Overview of must-know laws & regulations concerning money laundering


Each year, hundreds of billions of dollars are laundered worldwide. In fact, according to the United Nations Office on Drugs and Crimes, it is estimated that between $800 and $2 trillion in U.S. dollars is laundered every year.

That translates to between two and five percent of global gross domestic product.

In an effort to combat the illegal act of money laundering, countries across the globe have been an array of laws and regulations. For example, a Financial Action Task Force was formed in 1989. This task force is an inter-governmental body focused on the development of national and international policies geared towards eradicating money laundering. The FATF developed forty recommendations on how to prevent money laundering that are supported by mutual evaluations of its member countries, which include the United Kingdom and United States.

U.K. Laws and Regulations on Money Laundering

The United Kingdom has a fairly robust regime aimed at combatting and deterring money laundering and terrorist financing. The UK’s participation and membership in the FATF is extremely important since it is the largest financial services provider in the world. As a result of the exceptionally large volume of funds that flow through the UK’s financial sector, there is an inherent risk that some of the funds have been laundered and possibly linked to criminal acts and terrorism.

The UK aggressively pursues money laundering investigations and prosecutions. For example, according to data maintained on FATF’s web site, the UK secures 1400 money laundering convictions each year. UK law enforcement authorities have developed effective public-private partnerships to ensure important transactional data is shared and analyzed for any red flags that could indicate money is being laundered.

The UK is also promoting global implementation of proliferation-related targeted financial sanctions, as well as achieving a high level of effectiveness in implementing targeted financial sanctions domestically

U.S. Laws and Regulations on Money Laundering

The large volumes of financial transactions in the US through its financial institutions expose the country to serious money laundering risks. It also faces significant risks associated with terrorist financing due to the unique openness and global reach of America’s financial system. Post-9/11, Congress enacted a series of laws to combat terrorism and, relatedly, money laundering. For example, federal law enforcement agencies were empowered to make use of new and innovative investigative techniques and intelligence to identify money laundering.  Law enforcement, including the FBI, Department of Defense, National Security Agency, etc. pursue an array of anti-money laundering activities, in particular complex and high-dollar value criminal offenses. As a result, more than 1,200 money laundering convictions occur each year in U.S. courts. It is also worth noting that each state within the U.S. have their own regulations addressing the act of money laundering.

In addition to being an active member of FATF, the U.S. enacted a federal law known as the “U.S Patriot Act.” Section 352 of this law requires financial institutions to establish anti-money laundering programs, which at a minimum must include the following:

  • The development of internal policies, procedures and controls;
  • The designation of a compliance officer;
  • An ongoing employee training program; and
  • An independent audit function to test programs.

Identifying Potential Money Laundering

As rules and regulations have been developed to define the act of money laundering, legal experts have also noted specific behaviors and actions that are identified as potential “red flags” for money laundering. Those behaviors and actions include:

  • Whether someone been vague or reluctant to talk about the exact sums of money involved in a deal, or who is investing in the transaction.
  • Whether there were unusual instructions or requirements introduced into a business deal or financial transaction.
  • Whether there was a sudden change to working relationship with partners or other businesses
  • Whether assets suddenly appeared or whether somebody floated the idea of “making a loss.”

Steps You Can Take to Ensure You Do Not Find Yourself Laundering Money or Engaging in a Transaction Where Money is Laundered

  • Create and develop an anti-money laundering policy for your business;
  • Appoint an anti-money laundering officer who is aware of the company’s legal obligations under state, federal, and international law;
  • Take the time to identify the real beneficiaries of a deal or the exact nature of a business relationship between two parties;
  • Develop accounting and cash handling protocols;
  • Consider enforcing a no-cash policy on financial transactions involving a certain dollar amount;
  • Appoint senior staff to review and scrutinize the source of funding for large deals or specific types of investments; and/or
  • Develop a procedure for third parties to disclose their funding sources.