BAE Systems research shows that money laundering, which accounts for almost $2trn each year, is having an increasingly devastating effect on societies around the world. The criminals behind money laundering are finding ever more sophisticated ways of disguising their activity. Research shows that money laundering activity has a significant impact on society as it drives up property prices and increases taxes and insurance premiums while also funding other criminal activity such as the drugs trade and international terrorism.

The nature of money launderers

To help businesses recognise the threats to their business, BAE Systems’ subject matter experts analysed customer data to identify the people most commonly involved in money laundering. They are:

1. The Source – White collar fraudsters and organised crime gangs making illegal profit from their crimes. As a result of operating outside the law they need their money ‘cleaned’ before it can be used.
2. The Leader – Leaders are clinging to power and stripping their country of wealth to line their own pockets. Their outcast status causes the Leader to resort to subterfuge to hide their funds and spend money on the things that keep them in power. 
3. The Bystander – Bystanders don’t facilitate crime but are happy to turn a blind eye while their mysterious client lines their pockets. 
4. The Watched – People on international watch lists who could either be corrupted or facilitate corruption for a price.
5. The Shark – Sharks enable crime by helping move illicit funds through the banking system, profiting themselves along the way. 
6. The Shop Front – Legitimate-looking businesses that exist to launder money, catering specifically to criminals.  

AML prevention

In their report, The Invisible Network, on each type of person involved in money laundering BAE Systems show to protect your organisation from:

1. The Source:
   • The best time to spot them is at the placement stage of the laundering cycle
   • Those organisations with the right Know Your Customer (KYC), Ultimate Beneficial Ownership (UBO) and Customer Due Diligence (CDD) controls in place have a better chance of spotting laundering attempts
2. The Leader
   • Strong controls on Customer Due Diligence, Know Your Customer and Ultimate Beneficial Ownership
   • Current and comprehensive PEP and Watch List checks
   • Transaction filtering controls to weed out suspicious or known-bad parties
3. The Bystander:
   • Bystanders often obey the letter of the law, if not necessarily the spirit of it. Looking for loopholes and ensuring strict policies procedures and controls are in place is vital
   • Bystanders won’t actively raise the alarm – so due diligence around KYC, CDD and UBO should involve a third party in some way
4. The Watched:
   • Sanctions and PEP lists are hugely helpful, but they can’t be used in isolation. They must be incorporated into a proactive efforts to root out and exclude subjects.
   • Organisations are penalised for failures to flag the Watched. A proactive approach to uncovering networks is much more effective than box-ticking
5. The Shark:
   • Spotting insider activity is incredibly difficult, but examples from successful prosecutions and arrests can point the way 
   • Sharks are often not on Sanction or PEP lists, but they may be found on interdiction lists most financial institutions hold
6. The Shop Front:
   • Shop Fronts exist to get around controls and checks, and it’s often a case of collecting information on the shop fronts as well as the parties they try to mask
   • Press report and occasional appearances on Sanctions or PEP lists should be seen as a sign to conduct more rigorous due diligence
   • The Common Reporting Standard will come into effect at the end of 2017, and preparation to take full advantage of its measures is worthwhile.

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CTMfile take: Sound advice from a leader in the AML business.