The UK’s status as a global finance centre, its openness to trade and foreign investment and the relative ease of doing business here in the UK are all attributes that drive the prosperity of the country. However, these considerable strengths also make the UK vulnerable to a diverse range of financial crimes, including money laundering.
Money laundering in the UK is on the rise
Money laundering underpins and enables most forms of organised crime, allowing criminal organisations to expand their operations, conceal their ties to illegitimate earnings and evade the associated legal consequences.
The precise scale of money laundering in the UK is unknown, but it is estimated that it could run to tens or hundreds of billions of pounds per year. These staggering sums represent criminal finances channelled through the UK, facilitated by UK structures, as opposed to those that directly impact the country, it is still thought that these crimes cost the UK economy up to £37 billion per year.
Despite concerted efforts by the authorities to combat the issue, money laundering is seemingly on the rise. The 2020 Suspicious Activity Report (SAR) Annual Report saw a record 573,085 SARs, representing a 20% increase on the previous 12-month period.
Traditional high-risk areas of money laundering remain – financial services, money service businesses, real estate, and cash. However, new methods of money laundering are emerging as criminals adapt to new regulatory environments as they seek new opportunities to exploit vulnerabilities in different sectors, technologies and financial markets.
Enforcement & regulatory agencies are growing increasingly concerned surrounding the influence and impact of two major tributaries of ‘dirty money’ flowing into the UK. While one of these areas of concern is all too familiar (especially in the London property landscape), the other is considered much more ‘new-age’.
Russian money laundering
A longstanding and ongoing issue in the fight against money laundering in the UK is the continued prevalence of Russian money laundering in London, with the Director-General of the National Economic Crime Centre, Graeme Biggar, claiming that up to half of all money laundered from Russia is laundered through the UK.
Similar points were raised in the Intelligence and Security Committee report on Russia, published in July 2020, noting that London is considered a ‘laundromat’ for corrupt money.
One of the key issues raised by Graeme Biggar is the way Russian organised crime groups and oligarchs exploit the limited number of restrictions on establishing businesses in the UK, enabling them to set up apparently legitimate companies both in the UK and offshore, but which are primarily used as a mechanism for laundering illicit funds.
Speaking to Westminster’s Treasury Select Committee, Biggar said:
“We’ve done analysis recently in laundromats that have come out of Russia and the former Soviet Union. A disturbing proportion of money that comes out of those laundromats – not much shy of 50 per cent in one case – were laundered through UK corporate structures. Not through the UK or UK financial institutions…but corporate structures that have been set up through UK systems.”
As well as exploiting corporate opportunities in the UK, Russian organised crime groups are also using illicit funds to purchase considerable amounts of London real estate, with Transparency International, an NGO tracking global corruption, identifying more than £5bn worth of property [in the UK] bought with suspicious wealth – one-fifth of which was bought with funds that originated in Russia.
Organised crime and the cryptocurrencies
Cryptocurrency is becoming a vehicle of choice for illicit financial activity, the overall impact of bitcoin and other cryptocurrencies on money laundering and other types of financial crime is still relatively minor in comparison to cash transactions. However, there is a growing concern over the increasing prevalence of cryptocurrency-based money laundering schemes.
European Central Bank President Christine Lagarde recently criticised Bitcoin’s role in facilitating criminal activity, saying:
“For those who had assumed that it might turn into a currency — terribly sorry, but this is an asset and it’s a highly speculative asset which has conducted some funny business and some interesting and totally reprehensible money-laundering activity.”
Whilst money laundering with cryptocurrency is relatively new phenomena, methods and techniques are evolving. The majority of known cryptocurrency money laundering schemes have involved one or more of the following practices:
Mixing services, known as “tumblers”, enable criminal groups to split up ‘tainted’ cryptocurrency, sending it through a series of various addresses whilst mixing it with legitimate funds, so as to obscure the trail back to the fund’s original source. The funds are then reassembled to form a new, “clean” fund that can be traded on legitimate cryptocurrency exchanges or sold for fiat.
Unregulated exchanges that do not comply with AML practices allow Bitcoin to be anonymously traded, moved between unregulated exchanges, and traded for alternative cryptocurrencies.
The multiple transactions facilitate the cleaning of the bitcoin, enabling criminal groups to withdraw the cleaned cryptocurrency to an external wallet for use on a legitimate exchange so be sold for clean cash.
As of January 2021, there were nearly 14,000 Bitcoin ATMS worldwide. While some only allow debit or credit cardholders to purchase Bitcoins, others enable users to trade Bitcoins for cash and in some cases, allow cash to be used to purchase Bitcoin.
Whilst use of these machines is heavily regulated in some countries, requiring users to verify their identity, other countries have far less stringent regulations, enabling criminal organisations to anonymously buy Bitcoins or cash in Bitcoins for local fiat currency that can be exchanged for sterling and brought back into the UK.
To lower bitcoin money laundering risk, many criminals turn to decentralised peer-to-peer networks. Here, they can often use unsuspecting third parties to send illicit funds on their way to the next destination for further criminal activity.
Prepaid debit cards loaded with cryptocurrency offer another avenue for bitcoin money laundering. Prepaid cards can be used to fund different forms of illegal activities, traded for alternative currencies, or be sold on to unwitting third parties.
Gambling and gaming sites
Online gambling and gaming sites that accept cryptocurrencies are also used by criminal groups for the purposes of money laundering. Crypto is used to purchase virtual chips or credit, which users can cash out again after just a limited number of transactions.
Whilst the use of cryptocurrency in economic crime is in its infancy, Russian money laundering in the UK is certainly not.
What steps are the Government taking?
The Government has taken numerous steps in recent years to try and stem the tide of money laundering in the UK, and just last year pledged an additional £48m to tackle money laundering but one of the key moves has been the formation of the National Economic Crime Centre (NECC).
Working with regulators and law-enforcement agencies including HMRC, the National Crime Agency, the Financial Conduct Authority, and the Serious Fraud Office, the NECC co-ordinates and tasks the UK’s response to economic crime, using new powers, for example, Unexplained Wealth Orders and Account Freezing Orders, to tackle the illicit finance that funds and enables all forms of serious and organised crime.
Since its commencement, the NECC has seized £1.8 billion from criminals using the powers in the Proceeds of Crime Act 2002, and billions more have been recovered using deferred prosecution agreements and HM Revenue and Customs’ tax powers.
If you are facing charges of money laundering and want the best possible outcome for your case, it is essential that you seek the services of a criminal law firm with specialist money laundering solicitors and a track record in handling cases of financial crime.