Money Laundering: The Beating Heart of Organised Crime

For law enforcement agencies around the world, tackling money laundering is a Sisyphean task. Yet given the centrality of money laundering to the operations of organised crime groups, it is a task that must be just as central to the response to organised crime.

According to the website of the National Crime Agency (NCA), ‘Money laundering underpins and enables most forms of organised crime, allowing crime groups to further their operations and conceal their assets’. The NCA goes on to estimate that ‘there is a realistic possibility that the scale of money laundering impacting the UK annually is in the hundreds of billions of pounds’. Yet despite the vast financial impact and the centrality of money laundering to the operations of organised criminals, the UK’s history of engagement with this crime is mixed. Money laundering has never achieved as central and consistent a place in the Agency’s response as it does for the criminals it is tasked to disrupt. This matters because, as the NCA itself asserts, ‘Money laundering has the potential to threaten the UK’s national security, national prosperity and international reputation’.

There is no doubt that in the 10 years since the NCA was formed, money laundering has loomed large as a threat. New legislation (such as the Criminal Finance Act 2017) has been introduced, and the response to money laundering – and the broader issue of economic crime – has received dedicated attention, first via the creation of the Economic Crime Command within the Agency from the outset, and then through the establishment of a Director-General-led National Economic Crime Centre in October 2018, with the aim of ‘Improving the UK’s response to economic crime’, including money laundering.

A particular challenge the UK has faced in developing its response to money laundering relates to the way in which the threat has evolved along two primary axes. Firstly, the predicate offences that generate the proceeds of crime which need laundering have evolved – or at least the government’s priorities have changed over the past decade. And secondly, the tools available to organised criminal groups for laundering the proceeds of crime have diversified immensely over this period.

The Changing Face of the Threat

When the Serious Organised Crime Agency (SOCA) – the forerunner to the NCA – published its final annual report almost 10 years back, the phrase ‘money laundering’ (or any variation of it) did not appear even once. At the same time, the 2013 Serious and Organised Crime Strategy provided a familiar list of serious and organised crime threats that would endure for the following 10 years, including drug trafficking; human trafficking and organised illegal immigration; high value fraud; and cybercrime. Money laundering featured too, but it is a mark of how far the assessment of the threat has come since 2013 that at that time, SOCA estimated the value of money laundering in the UK at ‘in excess of £1 billion a year’, laundered through money service businesses and other informal value transfer systems. As noted earlier, 10 years on, the NCA puts the figure – more broadly drawn – in the hundreds of billions of pounds.

Why is this? While there is no doubt that the nature of the money laundering threat to the UK has expanded, with the rapid advance of cyber-enabled crime and an expansion in the sophistication of the tools available to criminals, it is also the case that over the past 10 years, the NCA has opened its eyes to the centrality of the money laundering threat faced by the UK. One contribution to this expanding awareness stems from outside the UK.

In 2012, the global anti-financial crime standard setter, the Financial Action Task Force (FATF), updated its methodology for evaluating countries’ capabilities. What had previously been a technical review, assessing the presence of laws and other elements of bureaucracy, would now become more inquisitorial, checking not only ‘technical compliance’ with the FATF standards, but also the effectiveness of a country’s response. The first step in this process was the need for a country to produce a National Risk Assessment (NRA), through which it was required to demonstrate that ‘Money laundering and terrorist financing risks are understood and, where appropriate, actions co-ordinated domestically to combat money laundering and the financing of terrorism and proliferation’.

The result, in the UK’s case, was the publication of ‘the first comprehensive assessment of money laundering and terrorist financing risk’ in October 2015. From a money laundering perspective, the NRA was clear. While UK law enforcement may have known more about the cash-based money laundering traditionally used by drug traffickers whose proceeds are most often in cash, this was merely the tip of the iceberg. In contrast, the vast, wholesale money laundering activities derived from the size and complexity of the UK financial sector meant that there were significant intelligence gaps. These were identified especially in what the NRA termed ‘high-end money laundering’, with sectors of the regulated UK system almost untouched by oversight due to the inconsistency of supervision.

In short, the intelligence picture was identified as patchy at best, with significant holes in understanding – and thus in the response – revealed. If the UK was to meet the FATF’s expectations in its evaluation, scheduled for 2018, it was going to need to make significant progress.

The McMafia Moment: A Growing Awareness of the Shortfall in Response

Spurred on by a growing understanding that following the money – be it cash or digital, carried in bags or via banks, hawalas or the growing FinTech industry – was going to be central to boosting the UK’s response to money laundering, the period from 2016 to 2019 represented a relatively positive one for UK progress. Prime Minister David Cameron had hosted the Global Anti-Corruption Summit in April 2016, which built on the acknowledged role of London as a preferred destination ‘for foreign fraudsters…to stash [their] dodgy cash’. When she entered Downing Street, Theresa May brought with her an interest in and understanding of illicit finance. Initiatives such as the Joint Money Laundering Intelligence Taskforce (JMLIT) – established in 2015 – got into their stride, facilitating formal collaboration against money laundering between the public and private sectors. And the Criminal Finances Act 2017 provided further powers for law enforcement to combat money laundering, including the introduction of Unexplained Wealth Orders, a tool that – it was hoped – would provide a reverse burden-of-proof mechanism to force certain hard-to-investigate money laundering cases to a satisfactory conclusion.

While laws, supervision and enforcement capacity have been critical elements in improving the response to money laundering, leadership is also important. It was therefore perhaps the addition of ‘and Economic Crime’ to the title of then-Minister of State for Security Ben Wallace in December 2017 that provided the greatest impetus to the UK’s response to money laundering in that period.

A year later, he launched the government’s Serious and Organised Crime Strategy. Speaking in November 2018, with his back to a plate glass window dozens of floors up in the Shard in central London and with the City – London’s financial heartland – spread out behind him, Wallace reached not for a story about a constituent who’d accosted him or a financial investigator he’d met. He reached instead for the hit TV series of the day, McMafia, noting the impunity criminals felt from the police and financial regulators.

Closing the Gap

It would be churlish not to acknowledge the significant progress made in understanding and resourcing the response to money laundering in the UK, led by the NCA, over the last 10 years. Whether it is the creation of dedicated structures such as the National Economic Crime Centre, the passing of new legislation, or the significant commitment of staff and financial resources by the private sector to initiatives such as the JMLIT or the Economic Crime Levy, progress has clearly been made. But the open question is whether that progress has helped close the gap on the criminals who have themselves continued to develop their capabilities to launder the proceeds of crime.

Like so much of organised crime, the nature of money laundering has become more sophisticated, more complex, more organised and more tech-enabled as the use of cyber and crypto has expanded. Generative AI is also beginning to be used by criminals to create false documents to cover their financial tracks. Just as an organised crime group can draw on multiple different services to achieve its money laundering aims, so too must the NCA be part of a broad coalition of agencies and departments if the government is to make meaningful inroads into the UK’s money laundering problem. The NCA can lead, but it is not equipped to succeed in this fight on its own – greater coordination across the fragmented UK response is needed.

So, what should the next 10 years of effort against money laundering look like? Following the passing of the two most recent economic crime bills, there is now ample legislation available for law enforcement, and this should be used to its fullest effect. But the step change in response will come from developing a far better intelligence picture of the facilitators of money laundering themselves.

The NCA’s 2023 National Strategic Assessment (NSA) is a good place to start. It underlines the multi-dimensional nature of money laundering in the UK, from the simplicity of hawala, Chinese underground banking and other informal value transfer networks to the complexity of ransomware, market abuse and cryptocurrencies. Money mules and electronic money institutions, which were nowhere to be seen in the money laundering response lexicon 10 years ago, feature prominently too.

The key message from the NSA is that money laundering methods are numerous, with professional money laundering service providers available when required. To get ahead of the threat, therefore, greater investment is needed in intelligence gathering to identify the key nodes that facilitate money laundering, whether it be the mule herders that coordinate multiple money mule accounts, the illegitimate professional service providers that create front companies and falsify ownership documents, the cryptocurrency exchanges and mixers that allow criminal proceeds to flow internationally without being traced, or the exchange house controllers located offshore that orchestrate underground banking and other forms of value transfer.

A decade since the NCA was created, the UK’s response to money laundering has advanced meaningfully, yet so too have the complexity and sophistication of the methods used by criminals. The challenge ahead for the UK thus remains immense if it is to make inroads into the hundreds of billions of pounds it assesses may be laundered through the country every year.

The views expressed in this Commentary are the author’s, and do not represent those of RUSI or any other institution.

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