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Professional Money Laundering


Money Laundering, in today’s world, has carved itself a niche. Professionals eye profits which this nefarious activity generates and are ever willing to scoop their shares of the loot. The art of Money Laundering has spread its tentacles far and wide. Almost every field has been infiltrated and it is as if Professional Money Laundering is gaining certain respectability in society. Until the lid of a scandal is uncovered, people hardly realise the notoriety of who they thought were honest professionals. This article gives a fleeting glance into Professional Money Laundering (PML), how PMLs facilitate Money Laundering, characteristics of PMLs and suggests some ways in which risks associated with PML can be mitigated.


Professional Money Laundering


Three years ago, a leak of 11.5 million files including financial and legal documents to reporters of a German Newspaper and later shared with International Consortium of Investigative Journalists, triggered a wave of International awareness about Tax Evasion through Money Laundering.


The impact of this leak, which later came to be known as ‘Panama Papers’, is still continuing with investigations in more than 82 countries. The founders of the Panama Law Firm and Corporate Trust Provider-Mossack Fonseca, which was at the heart of the scandal, were arrested on charges of money laundering.


The ‘Panama Papers’ drew the focus of FATF and other government and intra-government agencies to a new money laundering threat from Professional Money Launderers (PMLs).


Who are Professional Money Launderers?


According to the FATF Definition - Professional Money Launderers may be individuals, organizations and networks that are involved in third-party laundering for a fee or commission. PMLs may act in a professional capacity (e.g. Lawyers, Accountants). They provide expertise to disguise the nature, source, location, ownership, control, origin and destination of funds to avoid detection.


Professional Money Launderers (PMLs) can belong to 3 categories:


1. An Individual PML – He or She specialises in the provision of ML services while engaged in a legitimate professional occupation. The services which the individual PMLs provide can include accounting services, financial or legal advice and the formation of shell companies and legal arrangements.


2. A Professional Money Laundering Organization (PMLO) –consists of two or more individuals acting as a group facilitate in providing services or advice to launder money for criminals or other OCGs (organized Crime Group). Laundering funds may be the core activity of these entities, but it is not necessarily their only activity.


3. A Professional Money Laundering Network (PMLN) – This is a larger network of associates or contacts working together to facilitate PML schemes & provide services for specific tasks. They operate globally and work with many criminal clients, providing them a range of ML services such as opening foreign bank accounts, establishing or buying foreign companies using laundered money.


How do PMLs facilitate money laundering?


PMLs can be involved in one or all stages of money laundering. PMLs provide specialised services to money launderers such as:


  • Consulting and advising

  • Registering and maintaining shell companies or other legal entities

  • Serving as nominees for companies

  • Identifying investment opportunities

  • Purchasing assets

  • Providing false documentation


Involvement of PMLs in the 3-stage money laundering scheme:


  • Placement Stage – Money Launderers move funds to accounts controlled by the PMLs or to entities operating on their behalf. The manner of introduction of the funds depends on the predicate offence generating the funds and the form in which the funds were generated (cash, bank funds, virtual currency). Eg: Clients usually establish legal entities under whose names bank accounts are opened to launder funds and the accounts are used to transfer funds to layers of companies controlled by the PMLs.

  • Layering Stage –In this stage, the PMLs use account settlement mechanisms to make it more difficult to trace the funds. Eg: TBML and Fictitious trade, account settlements and underground banking, Use of Proxy structures consisting of shell company accounts established both domestic and abroad. Mixing of funds from different clients within the same accounts, which makes tracing of funds more difficult.

  • Integration Stage – In this stage, funds are transferred back to accounts controlled by the clients of the PML. The PML may invest the proceeds on behalf of the clients in real estate, luxury goods and businesses abroad.


Characteristics of PMLs


PMLs are third party launderers. They are usually not involved in the criminal offence which generates the illicit funds but are however involved in process of laundering the funds. The PML is only concerned with the destination of the money and process in which it will be disguised and moved.


  1. Commission /Fees PMLs provide their services to money launderers and for the OCGs for a commission or fees which they receive. This commission will depend on complexity of the scheme, the total amount of money to be laundered, the reputation of the PML/PMLN, the knowledge of the crime which generated the funds, the countries or regions involved in the scheme and the law enforcement activities in those regions. The PMLs may take their commission in cash in advance or as transfer of a portion of money laundered to their own accounts or have the commission integrated into their business transaction.

  2. Advertising/Marketing Advertising and marketing of services can occur in numerous ways. This usually works by PMLs marketing their services by ‘word of mouth’ or through criminal networks.

  3. Record Keeping (Shadow Accountancy) PMLs often keep a shadow accounting system which contains detailed records with code names. These accounting systems contain records to track clients (with code names), funds laundered, origin and destination of the funds, dates and commission received. The records are either stored in paper form or in electronic form with password protection.


What can be done to mitigate the risks posed by PMLs?


For Banks and other Financial Institutions, it is important to understand the types of individuals or organizations prone to this activity such as – Lawyers & other Legal Professionals, Trust & Company Service Providers, Accountants, Tax advisors etc.


These entities can act as nominees to conceal the ownership and provide their own accounts to launder money. They can also engage and monitor a money mule network for money laundering.


As highlighted in the Panama Papers scandal, the law firm engaged in the process of creation of shell companies which was later used to launder funds.


Enhanced due diligence must be applied during KYC to identify the actual ownership behind the nominee owners and to identify the correct address of an entity instead of relying on the address provided by the Trust & Company Service Provider.


A knowledge of the transactions between the clients and these entities can also be used as an indicator to identify PMLs. Real time monitoring should be conducted on Escrow accounts held by law firms which are used for settling real estate transactions.


Conclusion


Professional Money Launderers and the schemes they have used in laundering are gaining international attention for money laundering and tax evasion. International cooperation and information sharing have enabled law enforcement to tackle PMLs. However strict supervision & regulation of Lawyers & Accountants and the Requirement for these sectors to conduct AML checks on their clients, monitoring suspicious transactions and filing SARs need to be emphasized to promote more accountability from these professionals.


How Lysis can help


Formed in 2001, Lysis has offices in the UK, US, Germany and Ireland. Lysis supports financial markets firms and firms in other regulated markets with:

  • Expert Governance Risk and Compliance operations and technology strategy, operating model, framework, regulatory intervention and change services

  • CLM/KYC process execution.

  • AML & Risk training.


References:

1. Egmont Group Bulletin

2. ICA Insight

Author: Vanitha Vinayak, Consultant at Lysis Group

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