Money laundering is the process of taking the proceeds of criminal conduct and making them appear to derive from a legitimate source. In the UK the substantive offences are contained in Part 7 of the Proceeds of Crime Act 2002 (POCA): concealing criminal property under section 327, becoming concerned in an arrangement under section 328, and acquiring, using or possessing criminal property under section 329. These offences carry a maximum penalty of 14 years’ imprisonment and apply to everyone, not only to regulated firms.
The three stages of money laundering
Money laundering is conventionally analysed in three stages. Placement is the introduction of criminal proceeds into the financial system, for example by depositing cash. Layering involves moving the funds through a series of transactions, transfers or conversions to distance them from their origin and obscure the audit trail. Integration is the final stage, where the funds re-enter the legitimate economy as apparently clean assets, such as property or business investments. In reality these stages frequently overlap.
Why it matters
Understanding the stages helps firms recognise where their products are most vulnerable. Cash-intensive businesses are exposed at placement; correspondent banking and complex corporate structures at layering; high-value asset markets at integration. Recognising activity consistent with any stage may give rise to a duty to report under section 330 of POCA, where a person in the regulated sector knows or suspects, or has reasonable grounds to suspect, money laundering.
Who it applies to
The criminal offences apply to everyone; the reporting and prevention duties fall on the regulated sector under POCA 2002 and the Money Laundering Regulations 2017.
Related terms
SAR, CDD and tipping off.