Tim Bennett Explains: Money Laundering - How the world's biggest financial crime affects you

welcome to this kilic explains Finance video this week money laundering a crime that appears all over the newspapers on a regular basis featuring Banks fund managers you name it within Financial Services there's usually somebody being chased Down By The Regulators for the crime of money wering more importantly I want to just remind you as if you didn't know how it could and can affect you so what is it how do you file of the regulations and why is it important to know about money laundering as a client or customer of an authorized firm well it's a big problem first of all it is arguably the biggest Financial crime in the world worth if you can call it that around 48 billion Sterling or around 2% of UK GDP estimates vary if we would look at the global picture you're talking like more like 1.6 trillion Us doar by some estimates and that's around 2.7% of global GDP so whatever this thing is it's a huge problem Regulators take it very very seriously and it's as well to be aware both as someone who works in financial services and someone who uses Financial Services firms what can go wrong so what is it in a nutshell according to the legislation it is taking the proceeds of crime and there are various crimes Lots in fact anything that's a crime could generate potentially laundered funds into legitimate funds or as some people like to say cleaning up dirty money or taking funds that can be linked to a crime and the problem with assets that can be linked to a crime like stolen assets for example is they are traceable right there and then you know Bank notes have serial numbers on them and so on so you've got if you commit a crime hot property or hot money moneya laundering is all about cooling it down turning it into funds that can't be traced or certainly not very easily so a bit more detail on that what are the crimes well anything potentially could generate laundered funds illegal funds if you like drug deals are put up there acts of terrorism fraud robbery even tax evasion as opposed to tax avoidance all right all of those things are crimes and all of them can involve illegitimate funds so you can now see why this is regarded such a big Global problem because these are Big Global issues so it's a pretty widespread problem potentially funds generated by crime how's it done well Regulators in this country talk about three stages now money launderers don't sit around arguing about whether they've done placement correctly or not this is just language that helps to break it down so there are three basic stages placement this is the initial transaction involving dirty money that's when the money launderer is most likely to get caught if you like and it's the first stage the next one is known as layering subsequent transactions designed to muddy the water to try and break the link between dirty money and clean money laundered money quite literally and finally you get integration the decision by the money launder that the money they started with proceeds of a crime are now clean and can be spent or in the normal way or integrated back into the economy with no likelihood of arrest and this is a crime money laundering just like the crimes it's linked to so it can result in arrest okay now these three stages by themselves sound like a load of old jargon so a very simplistic example now the problem with money laundering is no two recipes are alike if you like people keep trying to come up with new more elaborate schemes to launder funds as other people are caught out and so on by Regulators so the question you know isn't is this a realistic representation of all money laundering schemes it isn't it just gives you a very quick flavor as to what might be involved so a crime is committed and let's say the funds find their way into a bank account all right maybe the money launderer got someone working on the inside that's the point about money launderers there are often rings of them as they're called they often work in cahoots some on the outside the financial services World some of them inside the financial services World helping to launder the proceeds of crime so the money goes into a bank it's then directed into the financial markets in and out of lots of different instruments it could be shares bonds EUR bonds other accounts the money's moved around washed around like it's a washing machine cycle if you like so lots and lots of transactions going on to muddy the trail to make it difficult for someone to go well that's definitely linked to the proceeds of crime and at a certain point the launderer and the people in cahoots with him will decide actually we've done enough clean cleaning up of this dirty money it's now really difficult to track the money back to the original crime so let's take it out and spend it in this very simplified example you know what do they spend it on well what criminals spend money on so Yachts houses fast cars who knows expanding their empire I suppose all the usual stuff but there it is dirty money goes in clean money comes out now obvious question is why am I telling you all of this I'm assuming none of you out there are active money launderers obviously so why am I telling you this well it explains why certain things happen when you deal with financial services firms that are authorized by the FCA because how you going to stop this how we going to stop it happening well the crime's been committed let's say so the money is paid into a bank account there is a big opportunity now if the money launderer has got someone working for them at the bank this gets more difficult but let's assume they haven't in which case straight away obvious question to ask and it is asked and you will have been asked it and it's not something that firms can get out of doing they have to do it is uh who are you identify yourself and prove it all right but that's not enough where did that money come from two stages so I know now know who you are where did that money come from and those are two vital questions that need to be asked pretty early in the process so perhaps when this chap here tries to open an account for the first time or deal with that bank that authorized firm for the first time those will be two obvious questions to ask okay once the money is being layered so that's the placement bit that's where the money launderer is arguably most likely to get called out once the money's in the financial services system once it's got past the first Safeguard if you like what next well as all these transactions start taking place designed to muddy the water make it difficult to track the original funds and subsequent clean funds if you like and Link them together next question are the transactions that are taking place in the name of this person or using accounts in their name suspicious or legitimate and there's a bit of an art here to spotting suspicious transactions I won't go all the way through all the tests it's not this that kind of video but there are some ways of judging whether potentially a transaction is suspicious and therefore might be linked someone trying to launder Dirty Money rather than do something just commercially normal what are those tests no commercial logic zero profit or loss making you wouldn't normally do a transaction on that basis so if you spot one sometimes that can be a kind of trigger secondly unusual in terms of its size Andor frequency of the account that's why you sometimes get Banks prompting you did you mean to make a transaction of that size at that time part of that is anti-money laundering annoying that it may be at the time and the rule of thumb something too good to be true so you know classic deals that money launderers will get involved in loans are uncompetitive interest rates because they're not worried about how much interest they get back they're more worried about getting clean money back because don't forget crime is highly profitable unfortunately so money launderers don't need to get all the dirty money back as the same amount of clean money they can afford to lose a bit in the process so they tend to offer terms that are too good to be true loan deals foreign currency transaction deals are odd rates or they buy Life Assurance policies and then gratuitously cash them in early you think why do that you're going to lose half your money yeah but it was the proceeds of crime they've already made an enormous profit from criminal activity so they don't mind watering that down a bit in order to get away with it and create clean money at the end of the day there are quite a few ways that you can be locked up for assisting a moneya launderer that would be someone working on the inside working within a financial services firm for example directly helping them laund the money it's regarded as serious as you know almost the crime itself tipping off a money launderer so letting them know that the regulator's wrong to them or that they've done something which might be being picked up or tracked failure to report report suspicious transactions that tends to catch people working within Financial Services firms they need to have systems in place to make sure that they are identifying reporting suspicious transactions which is why you may get some of your transactions tagged from time to time and then failure to follow the regulations in regards to money laundering and I won't go through the penalties but these are all criminal offenses and can in a worst case scenario result in prison sentences so there you have it that's why your some's badgered both in ID terms you try to open the account subsequently transaction monitoring and it explains how what is the world's biggest Financial crime splashed all over the newspapers can and could affect you

Channel: Killik & Co

Views: 108,986

Keywords: Financial crime, Money Laundering (Literature Subject), placement, layering, integration, regulator, FCA, crime, know your client

Id: a1nW_dP0EJk

Length: 10min 6sec (606 seconds)

Published: Mon Nov 23 2015