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What is money laundering?

Criminals employ a range of techniques to clean their “dirty money”.

Professionals working in the accountancy, legal and property sectors are being targeted because of their expert skills and services (National Risk Assessment 2025), which can give a cloak of legitimacy to illicit cash. This gives professionals a crucial role to play in protecting the UK’s economy, and wider society by reporting suspicious activity.

While money laundering isn’t always obvious, the consequences are severe. Even accidental involvement in money laundering could mean losing your licence, receiving a fine, or facing criminal prosecution.

To tackle this threat, the UK Government is works with the accountancy sector to promote best practice in anti-money laundering compliance and reporting suspicious activity.

The goal of a large number of criminal acts is to generate a profit for the individual or group that carries out the act.

Money laundering is the processing of these criminal proceeds to disguise their illegal origin and to make them appear legitimate, allowing criminals to enjoy these profits without jeopardising their source of income.

Illegal arms sales, smuggling, and the activities of organised crime, including for example drug trafficking and prostitution rings, can generate huge amounts of proceeds. Embezzlement, insider trading, bribery and fraud schemes can also produce large profits and create the incentive to “legitimise” ill-gotten gains through money laundering. When a criminal activity generates substantial profits, the individual or group involved must find a way to control the funds without attracting attention to the underlying activity or the persons involved. Criminals do this by disguising the sources, changing the form, or moving the funds to a place where they are less likely to attract attention.

Money laundering is not only a crime itself, but also a key enabler of other serious crimes such as modern slavery, drugs trafficking, fraud, corruption, and even terrorism.

How much money is laundered per year?

By its very nature, money laundering is an illegal activity carried out by criminals which occurs outside of the normal range of economic and financial statistics.

The National Crime Agency’s National Strategic Assessment of Serious and Organised Crime 2018 estimates that the scale of money laundering impacting the UK annually is in the hundreds of billions of pounds.

The United Nations Office on Drugs and Crime (UNODC) conducted a study to determine illicit funds generated by drug trafficking and organised crimes and to investigate to what extent these funds are laundered. The report estimates that in 2009, criminal proceeds amounted to 3.6% of global GDP, with 2.7% (or USD 1.6 trillion) being laundered.

Following criminal cash from the streets of London to the gold markets of Dubai, BBC Panorama and the French media company Premieres Lignes reveal how an international crime gang laundered millions in drug money. You can watch Following the Drug Money, on BBC iPlayer.

Placement

In the initial – or placement – stage of money laundering, the launderers introduce illegal profits into the financial system. This may be done by breaking up large amounts of cash into smaller, less conspicuous, sums that are then deposited directly into a bank account, or by purchasing a series of monetary instruments (cheques, money orders, etc.) that are then collected and deposited into accounts at another location.

Layering

After the funds have entered the financial system, the second – or layering – stage takes place. In this phase, the launderer engages in a series of conversions or movements of the funds to distance them from their source. The funds might be channelled through the purchase and sales of investment instruments, or the launderer might simply wire the funds through a series of accounts at various banks across the globe. This use of widely scattered accounts for laundering is especially prevalent in those jurisdictions that do not co-operate in anti-money laundering investigations. In some instances, the launderer might disguise the transfers as payments for goods or services, giving them a legitimate appearance.

Integration

Having successfully processed criminal profits through the first two phases, launderers then move them to the third stage – integration – in which the funds re-enter the legitimate economy. Launderers may choose to invest the funds into real estate, luxury assets, or business ventures.

As money laundering is a consequence of almost all profit generating crime, it can occur anywhere in the world.

Generally, money launderers tend to seek out countries or sectors in which there is a low risk of detection due to weak or ineffective anti-money laundering programmes.

Because the objective of money laundering is to get the illegal funds back to the individual who generated them, launderers usually prefer to move funds through stable financial systems.

The integrity of the banking and financial services marketplace depends heavily on the perception that it functions within a framework of high legal, professional and ethical standards.

If funds from criminal activity can be easily processed through a particular institution, it could be drawn into active complicity with criminals and become part of the criminal network itself. Evidence of such complicity will have a damaging effect on the attitudes of other financial intermediaries and of regulatory authorities, as well as ordinary customers.

In law enforcement investigations into organised criminal activity, it is often the connections made through financial transaction records that allow hidden assets to be located and that establish the identity of the criminals and the criminal organisation responsible.

When criminal funds are derived from robbery, extortion, embezzlement or fraud, a money laundering investigation is frequently the only way to locate the stolen funds and restore them to the victims.

Targeting the money laundering aspect of criminal activity and depriving criminals of ill-gotten gains means undermining criminal activity – without usable profit the criminal activity will not continue.