Identifying Money Laundering Risk in the United Kingdom: Observations from National Risk Assessments and a Proposed Alternative Methodology

Abstract

Two National Risk Assessments (NRA) of money laundering (ML) have now been published in the United Kingdom (see HM Treasury 2015 and 2017). While both represent an attempt to identify the risks of ML, there are limitations in relation to the conceptual framework and the methodology used. This paper reviews the UK NRAs and considers whether revision of the methodology employed could help to both remedy these limitations and generate more robust findings. Drawing upon the findings of the UK strand of project Identifying and Assessing the Risk of Money Laundering in Europe (IARM), it outlines how a composite ML risk indicator was developed through analysis of threats and vulnerabilities across 43 police areas. The findings demonstrate that risks are highest in the City of London and the Metropolitan Police area, which is largely explained by the presence of organised crime groups, connections to risky jurisdictions and the cash intensity of businesses. Although the findings should be treated with caution, it is posited that this methodology could be used to help future NRAs develop a more robust framework to understand ML risk and ultimately develop more effective preventative strategies.

Identifying the Suspected Cases of Money Laundering in Banking Using Multiple Attribute Decision Making (MADM)

“…Money laundering is a process in which dirty, illegal and illegitimate money is placed in a cycle of exchanges so that after leaving the cycle, it looks legal and clean. In other words, the source of the proceeds obtained through illegal means are kept so secret by using exchange tricks and successive transfers that it seems perfectly legal (Cheng & Wang, 2020;Hopkins & Shelton, 2019;Barone & Schneider, 2018;Demetis, 2018). If this process succeeds, criminals can earn money from their crimes through a legal source (Hopkins & Shelton, 2019;Helmy et al, 2016).…”

“…In other words, the source of the proceeds obtained through illegal means are kept so secret by using exchange tricks and successive transfers that it seems perfectly legal (Cheng & Wang, 2020;Hopkins & Shelton, 2019;Barone & Schneider, 2018;Demetis, 2018). If this process succeeds, criminals can earn money from their crimes through a legal source (Hopkins & Shelton, 2019;Helmy et al, 2016). Money laundering includes three stages of placement (the process of transferring money to financial institutions or converting cash into a kind of document), layering (doing a series of financial transactions and distancing profits from illegal sources) and integration (transfer of previously laundered money to the economy, which is mainly done through the banking system, and therefore such revenues seem to be normal business income) (Hopkins and Shelton, 2019;Helmy et al, 2016;Barone & Schneider, 2018;Demetis, 2018).…”

“…Money laundering is one of the most reported illegal activities in the world (Raweh et al, 2017). It is illegal to make large amounts of money derived from criminal activities, such as drug trafficking or terrorist funding into legitimate money (Hopkins and Shelton, 2019;Kana, 2017). Money laundering has unpleasant consequences in economic, social, and international fields, and in addition to the destructive economic effects that cause economic instability, it carries many risks and social costs in the country and will lead to corruption in the banking system (Janjua& Khan, 2020; Beqiri & Beqiri, 2018;Armey & Melese, 2018).…”

Anti-money laundering in the United Kingdom: new directions for a more effective regime

“…Few attempts have been made based on this approach; using the interdiction rate – the proportion of illicit funds seized or forfeited – as a proxy indicator for the effectiveness of AML (reports published by The United Nations Office on Drugs and Crime (2011), European Police Office (2016); Pol (2018)). Hopkins and Shelton (2019) has argued against this approach, stating that the measurement of the AML’s effectiveness should be less focussed on the confiscation of illicit assets, and more focussed on the identification and closure of opportunities for money laundering. By seizing illicit assets, AML is reducing opportunities for money laundering, and, therefore, indicators based on the amount of illicit funds being seized should inform on the effectiveness of AML measures.…”