Some people will find this month’s column too simple. Some will find it patronising. To those people, we start with an unreserved apology. WMLR is aimed at all levels of readership, from the most junior bank clerk to the chairman of international corporations, from those with a high standard of English to those for whom English is a second or even third language. To be able to cater for such a diverse group is a challenge. That challenge is made even more difficult because the range of readership extends from those just beginning to learn about money laundering to those for whom the detection and prevention of money laundering is a way of life. More, readers in some countries will be at the stage where their governments have not made any attempt to deal with the problem of money laundering and some will have had anti-money laundering laws, in one form or another, for many years and there will be informed - or uninformed - debate about proposals for changes in the law.

For that reason, WMLR begins the BASICS series with the most fundamental of issues:

Terminology.

The words used in money laundering related discussions are technical. To describe the stages that money goes through, the proper terms are “placement, layering and integration.” Jeffrey Robinson in his book “The Laundrymen” calls the stages “wash, rinse and spin”. Your editor, Nigel Morris-Cotterill, in his book “How not to be a money launderer” describes the stages as “hide, move, invest.”
Whichever term is used, the actual stages are the same: the money is entered into the banking system, is passed from account to account and then used in a way designed to reduce suspicion as to how the person spending it came by it. In short he places or hides the money in the financial system, layers or moves it around within the financial system and then integrates it or invests it in the economy by buying a business or an asset.

The money is said to be placed or hidden in the financial sector, rather than in the banking sector, because it can be put in a wide range of places - from buying a car (so that the car dealer puts the money into a bank) to putting the money into a lawyer’s client or trust account to buying a savings bond or shares.

Money does not mean, in money laundering terms, only cash. In different countries is means different things. In the USA, for example, it means cash, cheques, bankers’ drafts, securities and money’s worth. In the UK, it means anything that represents the money. So it can include cars, houses and jewellery, for example.

Money Laundering means the process by which the proceeds of crime are disguised so that the criminal can enjoy the results of his criminal conduct.

Different jurisdictions have different definitions of what conduct can result in the gaining of money which is regarded as the proceeds of crime or criminal conduct. Crime and criminal conduct do not necessarily mean the same. Some countries add a further definition and talk about unlawful conduct. The significance of this is that unlawful conduct is not necessarily criminal. It may be a civil wrong.

The different definitions are very important when enforcement agencies (including in some cases those seeking to recover moneys in civil cases) are trying to operate across borders. This is because many governments will cooperate with a foreign investigation only where there is commonality of offence. This means that the conduct that the originating prosecutor complains about must be an offence in both the country where the prosecution is taking place and in the country where the investigator is trying to find information.

This has proved a particular barrier in in securing exchanges of information under Mutual Legal Assistance Treaties or MLATs. An MLAT is an agreement between states that set out the terms upon which each will assist the other in cross border investigations. It is the lack of commonality of offences that causes much of the friction between so called “offshore” jurisdictions and the supposedly better regulated onshore territories. The problem is that many jurisdictions do not recognise tax crimes as offences or, if they do, the ambit is very narrow and, unless the criminal conduct falls precisely within the definition of tax crime in the target jurisdiction, there is no commonality of offence and so the request for assistance is denied.

The commonality of offence principle has an unfortunate side effect in relation to money laundering legislation. In many countries around the world, money laundering is an offence only where the money being followed is the proceeds of drugs trafficking, and even that is defined differently in different jurisdictions. As a result, the tracing of money resulting from offences other than money laundering can grind to a halt.

There are two types of confiscation laws. The first requires a successful prosecution, after which the prosecutors seek a confiscation order, identifying to the satisfaction of the judge property said to be the proceeds of the crime(s) for which the convicted person has been sanctioned. The other is an order for seizure. This is an application to the Court for an order that a person has property or assets that he appears to have no legitimate reason to own. The burden of proof, in common law jurisdictions, is generally the civil burden (i.e. it is decided on the balance of probabilities) and the application is made ex parte (i.e. without notice to the target). It is then for the target to make an application to the Court for the return of the property. This latter type was developed in the Courts of the USA, mainly in California, and then taken up by legislatures, notably the Republic of Ireland.