Skip to content

News

Does the world still need money laundering?

Does the world still need money laundering?
Facebook
Twitter
LinkedIn

Those of you who were in the payments space pre-COVID, might remember my industry talks about ‘Why the World Needs Money Laundering’. The world has changed a lot over the last few years, including the world of crime and money laundering, so the question I’m asking now is, does the world still need money laundering and what cracks are showing in efforts to tackle it?

A history of money laundering

The concept of money laundering goes back to long before money itself existed. Stolen goods – precious metals – were melted down so as to be unrecognisable – long before coins existed. Later, there are even records to show that pirates would convert stolen gold or silver into bars which could be easily traded. Some of the earliest records include Ancient Chinese traders 2000 years ago, who would offshore their assets to protect them from being seized by the Government. And who knows, maybe Stonehenge builders converted stolen stone into tools to sell in France – there might even have been professional stone launderers.

The phrase “money laundering” is said to have been coined by reporters in the 1920s when covering Al Capone, and precedents set by the Capone case are still being used and expanded upon today. But the concept goes back much earlier – it’s fair to assume it goes back to the first time someone wanted to hide assets or disguise stolen property – and there was probably a huge boost in volumes when taxation was invented.

You could argue that between the 1920’s and around 2015, despite the transformation of money and payments, the fundamentals didn’t change that much. If someone turned up with a holdall full of banknotes – that was suspicious. With the move away from cash to electronic payments and accounts – the holdall might have looked very different, but the same principle applied.

But now, due to advances in technology and changes in regulation, things feel a lot different. In the old days, ID checks and verifications were the primary activity. Nowadays, they’re just a passing thought, with the focus on what risks the client brings and how those risks should be mitigated.

The balance of prevention and reporting

The balance has swung drastically to prevention rather than reporting. Rather than making it difficult for criminals and then providing audit trails to assist the UK Financial Intelligence Unit (UKFIU), the onus now is on stopping any financial crime including money laundering from happening at all.  Detailed risk assessments – effectively profiling to prevent financial crime and money laundering – has had a knock-on effect of increasing the numbers of unbanked – individuals, businesses and charities who can’t access a bank account – as well as significantly increasing costs and risks for firms.

And with the growth of social media, the ease of ‘recruitment’ of money mules and the cost-of-living crisis, the numbers of those involved and those who present a risk is ever growing.

Another very significant shift is that money laundering used to be very distinct from fraud. Today, just referring to money laundering rather than financial crime seems a bit pre-COVID. Even the 3 stages (placement (i.e. moving the funds from direct association with the crime), layering (i.e. disguising the trail to foil pursuit) and integration (i.e. making the money available to the criminal from what seem to be legitimate sources)) are no longer viewed in tandem or seen as intrinsic as they used to be.

We used to stress that payments, e-money and other financial services firms weren’t the police. But now, it feels more and more as if firms are needing to act more like the police in their controls and frameworks. It is no longer the case that we are just expected to make things difficult for the criminal and assist financial intelligence units in tracing and prosecuting the ‘bad guys’. We’re now increasingly expected to identify potential ‘bad guys’ and penalise them before we have evidence of a crime.

Supervision and enforcement

Supervision and enforcement have changed drastically too. With more firms than ever subject to skilled person reviews and account freezes, which again is having a dramatic impact on the industry and in turn on consumers. And, in a similar way to how firms need to treat their clients, firms themselves seem to be identified as potential offenders by regulators and penalised before there is any evidence of a crime.

Alongside this, the number of industries required to follow procedures has increased as well as taking in new sectors such as crypto.

Impact on Financial Crime

But has this had a significant impact on reducing the levels of money laundering or financial crime?  The truth is that no-one knows and no-one can ever really know. But it seems unlikely.

What we do know is that as technology to trace financial crime and money laundering becomes more advanced, so does the technology available to criminals. Not only are they using it to commit crimes and launder money, but also to recruit and target individuals. And the resources available to organised crime still seem to be growing at a much faster rate than the resources available to prevent it.

And the next question is, do governments actually want to?

It has always an issue that money laundering is actually quite profitable for governments as well as firms and criminals. And having assets from sanctioned regimes is seen by some as a protection against cyber-attacks and other risks. Have the attitudes of governments really changed?  Or are they, like the criminals, just finding better ways of hiding their true priorities?

So, does the world still need money laundering?

Of course it does. Just as it always has. And the need is growing.

We’re living in a world where fraud and organised crime are increasing. Where the regulations and actions of regulators are at times harming consumers and increasing the need for financial crime and money laundering.

Is it time to take a step back? The only way to stop crime and money laundering entirely is to get rid of all laws – which is probably a tad impractical. But is it time to put more focus on the source of the problem, the increasing volume and need for these crimes. Is it time to put more focus on the technology and platforms that are used to commit, facilitate and recruit for the crimes, rather than just hamper the financial transactions involved and in turn the financial services available to everyone else? Is it time to look at the deterrents, where they are and where they should be?

Is putting so much focus on financial services firms going to change anything significantly?

There has been a move from governments and regulators to regulate the involvement of tech in fraud and terrorist financing – expecting telecoms and tech firms to be taking steps to prevent their platforms from being used. Expanding on this, taking a step back, and looking at the wider systems used for fraud and financial crime is essential if we are to have any chance of getting this growing problem under control.

The world needs money laundering now more than ever.  And unless governments act to reduce the need – there’s only so much impact that financial services firms can have.

 

Craig James, Neopay Group CEO

 

About Craig

Craig James, Neopay Group CEO, is a seasoned regulatory compliance specialist with over 20 years of experience in payments and e-money. He has held senior roles such as Head of Compliance, Compliance Director, and Global MLRO, and has supported major global payment organisations in their European expansion. As a former Chairman of the PrePaid International Forum, Craig worked closely with regulators worldwide, offering insights into e-money and prepaid solutions. He combines deep regulatory knowledge with business acumen, balancing risk management and performance, and is a skilled facilitator, trainer, and mentor for senior compliance officers and financial regulators.

Facebook
Twitter
LinkedIn

Related Posts

FCA CEO letter

The FCA’s latest ‘Dear CEO’ letter – Key priorities for payments firms

The Financial Conduct Authority (FCA) has issued a new ‘Dear CEO’ letter (dated 3rd February 2025) outlining its priorities for firms within the payments sector. This follows the previous letter
Read More >
FCA

The FCA’s new portal for simplified access and reporting

The Financial Conduct Authority (FCA) is set to launch My FCA in spring 2025, a new online portal designed to streamline regulatory reporting and access for firms. This initiative is
Read More >