Choose which of these statements best describes why criminals launder money:

1
James London
Financial Crime Policy Financial Services
Authority STOP Money Laundering 26 February 2002
2
Agenda

• Today will cover
• What is money laundering
• Introduction to FSA
• Financial Crime Objective, money laundering
• The FSAs ML Rules

3
What is Money Laundering?

• Money laundering is the process by which persons
  attempt to conceal the true origin and ownership
  of the proceeds of criminal activity or
  terrorism.
• Money laundering provides legitimate cover for
  criminals or terrorists source of income.
• Money laundering helps criminals and terrorists
  to avoid prosecution, conviction and confiscation
  of their illegal funds.

4
Stages of Money Laundering

• Placement - dirty money is inserted into the
  financial system.
• Layering - separates the proceeds from their
  criminal origin by moving them through a series
  of financial transactions. This makes it harder
  to establish a connection between the two.
• Integration - creating a legitimate explanation
  for the source of funds allowing them to be
  retained, invested or used to acquire goods or
  assets.

5
Why prevent Money Laundering?

• Money laundering damages society by enabling
  those who break the law to benefit from their
  illegal activities.
• Money laundering damages Londons reputation as a
  major financial centre and thus damages market
  confidence and the UK economy.
• Money laundering if linked to a financial firm
  would damage its reputation and that of the
  financial industry.

6
Introduction to FSA

• UKs single financial regulator for all sectors,
  10,000 firms.
• FSMA - new statutory regime from 1 December 2001
• New statutory objectives
• market confidence
• public awareness
• protection of consumers
• reduction of financial crime

7
Introduction to FSA

• New principles of good regulation
• efficient and economic use of resources
• senior management responsibilities
• proportionate
• facilitate innovation
• maintain UKs competitive position
• minimise the adverse effects of competition
• facilitate competition

8
Financial Crime Objective

• FSMA charges the FSA with reducing the extent to
  which regulated firms are used in connection with
  financial crime including money laundering.
• To fulfil this objective the Act gives the FSA a
  range of powers
• Including the power to make specific Rules on
  money laundering and
• the ability to prosecute firms for breaches of
  the Money Laundering Regulations 1993.

9
FSA responsibilities

• In April 2000 the approach to rule making was set
  out in Consultation Paper 46.
• Consultation feedback resulted in the Rules being
  refined in a Policy Statement published in
  January 2001.
• The FSAs Rules came into effect on the 1
  December 2001.
• July 2001 published the Money Laundering Theme
  Project tackling our new responsibilities.

10
FSAs regulatory approach

• The greater the risk, or potential risk the more
  attention the FSA will pay to a firm.
• A reduction in the day-to-day supervision of
  firms can be expected, in favour of pursuing
  thematic and industry wide work.
• We have developed regulatory tools for money
  laundering.
• The tools include training, education and
  enforcement.
• Their application will take into account the
  principles of good regulation. (to be efficient,
  cost effective and proportionate).

11
Money Laundering Theme

• Identified areas perceived to be the most
  vulnerable to money laundering and where
  compliance with the Regulations was perceived to
  be the weakest.
• These were formed into a series of clustered
  risks.
• The FSA are currently targeting these areas.
• The clusters are
• International banking
• Domestic banking
• IFAs handling client money from abroad
• On-line broking
• Spread betting and
• Credit Unions.

12
Purpose of the Rules

• Not to create additional regulatory burden on
  firms.
• The Rules are intended to work alongside the
  Regulations in a separate but parallel approach.
• Designed to emphasise the Regulations by
  amplifying the need for firms to have
• adequate processes for identifying customers
  (specific reference in the Rules is made to the
  JMLSG Guidance Notes for this purpose)
• have clear procedures for internal and external
  reporting of suspicions and
• train staff in their responsibilities - at least
  every 24 months.

13
What the Rules require

• The Rules are set out in the Money Laundering
  Sourcebook - and sets out firms general money
  laundering duties.
• Firms are required to set up and operate
  effective anti-money laundering systems and
  controls in order to comply with the Rules and
  reduce opportunities for money laundering.
• Under FSA (SYSC) Rules senior management are
  responsible for ensuring the arrangements,
  systems and controls to comply with the money
  laundering Rules.

14
Conclusions

• The reduction of financial crime objective is a
  new one for the FSA and as such will receive a
  clear regulatory response to non-compliance.
• The Theme found that some regulated firms will
  need to do more to meet their obligations to
  prevent and detect money laundering.
• Firms need to be aware that a failure to have
  appropriate systems and controls in place may
  result in enforcement action (criminal /
  regulatory) and the reputational risk.