Money laundering: (cautionary) tales of the unexpected
It is estimated by the UK Government to cost the UK economy more than £100bn each year and by the IMF to equal a staggering 2-5% of global Gross Domestic Product.
Recent media reporting1 provides a timely reminder of the endless inventiveness of criminals and the diverse areas of money laundering risk. Companies and institutions in the UK need to be alive to these risks even if they are not subject to The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (the MLRs).
Spotify streams – listen to this
In Sweden, we understand that criminal gangs have been producing music (or, at least, artists affiliated with them have) and uploading proprietary songs to Spotify. The same criminal gangs have then purchased fake streams for these songs – which in turn helps the songs top the charts and drive “real” streams by new, human listeners – and then collect the “clean” streaming revenue. The “fake” streams were reportedly purchased using Bitcoin, adding another layer of anonymity to the scheme.
This relatively simple arrangement reportedly generates significant, clean revenue streams for criminal gangs and uses a popular and widely available tool to do so, almost in the open. We can see no reason why other, similar platforms could not be used in the same way – schemes like this might be widespread and could occur equally in the UK as in Sweden, or elsewhere.
It is a good example of the inventiveness of criminals and the pervasiveness of money laundering risk. Anyone conducting a risk assessment or producing anti-money laundering policies and procedures would be well-advised to look at this example and consider in which creative or unusual ways their organisation might be exposed to money laundering or other financial crime. It is also a pertinent example of how money laundering can occur in businesses that are not subject to the MLRs, which may have led them to discount the need to consider anti-money laundering (AML) arrangements.
University tuition – cashing in
New research also shows that in recent years many UK universities have accepted very large payments in cash for tuition fees. In response to information requests on the subject, three universities confirmed they accepted more than £1m in cash in 2019/2020 and more than a fifth of universities that responded confirmed they still accept cash for tuition fees, accommodation, or both. These large cash payments inherently present a high money laundering risk.
Furthermore, a large proportion of UK university students come from abroad. 22% of the total UK university population were international students in 2020/21. This presents its own risks. Academic research has identified a “small but significant illicit financial flow” from West African PEPs into the UK’s higher education sector. Recent analysis concludes that higher education institutions in the UK “are particularly likely to become recipients of laundered funds”.2
Readers may also recall early 2019, when the National Crime Agency secured Account Freezing Orders in relation to 95 bank accounts, belonging mainly to Chinese students, on suspicion of money laundering. The combination of cash and high-risk sources of payment at certain universities produces yet another example of an industry that is subject to money laundering risk, in theory and in practice, but that is not subject to the MLRs.
The case of the university tuition fees also provides a further, sobering reminder of why companies and institutions – including those that have already implemented measures to comply with the MLRs – should take a serious and rigorous approach to AML compliance. There have been numerous examples of student loans being fraudulently used to fund terrorism, both abroad and in the UK. This includes the case of the Manchester Arena bomber in 2017, who reportedly used student loans to fund trips abroad to attend terrorist training camps. Effective AML arrangements are not just a matter of box-ticking and compliance. The failure to combat money laundering can have devastating consequences.
POCA
Most music-streaming services and universities may not be subject to the MLRs, but it is worth remembering that all people and companies in the UK are subject to the Proceeds of Crime Act 2002 (POCA). They could therefore commit and be prosecuted for a “substantive” money laundering offence under ss327-329 POCA.
Therefore, while at first it may seem that certain companies or institutions are not required to implement AML arrangements, there may in fact be very good reason for them to do so, at least in some form. Submitting Suspicious Activity Reports (SARs) at appropriate times can avail people or corporates with a defence to committing substantive offences under POCA. Good AML arrangements are essential in order to detect and respond to money laundering risks, including identifying when a SAR may be required.
We also note with interest that in the current Parliamentary “ping pong” of the Economic Crime and Corporate Transparency Bill, the House of Commons recently rejected introducing a corporate criminal offence of “failure to prevent” money laundering. The reason given was: “Because the law already makes sufficient provision in relation to the prevention of money laundering”. The meaning is clear – the Government considers there are the necessary legislative powers in place already to substantially achieve what a new “failure to prevent” offence might do. Companies should therefore take note and consider whether they might be at risk of facilitating money laundering and, perhaps, be at risk of prosecution for the same, even if they are not subject to the MLRs.
Conclusions
The threat of money laundering and terrorist financing remains pervasive and can take many forms. These are dynamic and insidious crimes. As shown by the recent examples, the threat can arise in areas and by methods that are perhaps unexpected. Companies and institutions everywhere would be well advised to consider these cautionary tales and review their own AML arrangements in light of them. We hope these examples serve to illustrate the risk of money laundering arising “in practice” and can be used to inform risk assessments, policies, procedures and staff training.
Even companies and institutions that are not subject to the MLRs may wish to carefully consider whether they should implement AML arrangements or, at a minimum, conduct a risk assessment in this field. It is entirely plausible that the scope of the MLRs is expanded further, as it has in recent years, to reach new areas, industries and sectors. Being ahead of that curve might be hugely beneficial down the line, as well as demonstrating good corporate governance and responsibility in the short term.
We will continue to watch for and highlight unusual and interesting examples of money laundering in practice. It is clear that criminals will continue to innovate in this area. In order to be truly effective, companies and institutions will likewise need to constantly monitor and review their AML arrangements to ensure they are not left behind.
1 Articles published online in The Guardian dated 5 September 2023 and 7 September 2023.
2 Prof Ryder, Dr. Bourton, D Hall and Dr Hillman, Higher education institutions and the Anti-Money Laundering and Counter-Terrorism Financing Regulations, Crim. L.R. 2023, 9, 560-580 (at page 564).
