How to prevent money laundering from impacting your business

5 min

Money laundering is a threat with the potential to impact businesses of all sizes across a b...

JCW Resourcing

By JCW Resourcing

Money laundering is a threat with the potential to impact businesses of all sizes across a broad range of industries. It’s not just a legal concern; it poses a substantial risk to your company's reputation and financial stability. When navigating the complex landscape of compliance and financial crime, it’s essential to understand the intricacies of money laundering, its detrimental impact on the economy, and, most importantly, how to prevent it from infiltrating your operations.

In this guide, we outline what money laundering is and how it works before highlighting the key approaches you can take to prevent money laundering from impacting your business.

We will explore the following in this guide:

  • What is money laundering?
  • How does money laundering work?
  • 5 ways to prevent money laundering from impacting your business
    1. Develop an AML policy for your business
    2. Conduct thorough due diligence and get to know your customer
    3. Report any activity you suspect to be related to money laundering
    4. Lean on the latest AML technology
    5. Educate your staff in AML, compliance and financial crime

What is money laundering?

Money laundering is the process of turning illegally obtained proceeds, often referred to as "dirty money", into legal or "clean" assets. Criminals who engage in money laundering focus their efforts on making their money obtained from illicit financial crime activities such as corruption, drug trafficking, embezzlement, or gambling. 

They launder this money through a three-stage process, which we'll delve into in our next section. Here, criminals will disguise their illegally acquired assets to appear as though it has come from a legal source, such as a business. 

Instead of carrying or storing significant accumulations of physical cash, which can be considered more suspicious when making substantial purchases, criminals exploit money laundering to fund their criminal activities and to allow them to spend their illicit monetary assets more freely.

For context regarding the effect money laundering can have, the UK Financial Intelligence Unit (UKFIU) receives over 460,000 Suspicious Activity Reports (SARs) each year. The UKFIU works within the National Crime Agency (NCA) and is a national authority responsible for receiving, analysing and disseminating financial intelligence related to money laundering and terrorist financing.

Additionally, the money laundered by these criminals can be thousands to millions of pounds. In the UK alone, the economy loses over £100 billion each year due to money laundering. Moreover, research by Transparency International UK identified over 900 UK businesses, 260 of which were Limited Liability Partnerships, were involved in 89 money laundering and corruption cases, resulting in £137 billion of economic damages between 2000 and 2019. 

It's apparent that money laundering is a significant issue that negatively impacts the economy and businesses whilst also allowing for the continuation of financial crime. So, now that you have an answer to the question, 'What is money laundering?' let's provide you with an answer to another common query - 'How does money laundering work?'

How does money laundering work?

Following our previous point, the money laundering process is undertaken by criminals as a way to deposit and use their illegally collated money more freely and with less suspicion. As mentioned, the amount of money laundered by these criminals can reach the multi-million-pound mark. But how do criminals achieve this, and how does money laundering work? 

Well typically, money laundering is conducted through three steps. These three stages of money laundering consist of placement, layering and integration. 

Placement: The first stage of money laundering involves the criminal placing the 'dirty money' into the financial system. Typically, this is done through cash deposits, wire transfers, funnelling money via a company or other financial transactions where less suspicion is raised. 

Layering: The second phase is where the criminal moves the money around the financial system to create complex layers of transactions, making it difficult to track the source of the funds. They do this by using hard-to-trail digital currencies, moving money between various bank accounts and varying jurisdictions or using hell companies. 

Integration: The final stage of the money laundering process is where the criminal brings the laundered money back into the legitimate economy, often through investments and purchases into assets such as real estate or business ventures. When criminals reach this stage, it's more challenging for authorities and financial regulators to determine whether the assets have been obtained legally or illegally.  

There are anti-money laundering (AML) regulations in place to help prevent and detect money laundering. AML regulations require financial institutions to identify and report suspicious activity and require individuals and businesses to verify the identity of their customers and to report large cash transactions. 

In the UK, anti-money regulations consist of the Proceeds of Crime Act 2002 (POCA), the Money Laundering Regulations (MLR) 2017, the Money Laundering Regulations (MLR) 2019 and the Terrorism Act 2000. Then, in terms of who regulates anti-money laundering in the UK, this consists of various bodies primarily including the Financial Conduct Authority (FCA), the National Crime Agency (NCA) and HM Revenue and Customs (HMRC). 

You can learn more about anti-money laundering, including the above regulations and regulators, the importance of AML and how talent plays a factor in our guide: Exploring the need for certified anti-money laundering experts.

Since we've explained what money laundering is and how it works, highlighting the detrimental impact it can have on the economy and enterprises alike, how can you protect and prevent money laundering from impacting your business? Scroll to find out.

5 ways to prevent money laundering from impacting your business

Under the umbrella of compliance and financial crime, money laundering has the potential to severely harm your company. Along with hiring AML specialists to help you remain compliant and free from being exploited by criminals within this space, there are various approaches you can take to prevent money laundering from damaging your organisation’s hard-earned reputation and financial assets.

These approaches include developing an AML policy for your business, conducting thorough due diligence, reporting any suspicious activity, leaning on the latest technology and educating your staff on compliance and financial crime. In this section, we will look at each of these approaches as we explore 5 ways to prevent money laundering from impacting your business.

1. Develop an AML policy for your organisation

Regardless of the size of your organisation and the industry you work in, whether it's a progressing tech company or an established financial institution, developing an anti-money laundering policy is a step you should consider to prevent money laundering from impacting your business. 

When developing an AML policy for your business, consider the specific money laundering risks associated with your industry and what your organisation could face. These risks may depend on several factors, including your business type, the customers you serve, and the geographic regions where you conduct business. An example of something you add to your anti-money laundering policy could be that you only accept card payments and online transactions instead of cash.

Once you have identified your business's risks, you can develop specific AML policies and procedures to mitigate those risks. Your anti-money laundering policy should include the following elements:

  • Customer identification and verification: You should implement procedures to verify the identity of all new customers and to monitor existing customers for suspicious activity. It would make sense to have compliance and financial crime specialists in place to ensure you know your customers before doing business with them. More on this later.
  • Transaction monitoring: You should also have procedures in place to monitor transactions for suspicious activity, such as large cash deposits, unusual patterns of transactions, and customers who are reluctant to provide information about themselves. Again, this can be monitored by AML professionals with the assistance of AML technology - something we’ll touch on at a later point. 
  • Reporting of suspicious activity: As part of your anti-money laundering policy, you should also have people and procedures in place to report any suspicious activity to the appropriate authorities. We’ll discuss reporting suspicious activity in point number three. 

Within your AML policy, you may also want to consider the consequences for those who breach it to ensure it is taken seriously within your business. You should also outline who is responsible within the company for implementing and overseeing the different aspects of your anti-money laundering policy. If you require strategic solutions to help bring individuals capable of doing this into your business, it may be time to reconsider your compliance and financial crime recruitment strategy. 

2. Conduct thorough due diligence and get to know your customer

Next on our list of ways to prevent money laundering from impacting your business is to conduct thorough due diligence to fully get to know your customer base. Due diligence and Know Your Customer (KYC) are two critical processes in the anti-money laundering space and should become pivotal components of your AML policy.

For context, due diligence and KYC are processes of investigating a customer or a transaction to analyse the risk of money laundering or terrorist financing. Due diligence and KYC typically involve collecting and verifying information about the customer, including and involving:

  • Verifying the identity of key names within the business through government-issued identification, including 
    • Key names
    • Addresses
    • Dates of birth
    • Associated partners and clients
  • A record of the customer's financial history to review for suspicious activity
  • Screening customers against sanctions lists
  • Conducting on-site visits and conducting in-person checks
  • Other business activities or financial information of the customer

It's best practice to conduct thorough due diligence and background checks before doing any business with a customer, whether a partnership or investment. Failing to do so could leave your organisation open to money laundering or other financial crime-related vulnerabilities. Ultimately, you wouldn't do business with a complete stranger, so conduct thorough due diligence and get to know your customer before making any final decision. 

3. Report any activity you suspect to be related to money laundering

Another way to prevent money laundering from impacting your business is to report any activity you suspect to be related to money laundering. Suspicious activity concerning money laundering could be any activity indicating that a customer, be it a business or an individual, is attempting to conceal the source or ownership of illegally obtained assets. These suspicions could include a wide range of activities, such as:

  • Large cash deposits or withdrawals
  • Unusual patterns of transactions
  • Inconsistent transactions with the customer's business or financial activities
  • A customer deposits a large amount of cash in small increments over a period of time
  • Transactions with high-risk countries or individuals
  • Customers who are reluctant to provide information about themselves or their business activities
  • Customers make several wire transfers to foreign countries
  • A customer uses cash to buy expensive assets, such as cars or jewellery
  • You notice a customer attempts or opens an account under a false name
  • A customer asks questions about how to avoid bank reporting requirements

Of course, following your AML policy and conducting thorough due diligence will help avoid any of the above from occurring. However, there is always the chance that things will slip through the cracks. 

If you or your staff suspect any activity you suspect to be related to money laundering, they should report it to the individual most suited to dealing with these reports. As mentioned, more than 460,000 Suspicious Activity Reports SARs are reported to the UKFIU each year, but here are some of the things worth considering before submitting a SAR:  

  • Be as specific as possible when describing the activity you are reporting. Include any relevant dates, times, locations, and names. Essentially, you should attempt to answer the who, what, when, where and why regarding the suspicion.
  • Provide any documentation or evidence that you have collated, such as bank statements, receipts, or emails. This information could have been discovered after conducting due diligence.
  • Be prepared to answer questions and provide evidence to the relevant authorities about the activity you are reporting. An AML specialist would be best placed to answer these questions.

It’s always best to report suspicious activity, even if unsure. Failing to disclose any known information in a SAR could result in an offence in the eyes of anti-money laundering regulators. Hiring AML specialists and building an internal or outsourced compliance and financial crime team can give you added protection to prevent money laundering. It can also help set the standards within your organisation of how to report suspicious activity, what to report and who to report it to.

4. Lean on the latest AML technology

Today, technology drives modern society, supporting us in all walks of life. The same can be said regarding the ways to prevent money laundering. In a world where criminals are becoming increasingly sophisticated with their tactics to exploit businesses through money laundering and various other forms of financial crime, it’s become almost a necessity to lean on the latest AML technology.

Anti-money laundering technology, including the use of artificial intelligence (AI) and machine learning (ML), can automate and streamline AML processes. This technology can support your efforts to comply with the relevant anti-money laundering regulations and reduce the risk of human errors when conducting due diligence, identifying suspicious activity and analysing translation data.  

By leaning on the latest AML technology, you can enhance the accuracy of data analysis, freeing up your AML specialists to focus on more complex and strategic tasks. Again, this also minimises the risk of false positives through human error, reducing the burden on your AML professionals. 

It’s worth noting that anti-money laundering technology should not replace your existing teams. Instead, it should be used to assist them in their efforts to mitigate money laundering and financial crime.

Additionally, regulators have become stricter and are increasingly expecting financial institutions to use technology to improve their AML policies. By leaning on the latest anti-money laundering technology, your company can demonstrate to regulators that you are taking responsibilities surrounding AML seriously.

Here are some specific examples of how you can lean on the latest AML technology:

  • AI and ML algorithms are able to be trained on large datasets of historical transactions to detect patterns and anomalies that may indicate suspicious activity, including money laundering or terrorist financing.
  • Blockchain technology can track the movement of money and provide a tamper-proof record of all transactions. This technology makes it easier to track the movement of funds and identify suspicious activity.
  • Use robotic process automation (RPA) to automate AML tasks such as customer onboarding, transaction monitoring, and sanctions screening. This can act as an assistant to your AML professionals whilst again freeing up their time to concentrate on more complex and strategic assignments.

You can lean on the latest AML technology by working with anti-money laundering technology providers. These providers offer a broad range of solutions that can help organisations improve their AML policy. It’s worth doing your research beforehand to see which solutions best match your needs concerning compliance and financial crime. 

5. Educate your staff in AML, compliance and financial crime

Although your AML professionals can be upskilled and reskilled, they should already have deep expertise in compliance, financial crime and money laundering. So, with our final point on the 5 ways to prevent money laundering from impacting your business, we’re mainly referring to the importance of educating your staff in AML, compliance and financial crime across the wider business.

Whether it’s keeping updated with the biggest financial crime trends, knowing your developed AML policy and understanding the criminal methods, AML regulations and regulators, your employees must be aware of anti-money laundering. Why? For example, when your staff know the different types of financial crime and how to identify them, they will feel more confident to report suspicious activity. Doing so can help prevent fraud and other financial crimes from impacting your company.

Additionally, as businesses are subject to various regulations designed to prevent financial crime, educating your staff on these regulations gives you the confidence that all your employees work in compliance and know how to avoid costly fines and penalties. Moreover, by educating your staff and demonstrating a commitment to staying on top of compliance and financial crime, you can protect your reputation and build trust with your stakeholders. 

In turn, this can enhance customer and client confidence. Customers will be increasingly likely to partner with your business if you demonstrate your staff is educated on compliance and financial crime prevention, as they will feel confident knowing you take steps to keep their money safe and work lawfully.

AML, compliance and financial crime training can be presented to your employees through in-house and on-the-job training, whereby your senior AML specialists can shadow them or conduct group seminars and training sessions. You could also conduct tests whereby you randomly present your employees with examples of financial crime scenarios to see how your employees react and deal with the situation. 

If you don’t have the internal resources, you could outsource training resources to an AML training provider or research online courses your employees can complete during work hours or in their free time. 

It’s also essential to tailor your training to the specific needs of your business and staff. If your business is in a high-risk industry or financial institution, you may need to provide more in-depth training. Regardless, there is no harm in incorporating regular training into your workplace culture from the onboarding stage and beyond - be it once a quarter, annually or whenever feasibly possible. Doing so is a further way to prevent money laundering from impacting your business.

Our final thoughts on preventing money laundering

Ultimately, preventing money laundering from impacting your business is a matter of legal compliance and is crucial for safeguarding your organisation's reputation, financial assets, and ethical standing. Money laundering can significantly threaten businesses and the economy, as evidenced by the staggering sums and damage it inflicts on various sectors.

In summary, to effectively combat money laundering, you should:

  • Develop a robust AML policy tailored to your business, addressing specific risks associated with your industry and operations. Clearly outline procedures for customer identification, transaction monitoring, and reporting of suspicious activity.
  • Conduct thorough due diligence and get to know your customers inside out. This process includes verifying identities, scrutinising financial histories, and screening against sanctions lists to minimise the risk of unknowingly engaging with illicit entities.
  • Maintain open communication channels within your business to promptly report suspected money laundering activities. A well-structured reporting system can help address potential threats swiftly and appropriately.
  • Leverage the latest AML technology, such as AI, ML, and blockchain, to enhance the accuracy and efficiency of your anti-money laundering efforts. These technologies can provide invaluable assistance in detecting patterns and anomalies indicative of money laundering.
  • Encourage a culture of vigilance within your business, where all staff members are educated about AML, compliance, and financial crime. Training and awareness can empower employees to identify and report suspicious activities promptly.

By implementing these five strategies, you can significantly reduce the risk of money laundering impacting your business and contribute to a safer and more transparent financial ecosystem. Taking a proactive approach to preventing money laundering protects your company and upholds the integrity of the broader economic landscape.

Seeking support from a financial crime recruitment agency?

If you’re part of a growing business looking for anti-money laundering experts to protect you from the vulnerabilities associated with compliance and financial crime, we can help. Our unrivalled strategic solutions give us the edge over other financial crime recruitment agencies. We’ll help you develop a solid hiring strategy, allowing you to connect with the best talent capable of safeguarding the future of your brand.

Contact us today to find out how we can support your specific compliance and financial crime recruitment needs.