What is money laundering?

Organised crime poses one of the greatest economic threats in the UK, Europe and globally. At its core, money laundering underpins and facilitates many types of organised crime, from drug trafficking and terrorism to arms dealing and human smuggling.

So, what is money laundering in simple words? It’s the process by which individuals conceal illegal financial gains, making it appear as though they were obtained legitimately. Money laundering allows criminals to benefit from their crimes, perpetuating illegal activities that harm society.

I am sure you will agree that none of us want to play even a small part in this process and encourage these activities. We must not lose sight of the fact that this could be any of your clients as the perpetrator or the victim.

As a professional in a regulated industry, it’s essential to understand the meaning of money laundering and why criminals may try to use your services to facilitate it. By doing this, you can ensure anti-money laundering (AML) measures are fully embedded into your work, protecting your business, clients and colleagues.

Understanding the technical definition of money laundering

To give you a description of money laundering in its simplest terms, it is doing just about anything with the proceeds of crime in any form—whether hiding, transferring, spending or converting them. This also includes planning or assisting someone in laundering criminal proceeds, knowingly or unknowingly.

In legal terms, the Proceeds of Crime Act 2002 defines money laundering as:

• Concealing, disguising, converting, transferring, or removing criminal property
• Assisting someone in acquiring, retaining, or controlling criminal property
• Acquiring, retaining, or using criminal property

The proceeds of crime are referred to as “criminal property,” and any reduction in liabilities gained through criminal activity—such as unpaid taxes—is also considered criminal proceeds. For example, if a client reduces their tax liability by misreporting income, the saved amount becomes criminal proceeds, and using it constitutes money laundering.

To read a more detailed definition of money laundering in UK legislation, please refer to the Proceeds of Crime Act 2002 Part 7.

Criminals are determined to profit from their illegal activities, even if it means accepting a loss in value to make their gains appear legitimate. The primary purpose of money laundering laws globally is to prevent offenders from enjoying the financial benefits of their crimes. By cutting off their access to these proceeds, the incentive to commit such crimes in the first place is significantly reduced.

The process of money laundering

The process of laundering money allows criminals to hide the illegal origins of their proceeds. The aim is to make these funds appear legitimate so they can be used freely. The United Nations Office on Drugs and Crime estimates that over $2 trillion, around 2–5% of global GDP, is laundered annually.

Criminals employ increasingly sophisticated methods to launder money, taking advantage of businesses that fail to meet their AML obligations. Understanding the processes criminals use is critical:

Examples of money laundering methods:

• Smurfing: This method involves breaking a large sum of illicit money into smaller, less conspicuous amounts to avoid detection. Criminals often enlist the help of associates, family members or friends—sometimes across multiple countries—to deposit these smaller sums into various accounts. The funds are then consolidated and transferred back to the criminal’s account to appear legitimate.
• Round tripping: In this scheme, funds are circulated through a complex network of accounts, individuals and shell companies—often in countries with weak AML regulations—before being returned to the original owner as ‘clean’ money. The aim is to create a convoluted trail that is difficult for authorities to trace.
• Shell companies: These are businesses that exist only on paper, with no real operations or assets. Criminals exploit these entities to disguise the origins of illegal funds. For instance, one shell company might transfer funds to another, ostensibly as payments for non-existent goods or services. Both companies could be controlled by the same criminal group, creating an illusion of legitimate transactions.
• Reselling assets: Criminals purchase high-value items, such as property, luxury vehicles, jewellery or artwork, using illicit cash. They then quickly resell these assets—often at a loss—to convert the funds into legitimate-looking bank transactions, effectively ‘cleaning’ the money.
• Cryptocurrencies: Virtual currencies like Bitcoin and Ethereum provide an attractive avenue for money laundering due to their minimal regulation and the anonymity they offer. Unlike traditional financial systems, cryptocurrencies allow criminals to move large sums across borders with limited oversight.
• Trade-based money laundering: This method involves manipulating the value of goods or invoices in trade transactions to obscure the movement of illicit funds. By routing money through international trade and involving multiple individuals or businesses, criminals can bypass conventional AML measures and make the transactions appear legitimate.

These examples highlight why professionals must remain vigilant. Criminal methods constantly evolve, making it vital for regulated businesses to stay ahead of the threat.

Why are professionals of interest to money launderers?

Regulated professionals act as critical ‘gatekeepers’ and the first line of defence against criminal proceeds entering the UK’s financial system. By facilitating key transactions and offering essential services that underpin the UK economy, regulated professionals play a vital role in ensuring their services are not misused to advance illegal activities.

These same services can be exploited by money launderers when professionals fail to adhere to their anti-money laundering (AML) obligations or do not maintain sufficient vigilance.

How could your business be targeted for money laundering?

• Holding illicit funds in bank accounts or using complex business structures to obscure the true ownership of criminal proceeds.
• Introducing clients who are actually involved in money laundering to other professionals, or setting up legal entities that facilitate laundering activities.
• Buying, selling or transferring ownership of properties and businesses to legitimise illegal earnings.

Since 2015, professional services have been classified as higher-risk sectors in the UK National Risk Assessments due to their potential for misuse.

The role of ‘professional enablers’

The fight against money laundering hinges on professionals identifying, reporting and disrupting illegal financial activity. The concept of the ‘professional enabler,’ as defined in the Economic Crime Plan 2023/26, highlights the issue:

“A professional enabler is an individual or organisation that is providing professional services that enable criminality. Their behaviour is deliberate, reckless, improper, dishonest and/or negligent through a failure to meet their professional and regulatory obligations.”

Professional enablers can often be unaware of their role in facilitating money laundering. Yet by acting negligently in meeting their obligations they unknowingly assist criminal enterprises. Regardless of intent, these professionals are key players in helping criminal proceeds integrate into the UK and global financial systems under the guise of legitimate business.

To combat this threat, it’s essential for all regulated professionals to fully understand who their clients are, what their services are being used for and how to implement appropriate safeguards. By taking the necessary steps, you can prevent your services from being exploited and contribute to the wider effort to disrupt organised crime.

Why is money laundering relevant to you?

As a regulated professional, you’re legally required to comply with the Proceeds of Crime Act 2002 (POCA) and AML regulations. Even unintentional involvement in money laundering could lead to financial penalties, reputational damage or even imprisonment.

Please do not pretend to yourself that your services could never be used to launder money. Everyday activities, such as signing off accounts, handling client funds or setting up new companies, could inadvertently facilitate money laundering. Examples include:

• Processing false invoices
• Signing off false accounts
• Managing property transactions
• Setting up a new company
• Dealing with tax refunds or mortgage applications

And the list goes on.

The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 and its later amendments provide a clear framework for anti-money laundering (AML) compliance. This legislation outlines the essential steps you must follow to ensure your business effectively identifies and mitigates the risks of money laundering.

In your daily operations, it’s crucial to remain aware of the very real risk of inadvertently assisting a client in laundering illicit funds. Even unintentional involvement can have serious consequences for your business.

As a regulated professional, your AML responsibilities go far beyond mere box-ticking. They form part of a much larger effort to combat organised crime. While your role may seem small, every regulated professional has an important part to play in preventing criminal proceeds from being legitimised and disrupting illegal activities.