What is money laundering?
Money laundering is a process which criminals use to make it look like the money they have is legitimately earned. What they’re doing is taking ‘dirty money’ – and effectively ‘cleaning’ it.
When they make money, criminals need to disguise how and why it came into their hands. Money laundering lets them do that, by making it look like the money they have is from a legal source.
In the UK, money laundering is a very real problem – it’s thought that British financial institutions spend around £5 billion every year fighting financial crime. However, the efficiency of how effectively the UK fights money laundering has been criticised by some MPs, who believe the UK’s efforts are 'highly fragmented'.
How does money laundering work?
Money laundering tends to be a three-step process, but it can often be much more complicated. Criminals want to make it as difficult as possible for the authorities to trace the source of the money, so the more complex the ‘laundering’, the less likely they are to be found out.
This is when the criminals' money enters the real world in cash. For the criminals, this is often the most 'dangerous' stage as they're depositing huge sums of physical money – most of the activities they’re involved in, such as weapons or drugs, aren’t paid for with cards.
Criminals will then look to place their money into circulation in bulk. There are several ways to do this – often they’ll repay a loan, give someone a loan, or gamble it on a safe bet. Alternatively, they might put it into a cash-only business, exchange it into a different currency, or invest in property.
The money switches hands – and countries – to further hide its original source. Money may be moved overseas, be invested in various financial products or companies, or offshore accounts.
Think of this stage like a street trick with three cups – the money is moved around so frequently, and at such a fast pace, it’s nearly impossible to know where it started.
During the final stage, the person who initiated the original laundering will get their money back – but this time it’ll be in a legal capacity, such as an art or property investment.
Why do banks need to do anti-money laundering checks?
All banks need to check for money laundering before they can accept money from you. They can happen at any time, but they’re usually only used when dealing with transfers for large amounts of money.
The checks help banks make sure you are who you say you are, and that the money you’re depositing has been earned or given legitimately.
Don’t worry if you’re given an anti-money laundering check – you’re not under suspicion, and everyone is given one.
These checks do appear as a soft search on your credit report.
What are anti-money laundering (AML) checks?
These are checks to make sure that investors in a business are legitimate, and that they’re investing for themselves – not other people who may have come into money via illegal means.
The checks tend to start with information about investors on the electoral register, but investors may also be asked to provide documentation to confirm their identity – and their address.
If you’re investing in a business and you’re asked to provide documentation, the following are normally accepted:
For your identity:
- Current signed passport
- Full driving licence
- Birth certificate
For your proof of address:
- Full driving licence
- A recent utility or council tax bill, or a mortgage statement
- A recent bank statement
You may find that provisional driving licences, mobile phone bills and credit card statements are not accepted as a proof of identity or a proof of address.
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