Mastering the Topic of Money Laundering for your CII Exam Revision
The goal of many 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. In this article, we look at the process of money laundering, the potential criminal consequences of being involved in money laundering, and the anti-money laundering steps a financial firm should take to avoid being used by money launderers. This is useful reading for those studying for the CII’s CF1 or R01 exams.
This article is correct as at 2 February 2023.
How is money laundered?
Typically, money laundering involves three steps:
- placement;
- layering; and
- integration
Firstly, the criminal proceeds are introduced into the financial system through bank accounts, building society accounts, or sometimes investments.
Then, it is moved around to try and create confusion as to where the money has come from by transferring it through numerous different accounts – this is layering.
Finally, it is integrated into the system through more transactions until the money appears to be ‘clean’.
As you prepare for your CII R01 exam, the topic of money laundering may come up. This article explains what it is, the criminal consequences, and how to avoid being caught up in it. Share on X
Tackling Money Laundering
The Proceeds of Crime Act (POCA) 2002 is the main piece of legislation, and under these laws, it is an offence to:
- conceal, disguise, convert, or transfer criminal property or remove it from the UK;
- be concerned in an arrangement to facilitate the acquisition, retention, use, or control of criminal property;
- acquire, use, or possess criminal property; and to
- fail to disclose known or suspected cases of money laundering during business in the regulated sector.
It is also an offence to tip off the subject of a money laundering investigation.
The main offences under POCA carry a maximum penalty of 14 years’ imprisonment and/or an unlimited fine.
Money Laundering Regulations
Under Money Laundering Regulations, processes must be put in place in firms to minimise the risk of money laundering, and a Money Laundering Reporting Officer (MLRO) must be appointed for any suspicions to be reported to. This person will then make the decision as to whether a suspicion should be reported to the National Crime Agency.
The latest Regulations emphasise a risk-based approach, which means that firms should assess the level of risk their customers and situations represent, and put policies and procedures in place to match.
Processes should be in place that cover customer due diligence, which means that advisers should confirm the identity of the customer, their address, and date of birth through official documentation. Enhanced due diligence is required for politically exposed persons and where a customer is from a high-risk third country.
Electronic Identity Verification (eIDV) is increasingly used. Databases can quickly confirm an individual is who they say they are, by matching personal information.
Firms must ensure their employees are adequately trained on money laundering processes, are kept aware of the relevant legislation, and this training should be done regularly.
Offences under the Regulations carry a maximum penalty of two years’ imprisonment and/or an unlimited fine.
Record-Keeping
Records of identification need to be kept for five years from when the transaction was completed or from when the relationship with the client ended.
Grab the resources you need!
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Alternatively, you can download the taster for CF1 if you are preparing for that exam.
