CISI – Financial Products, Markets & Services

Topic – Financial Services Regulation and Professional Integrity

Lesson: 8.2 Financial Crime

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What is Money Laundering?

“The goal of a large number of criminal acts is to generate a profit for the
individual or group that carries out the act.

Money laundering is the processing of these criminal proceeds to disguise

their illegal origin. This process is of critical importance, as it enables the
criminal to enjoy these profits without jeopardising their source.”

Financial Action Task Force (FATF), 2016

During the prohibition era,

notorious gangster, Al
Capone allegedly bought
‘Laundromats’ to mix
proceeds from criminal
activity with legitimate
business sales
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The Three Stages of Money Laundering
3 Stages of money laundering
Placement
Cash generated Placing dirty money into
dirty money through crime e.g.
drugs, arms, stolen
a bank or building
society account
goods

The cash gained

through illegitimate
needs to be
‘laundered’ from ‘dirty’
to ‘clean’ money - as
large transactions are
not normally made
using cash
Money which appears
clean money to have been
legitimately required –
more easily invested
and spent
Layering
Moving money around
so that authorities
cannot trace it
e.g. buying and selling
currency, shares or
bonds
Integration
Dirty money is now clean
– the ultimate
beneficiary is holding
legitimate funds that can
be integrated back into
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the financial system.
The Legal and Regulatory Framework

The cross-border nature of money laundering has led

to international co-ordination to combat money
laundering

Financial Action Task Force (FATF)

http://www.fatf-gafi.org/home/

Issued recommended minimum standards for

countries:

 Expect staff and firms to be able to identify

Inter-governmental body , based at
the OECD in Paris, developing and
promoting international policies to
combat money laundering.
suspicions of money laundering and report
them.
 Reporting made to a central point in the firm
– Money Laundering reporting Officer
(MLRO)
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The Legal and Regulatory Framework - UK
Main laws and regulations relating to money laundering in the UK
THE PROCEEDS OF CRIME ACT MONEY LAUNDERING
Extended UK legislation – main offences: REGULATIONS
These regulations were brought in to implement
the EU directive on money laundering.
1. Knowingly assisting in concealing, or arranging for
the acquisition, use or possession of criminal
property.
They specify the arrangements a firm must have in
place to cover areas such as:
2. Failing to report knowledge or suspicions of
possible money laundering.  Record-keeping
 Internal Controls
3. Tipping off another person that a money laundering  Reporting requirements
report has been made.

4. Impeding an investigation e.g. Destroying

documents.
 Up to 14-years for the offence
 Up to 5-years for failing to report
or destroying relevant documents
 2-years for tipping off
POCA and the Money Laundering Regulations require a court to take account of industry
guidance when considering whether a person has committed an offence.
This guidance is provided by the Joint Money Laundering Steering Group
(JMLSG – 17 financial sector trade bodies.)
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 The Joint Money Laundering Steering Group (JMLSG)

JMLSG provides guidance to UK firms on the following

Internal Controls Money Laundering Risk-Based Customer Due Staff Record-Keeping

Reporting Officer Approach Diligence Awareness/
(MLRO) (CDD) Training

Establish and Director or Senior Controls and Firms must Money laundering Firms must have
maintain risk- Manager oversees systems must be confirm and training needs to the right systems
based policies the firm’s in place to verify information be provided for and keep the
(appropriate to compliance with manage risk. about their staff in the causes, appropriate records
the firm) and the regulator’s Must assess and customers issues, laws, – 5-years of
procedures to rules. They report decide how to depending on regulations and customer identity
prevent money to the National manage the risks. their level of risk. procedures. evidence,
laundering Crime Agency transactions,
(NCA). actions and
information.
http://www.jmlsg.org.uk/ cisi.org
What is Bribery?

“Bribery is the giving or receiving of a financial or other

advantage in connection with the "improper
performance" of a position of trust, or a function that is
expected to be performed impartially or in good faith.”

The Bribery Act 2010

Bribery does not have to involve cash or an actual payment

exchanging hands and can take many forms such as a gift,
lavish treatment during a business trip or tickets to an event.

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Bribery
Offences
Offering , promising or giving
an advantage
Requesting , agreeing to
receive or accepting an
advantage
Bribery of a foreign public
official to obtain or retain
business or an advantage
Failure by a commercial
organisation to prevent a bribe
being paid for or on its behalf.
(Makes it easier for the Serious
Fraud Office to prosecute
companies when bribery has
occurred)
Only defence for a corporate
entity is that they can show
adequate procedures were put in
place to prevent bribery
http://www.thebriberyact2010.co.uk/
A firm must have adequate
procedures in place….
Came into force
Develop well-designed policies,
July 2011 procedures and controls to ensure
compliance.
Top-level commitment with the board
and senior management committing to
conducting business in a fair, honest
and ethical manner.
Bribery risks should be monitored,
evaluated and reassessed regularly
along with undertaking staff surveys.
Ongoing risk assessments carried
out (external and internal risks)
Penalties Include:
 Max 10-Years in prison Policies and Procedures
 Unlimited fines communicated internally along
 Confiscation of proceeds with training (Code of conduct)
 Debarment from public
sector contracts
 Director disqualification Due Diligence undertaken on
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suppliers carrying out services on
behalf of the company.
Identity Fraud
All firms may find themselves targeted by criminals.

Staff working in financial services firms need to be aware that of theft of customer data to
facilitate identity fraud

Identity Theft Identity Fraud

 Impersonation fraud
 Using the identity of an other
person without their knowledge
or consent to obtain goods and
services in that person’s name
 Could be use of a person’s date of
birth, date of birth, current or
previous addresses
 Use of a misappropriated
identity in criminal activity.
 Obtaining goods or services
by deception
 Using forged identity
documents e.g. Passport or
driving licence

Firms need…
Robust Customer Due To verify the identity of a person applying
Diligence (CDD) for credit/Investment services/a new
procedures account/access to an existing account
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