Money launderers target small businesses because they are less likely to be scrutinised. We explain how to spot red flags and prevent financial crime.
Additionally, some small businesses may be more susceptible to money laundering due to the nature of their operations, such as those dealing with large amounts of cash or customers from high-risk jurisdictions.
What are the most common small business money laundering targets
Money laundering is the process of making illegally-gained proceeds (i.e. "dirty money") appear legal (i.e. "clean"). Money laundering is a serious crime that can have a number of negative consequences, including fines, imprisonment, and reputational damage.
There are five common methods that money launderers exploit to launder money through small businesses:
This involves breaking down large cash deposits into smaller amounts to avoid triggering reporting requirements.
This involves using multiple people to deposit small amounts of cash into different accounts.
Small businesses are a popular target for money launderers. They invest in or operate cash-intensive businesses, such as restaurants, bars, and retail stores, in order to mix their illegal proceeds with legitimate income.
Trade-based money laundering occurs when fraudulent or inflated invoices are used to transfer money between countries.
Small businesses need to create an Anti-Money Laundering (AML) policy outlining everything from detecting and preventing money laundering to record-keeping and the frequency of staff training.
There are six simple steps that small businesses need to take to protect themselves from money laundering, each of which needs to be detailed in their AML policy:
This involves assessing risk based on the type of work you do, the types of clients you have, how you are paid and where your clients are.
Employees should be aware of money laundering risks and how to identify suspicious activity. It is best practice to give refresher sessions and build the training into the induction process for new staff.
Staff need to feel safe in reporting suspicions. If they suspect a customer may be engaged in money laundering, they must know when, how and who to report it to.
There are a number of red flags that can indicate that a customer may be engaged in money laundering, such as large cash deposits, complex or unusual transactions, and customers who are reluctant to provide personal information.
It is important to know your customers. You need to understand their businesses and their reasons for using your services. This will help you to identify suspicious activity.
Keep accurate and up-to-date records of all transactions. This will help you to monitor for suspicious activity and to comply with AML regulations. Regulators may ask to see records if suspicion falls on your company or customers.
There are many reasons that money laundering is illegal. It allows drug traffickers, smugglers, and other criminals to keep the proceeds of their crimes and invest them in new criminal activities. This may lead to ever more violence and crime.
The penalties for companies engaged in money laundering are severe. They vary depending on the jurisdiction. In the UK, they typically include:
The UK authorities are also increasingly using civil sanctions to target money launderers. These sanctions can include asset freezes, travel bans, and disqualification from holding certain positions, such as company director.
However, a business has other negative consequences, from a damaged reputation and lost customers to business failure.
Our blog offers small business best practice tips on data protection, employment law, money laundering, taxation, and health and safety can be found in our blog.
Our comprehensive roadmaps help you navigate the compliance landscape. They are supported by e-learning courses in our Skillcast CoreCompliance plan, which is designed and priced specifically for small businesses.
We also have 100+ free compliance training aids, including assessments, best practice guides, checklists, desk aids, eBooks, games, posters, training presentations and even e-learning modules!