Money laundering: what is it, and why should we care?

Money laundering: how it affects all of us
We launched our Keep Your Business safe series to keep our members and other small business owners aware of the types of fraud that may affect them. Previously, we looked at Authorised Push Payment (APP) fraud, including CEO fraud. Fraud is just one type of financial crime – as is money laundering.

Money laundering is defined as the process of turning illicitly-gained money into something that appears to have a genuine and legal origin. Criminals around the world are involved in money laundering, and it’s estimated that between 2% to 5% of global GDP is laundered globally on an annual basis.[1] That’s between $800 billion and $2 trillion – so this is big business.

How is money laundered?
The process of money laundering often involves passing money through multiple bank accounts, with the idea that the more accounts the money passes through, the harder it is to trace its illegal origin – therefore making the funds appear legitimate. It can also involve putting illicitly-gained money into a business, disguising it as genuine business proceeds. If law enforcement were to ask where the money came from, they can claim that it’s profit from their business.

Let’s look at an example. A criminal has defrauded a victim out of £100,000, and now wishes to use it to buy a house. The criminal can’t go to an estate agent with £100,000 in cash and buy a house, as the estate agent will require proof of where the cash came from. Similarly, they can’t just deposit the £100,000 into their personal bank account, and then go to the estate agent to buy the house. Their bank should ask questions about the origin of the money – particularly as it’s such a large sum – and so too should the estate agent. The criminal therefore needs to launder the money to make it look legitimate – so that it looks genuine to the bank, and to the estate agent. They could do this in a number of ways, such as disguising the money as genuine proceeds of a business through false invoices, or saying that the money is from a client who doesn’t actually exist.

Why should I care about money laundering?
The process of money laundering means that criminals get to benefit from their crimes – and ultimately, there’s always a victim behind them. This could be the small-scale local drug dealer, who launders the proceeds of selling drugs and uses it to buy designer clothes or a nice car with no questions asked, or people traffickers in organised crime groups, right up to corrupt heads of government who launder the proceeds of corruption to the detriment of their country and innocent citizens. Money laundering has devastating impacts on societies. As a regulated financial institution, Tide is not only legally required to prevent and detect money laundering, but we think it’s hugely important to do so morally and ethically.

And how does this impact Tide?
Unfortunately, criminals like to exploit financial services wherever possible – and it’s our job in the Financial Crime team to ensure that they don’t use Tide to benefit from their crimes. We don’t want our platform or systems to be used to facilitate money laundering, and it’s more than just a regulatory requirement for us. The team work super hard every day to ensure that we’re not part of the financial ecosystem that allows criminals to launder money. We prevent our systems from being used to launder money every day, and we’re constantly working harder to ensure we stay one step ahead of the criminals.

For more on how Tide is combating financial crime, check out more from our blog and our Financial Crime team:

How to protect your business from CEO fraud
Here’s how you can keep your small business safe from fraudsters
Meet Becky, our Head of Financial Crime

[1] Money-Laundering and Globalization, UNODC