Avoid money laundering scams


Recent criminal investigations in the UK have found that honest British businesses have unwittingly been caught up in the fraudulent activities of money launderers. Here, experts tell Director how you can avoid the scams…

When the National Crime Agency announced late last year that it was investigating a £13bn money-laundering scam involving Russian criminals, Moldovan courts and a Latvian bank, it was also reported that as many as a dozen honest British businesses could have been caught in the fraud.

Had they unwittingly received funds passed through various accounts by the crooks, the better to provide a paper trail to make the proceeds of crime seem honest? And the case raises a worrying question: could even more honest British businesses become victims of the money launderers?

There’s little doubt that money laundering is a growing problem. In its 2014 reporting period, the NCA logged 354,186 “suspicious activity reports” – up 12 per cent on the previous year. Many of those reports would have come from the financial services industry – until now, the main conduit for money laundering.

But as new regulations make it more difficult for launderers to pass dirty money unnoticed through banks and other financial services providers, they are looking for fresh ways to clean their stolen cash.

And British companies could find themselves in the front line.

“London seems to be vying with New York to be the money-laundering capital of the world – and I think London could be winning,” says Kieran Beer, editor-in-chief of moneylaundering.com, a website which is operated by the Association of Certified Anti-Money Laundering Specialists.

The trouble is that fighting money laundering is a bit like playing the fairground game Whack-a-Rat, says Beer. When one scam is knocked down another pops up somewhere else. “Criminals are clever at thinking up new ways to launder – it’s their lifeline,” he says.

And money laundering isn’t only a game for the criminal Mr Bigs. There are plenty of Mr Smalls operating further down the dirty money food chain – and these are the people who may pose the most threat to smaller companies.

How much a company is susceptible to money-laundering scams depends on what it does, says Simon Dilloway, who led key financial investigations by the Metropolitan Police before setting up Lopham Consultancy.

High-risk businesses subject to money-laundering regulations include banks, estate agents, accountants, law firms and casinos. But firms that handle lots of cash – such as convenience stores, car washes and fast-food restaurants – could also be targeted by money launderers.

Here are a few scams directors should watch out for:

1. The advance payment scam

Money launderers will place a large order with your company and pay in advance. Later they will cancel the order and ask for a refund. They get most of their money back – less any cancellation charge – and the paperwork which shows that the money in their bank account came from a seemingly genuine business transaction.

“To protect yourself, you need to know who you’re dealing with when you open a new account or begin a business relationship,” says Dilloway, who runs anti-money- laundering training courses at KYC Cube. “You need to know your customers and make sure they are who they say they are.”

He advises that staff should be trained to watch out for signs of suspicious activity such as large cash payments or orders which don’t seem to make commercial sense – for example, a transaction from which it is difficult to see how the buyer would make any profit.

2. The co-mingling caper

The money launderers approach a dishonest employee in a business which handles a lot of cash. The employee accepts cash sums from the launderers and pays it back – less his commission – together with false paperwork showing the payment as casual labour or the supply of goods or services. These shadow transactions never appear in the company’s books. The launderer has a paper trail to account for the cash.

“Co-mingling or intermingling is a classic money-laundering technique,” warns Pekka Dare, global head of anti-money laundering and financial crime prevention at International Compliance Training. Directors should run proper checks on employees who are likely to be handling large cash sums, especially when working from remote branches or stores. The internal audit function should also consider running more spot checks on cash handling.

3. The honest face hoax

The launderers set up a legitimate business partly as a way of cleaning cash by co-mingling it with takings from the company’s legitimate activity. An honest firm could end up doing business with the launderers’ company, as a customer or supplier, with possible reputational damage if the matter ever came to light.

“Many launderers set up a legitimate business as a front,” says Dilloway. “In virtually all cases I was involved with in the police, there was a legitimate company at some point.”

The best defence is to do proper due diligence on customers and suppliers, he says. One giveaway may be a company offering more favourable prices, terms and conditions than the industry norm.

4. The fake franchise fraud

The launderers offer a franchise selling an online product, such as software or website templates.

The franchisee sees this as an opportunity to build a trouble-free business, because the offer comes from a seemingly honest company that will handle fulfilment. All the franchisee has to do is set up a legitimate company and a merchant account to handle the income.

Soon after the franchise starts, it begins to receive a stream of small payments from orders into its bank account. It remits the franchisor’s share of the proceeds with each order. But it doesn’t (yet) know – although it will eventually find out – that the payments come from industrial-scale credit card frauds (the orders are never fulfilled).

Again, it pays to do due diligence on any franchisor, especially those offering online products and services. “If you don’t understand who you’re dealing with, you’ve got lots of risks,” warns Dare.


About author

Peter Bartram

Peter Bartram

Peter Bartram is probably the longest serving contributor to Director, having first written for the magazine in 1977. He is a prolific freelance journalist with more than 4,000 feature articles published in dozens of newspapers and magazines. He has written 21 books, including biography, current affairs and how-to titles, and has recently launched a crime mystery website.

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