restaurants and takeaways.
- Businesses connected with gaming.
- Taxi firms and car hire firms.
- Sports clubs.
- Businesses involved in currency exchange.
- Charities.
- Sellers of financial products such as single premium investment bonds.
- Banks.

Many of the recent changes to regulations have made it much more difficult for criminals to use some of these types of businesses. An example is the need to provide comprehensive proof of identity when you open bank accounts or buy investment products. This has made criminals spread their net wider.

The problem is that there are a number of criminal offences that can lead to prosecutions for anyone who helps the criminal, even if done innocently. It is quite common for someone to ask a businessman to help in making sure that the Inland Revenue doesn’t know about something or to avoid paying VAT and, if the payroll looks good, such a proposal could look tempting. The person being asked to help might have no idea that the proposal is coming from a money launderer and that they could find themselves being prosecuted for far more than just helping someone to avoid tax.

Alternatively, a money launderer might go into an antiques shop and offer to buy a piece of furniture for £3,000 in cash. Not many sellers would insist on a cheque. This person may be a money launderer who then goes to another shop and sells it for, say £2,000. This time the criminal would ask for a cheque, which can be paid innocently into a bank.

Another more general example would be a business making a sale of goods of any type with the customer paying in cash. A few days later the criminal comes back and asks for a refund – in cheque form. Once again they have converted dirty money into clean.

Proceeds of Crime Act 2002; new investigation powers
The Government believes that fraudsters and money launderers see Banks, tax advisers, accountants, lawyers and businesses dealing in high value goods as a soft touch, because it believes they lend legitimacy and respectability to illegal transactions.

The Proceeds of Crime Act 2002 together with new Money Laundering Regulations 2003 are expected to come into force early in 2004, and aim to disrupt illegal activity by depriving criminals of their financial lifeline.

What does this mean for you?
If they suspect that you are involved in a criminal activity (including fiddling your taxes), your Bank Manager, Accountant, Tax adviser, Lawyer, Insolvency Practitioner, Company or Trust formation agent will have a legal obligation from the beginning of 2004 to report their suspicions to the National Criminal Investigation Service (NCIS). If they don’t they could spend 2 years in prison!! Now could be a good time for you to “clean up your act” so that there is nothing to report!

If you run a business as an Estate Agent, Casino, Jewellers, Antique Dealer, Auction House, Car Dealer etc and you accept payment in cash of more than 15,000 euros (about £10,000) you could end up in prison if you fail to:

If you are in business and any of your customers or suppliers offers funds in return for looking after large sums of money, or offers you large cash payments for the purchase of goods, you will have to consider whether the circumstances are suspicious, and whether the matter should be reported to the police. If you don’t, you could be guilty of conspiracy. As the number of these incidences increase, the authorities will use the powers in the Act to investigate and obtain financial information from tax advisers and accountants, enabling them to trace the proceeds of criminal conduct or determine whether someone has committed a money laundering offence.

We have all become used to having to provide comprehensive proof of identity and address in order to open bank accounts or to buy investment products. Proof of identity will be required in many more situations from now on!

For more information about Money Laundering and for help to protect your business against this threat click here.