Money laundering is usually a three-stage process:
Making transactions via financial services products is a method often favoured by criminals trying to hide the source of illicit funds. If an investment is made, for example when it is encashed, a legitimate source of funds is established.
In the case of general insurance products, there may be an instance where a high value premium is paid for insurance which is then cancelled quickly, resulting in repayment by cheque from a legitimate account.
These funds could then be moved through the system using a series of other transactions before finally being considered clean by the criminals.
What is criminal property?
Traditionally, when thinking about money laundering, proceeds of drug trafficking or organised crime come to mind. These are criminal offences and so any money or benefits derived from them are criminal property.
But these are not the only crimes which may lead to money laundering. Even minor savings made by a company due to a regulatory breach, e.g. failing to register with the Information Commissioner, may result in the company holding “criminal property”.
Bottom line: Any proceeds of an activity which is a crime in the UK or, in many cases, in another jurisdiction falls within the definition of criminal property.
Placement – the critical stage
The placement stage is considered critical in the money laundering process and the anti-money laundering regime is directed towards making it much more difficult for money launderers to introduce criminal property into the financial system.
However, each of the three stages can, and often will, involve multiple transactions and not all money laundering activities can readily fit into these stages.
Under UK law
It is vital to note that whilst all European Union (EU) countries were required to introduce legislation to prevent the use of proceeds from all serious crime (e.g. proceeds of drug trafficking), the UK Proceeds of Crime Act 2002 went further and included the use of any proceeds of crime as a criminal offence.
It does not matter how minor the relevant crime was or when it was committed. Using the proceeds of any crime will be considered criminal conduct even if the activity concerned takes place abroad and possibly even if the activity is not a crime in that jurisdiction.
It is therefore extremely important that you are aware of how you or your clients might commit an offence and how you can avoid doing so.