Money laundering is a serious issue in the UK. It can pose a threat to everything from national security to its reputation worldwide. It’s most commonly done through the financial and professional services sector, hence why training in this area is more rigorous in these types of firms – it’s important for staff to be educated about the risks and what signs they should look out for.
What is money laundering?
In a nutshell, money laundering involves disguising money made from illegal activity as something more legitimate and legal. When done effectively, it usually involves the movement of small amounts at a time to remain under the radar. To prevent this activity from happening, many firms have secured anti-money laundering (AML) policies.
It originated as physical cash, but today, electronic money laundering has opened up new avenues that help it to remain undetected.
What are the financial errors that lead to money laundering in businesses?
- Blending funds. Historically, the term ‘money laundering’ came from businesses blending illegal funds through laundrettes, which typically have minimal variable costs.
- ‘Smurfing’. By reducing a large amount of money into smaller sums, there’s less risk of you being reported, as it won’t be flagged as suspicious. This money can be spread across multiple accounts to further decrease suspicion.
- Invoice fraud. Over or under-invoicing is a common method of money laundering. Other techniques might include inaccurate descriptions of goods or services or supposed shipping that hasn’t been actioned.
How can you protect your business from money laundering?
There are a few things you can do to help protect your business from money laundering.
Keeping records is key and having the right technology will help you monitor your accounts thoroughly. Being able to filter them by client identity, overseeing transactions and keeping track of your outputs will help your firm spot suspicious activity. As well as this, working with an accountancy firm can help with keeping on top of your financial movements.
Your anti-money laundering programme should be reflective of your business – otherwise, you’ll be relying on external consultants to compile a plan that does not align with how your business operates. You should also design your policy and consequent procedures in a way that takes a lead from your financial crime risk management framework.
Seeking legal advice can help equip you with the correct knowledge to save you from reputational damage, particularly if you face an investigation.
Risk-based due diligence, covering everyone from customers to associates, will help iron out any irregularities that pose a threat, as recommended through government guidance. If you identify higher risk in a particular area of your firm, you should amp up the due diligence levels.
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