What your company needs to know about money laundering

Did you know that money laundering is punishable already from the first stage? And that there are 3 phases? 

Money laundering is when you make illegal means legal. In the financial world, there is talk about how black money is washed white. Often, black money originates from criminal activities.

The proceeds of the criminal act must appear as if the perpetrators obtained them legally. Perpetrators can lawfully get money in different ways, e.g., to obscure the money's origin or change the money's identity.

What characterises money laundering?

Money laundering transactions can be different, and thereby money laundering can also be divided into several phases. What generally characterises money laundering is that you want to make the proceeds look legal. And precisely, this form of money laundering can usually be divided into three phases:

Money laundering is not necessarily seen as a particularly complicated process for criminals to commit, but it is punishable money laundering from the very beginning of the first phase.

1. Placement

In the placement phase, also called the first phase, the illegal proceeds must be placed somewhere, e.g., in the financial system in the form of a bank's cash deposit or exchange for another currency.

2. Blurring

In the obfuscation phase, the second phase, the illicit proceeds must be separated from their source through, e.g., transactions. The separation can be done by, e.g., an electronic transfer abroad. Often this happens by using a company without an actual activity.

3. Application

In the application phase, the third phase, the illegal proceeds must be returned to the originating perpetrator. A reversal can do this in the form of a changed dividend that appears legal, which takes the form of a chargeback as payment for, e.g., fictitious loans or for the payment of fictitious invoices.

Law on Money Laundering

In the EU, all financial companies are subject to the AML directive, which deals with the fight against money laundering. The directive helps prevent criminals from making money from illegal activities, which can then be used legally or used to finance terrorism.

It is crucial to combat money laundering, as this type of crime can make it difficult for law enforcement authorities to detect criminal acts. Stopping money laundering will also help prevent other forms of financial crime because the perpetrators will have more significant challenges in using their gains gained through criminal acts.

Four things to implement

1. CDD – Customer Due Diligence

The term CDD covers the actions companies can take to verify the identity of their customers, including a background check and risk assessment. Companies subject to the law in the fight against money laundering must carry out a risk assessment.

2. KYC – Know Your Customer

There are many vital aspects to knowing your customers as a company. A KYC screening is a process where the company can verify the identity of its customers. They get to know their customers by collecting personal information, which they must subsequently verify.

3. PEP – Politically Exposed Person

A PEP is a category of people who, based on their political position or power, are considered to be a customer who poses a risk of being subjected to money laundering. Due to their ability, PEPs are subject to blackmail or bribery to a greater extent, both voluntarily or under duress.

4. AML – Anti-Money Laundering

The term AML contains many laws, regulations, directives, and procedures. All these things exist to prevent or stop money laundering.