The banking industry alone spends some £5 billion per annum on people and systems to prevent, track and report flows of illicit money, yet less than a thousandth of laundered funds are ever recovered.

A recent survey, conducted by the Economist Intelligence Unit on behalf of LexisNexis Risk Solutions, shows us where the risks lie and how government policy, regulation, internal procedures and technology can best be deployed to disrupt flows of dirty money in, around and from the United Kingdom.

Generic money-laundering statistics, as in the past, are pure voodoo. The UK's National Crime Agency, the UK's political police, has stated in the vaguest of terms that "there is a realistic possibility" (in other words, it does not know) that the scale of money laundering "impacting the UK" is £100 billion. The phrase "impacting the UK" presumably takes in even the most trivial of emails, bearing in mind that the United States claim extraterritorial jurisdiction over suspicious transactions that involve the same tendentious connection with their soil. In its survey LexisNexis itself states: "Nobody really knows how large a problem money laundering is in the UK."

Although banks and building societies represent the bulk of flagged suspicious transactions, the regulated industries’ perception is that criminals are most likely to target the gambling sector (cited by 15% of respondents) and high-value vendors who accept large money payments (12%).

"Sectors most at risk of money laundering" are: gaming/gambling businesses: 15%; high-value vendors: 12%; investment firms and brokers: 11%; insurance companies: 10%; retail banks: 10%; money service bureaux: 9%; corporate and investment banks: 8%; accountants: 7%; estate agents: 6%; tax advisors: 6%; lawyers: 4%.

What the pundits say

One commentator in the survey, no doubt with eyes glued to the headlines in the mainstream media of the past four years and the headlines in Private Eye of the past decade, told LexisNexis  Risk Solutions that expensive London townhouses were likely to be "the prominent end-story of laundered money." He added that ultra-wealthy organised crime groups were buying art and property with money from "smaller" operations, whatever that meant.

The report adds: "When considering who within the financial architecture was most at risk, 15% of fintechs saw corporate and investment banks as being more exposed, while only 7% of respondents from the banking sector believed they were most at risk."

Erik Morgan, a director at RBC Investor & Treasury Services, told the surveyors: "Cash or investments into the funds we provide services to originate from individuals or entities via banks, and so there is a risk of receiving laundered funds that have already infiltrated the financial system."

Regulatory figures

The figure of £5 billion as the total annual cost of money-laundering control is an old one, promulgated by the British Bankers’ Association in 2015 and applies to the banking industry alone. It excludes regulatory fines.

The Financial Conduct Authority told the Economist that the businesses that it regulates employ at least 11,000 full-time-equivalent (FTE) staff specifically for issues to do with money laundering and financial crime.

Increasing costs, increasing risks

The increase in overall annual cost of AML compliance over the past 24 months is high, with 39% of companies having increased their budgets between 0 and 10%; 23% having increased them between 10 and 19%; 12% having increased them between 20 and 29%; and 4% having increased them by more than 30%. A mere 5% decreased them in that period.

When asked to identify the single biggest risk to the UK in the fight against money laundering over the next 12 months, 24% cited evolving methods of money laundering; 18% cited geopolitical events; 15% cited skill shortages, such as a dearth of people who knew about both compliance and IT, noting that "there has been a war for talent as each big money laundering scandal comes around"; 12% cited "insufficient enforcement resources," 12% cited people's lack of awareness of the threat that money laundering poses to business (actually no threat at all, barring governmental disapproval and sanctions); 10% cited new banking technology, with reference to open banking; and 9% cited the cost of compliance.

Methods of money laundering

LexisNexis Risk Solutions states that accounts opened with forged documents are now less than 1.5% of the total, so criminals now target genuine account holders to launder the proceeds of crime for them. Social media and mobile banking are their tools of choice. It goes on to say: "Fraudsters are targeting young bank and card customers via Facebook, Instagram and Snapchat adverts, promising 'easy cash.' Gullible money mules then launder the criminals’ transactions quickly to other accounts, or buy Amazon and iTunes vouchers for the launderers, which can be converted into goods or redeemed."

The Credit Industry Fraud Avoidance Service, according to LexisNexis Risk Solutions, says that the number of 14-24-year-olds that it identified as money mules jumped by 27% in 2017. Meanwhile, Banco Santander recently told the House of Commons Treasury Committee that it closed about 11,000 accounts that it suspected of being owned by money mules last year.

Low-value money laundering, such as smurfing (where many people make many transactions to go under the reporting threshold) and the use of money mules, has been on the rise. LexisNexis Risk Solutions believes that all intermediaries are fighting to attract staff with the right experience to identify and prevent these activities, and they are struggling.

The reporting of suspicious activity

The data that banks submit in their suspicious activity reports to the Government is sometimes incomplete. Transaction-heavy banks and building societies tend to report too many transactions, most likely as a defensive measure against regulatory retribution.