Money laundering and the financing of terrorism - European Union Committee Contents



The scale of the problem

1.  Acquisition of the wealth and property of others is the ultimate objective of every serious criminal; those assets are also the lubricant of criminal activity, and so the motivation for further crime. In the case of the terrorist, finance is acquired not as an end in itself, but to achieve political ends by violent means. In either case, the tracing of the finance may be a way of identifying the criminal, recovering the proceeds, and preventing further criminal acts. The laundering of money, disguising its source and giving it an aura of respectability, thus plays an essential part in serious and organised crime; from which it follows that the combating of money laundering plays an equally important part in the fight against organised crime, and in countering the financing of terrorism.

2.  The scale of this can scarcely be exaggerated. Estimates have to be treated with caution, but the International Monetary Fund estimated over ten years ago that the aggregate size of money-laundering was anywhere between 2% and 5% of the world's gross domestic product.[1] For the United Kingdom, an estimate by HM Treasury in 2007 was that the most serious forms of organised crime alone generated an illicit turnover of some £15 billion a year, leading to money laundering through the regulated sector—banks, insurers, accountants, lawyers and the like—of £10 billion a year; and also generated criminal "capital formation"—that is, assets invested in a possible seizable form—of about £5 billion, £3 billion of which was exported overseas.[2] This estimate is now 2½ years old; but organised crime is one global industry which we doubt to have suffered from the current economic downturn.

What is money laundering?

3.  Money laundering is the process by which the source and ownership of criminally derived wealth and property is changed to confer on it a perception of legitimacy. From the point of view of the criminal, there seem to be three basic requirements:

  • the need to conceal the true ownership and origin of the proceeds;
  • the need to maintain control of the proceeds; and
  • the need to change the form of the proceeds.

4.  We set out in Box 1 a summary of the acts which constitute money laundering offences under current international standards.

Money laundering offences

For the purposes of United Kingdom law section 340(11) of the Proceeds of Crime Act 2002 contains a detailed and extensive definition of money laundering offences by reference to other provisions of Part 7 of the Act.


5.  Money laundering involves the following stages, which may overlap:

  • Placement stage: where cash derived directly from criminal activity (for example, from sales of drugs) is either placed in a financial institution or used to purchase an asset;
  • Layering stage: the stage at which there is the first attempt at concealment or disguise of the source of the ownership of the funds;
  • Integration stage: the stage at which the money is integrated into the legitimate economic and financial system and is assimilated with all other assets in the system.

6.  Techniques of laundering, known as typologies, are numerous and vary from the basic to the highly sophisticated. The following typologies are currently those of most concern to United Kingdom law enforcement, based on intelligence and investigative experience:[3]

  • cash/value couriering;
  • abuse of "gatekeepers" (e.g. accountants and lawyers);
  • abuse of money laundering transmission agents (including Hawala and other alternative remittance systems[4]);
  • cash rich businesses and front companies;
  • high value assets and property; and
  • abuse of bank accounts and other over-the-counter financial sector products.

7.  In its 2008/09 threat assessment of serious organised crime, the Serious Organised Crime Agency identified the following specific risk areas where the legitimate and criminal economies intersect: laundering money through businesses; financial and legal professionals; money service businesses (including bureaux de change and money transmission agents); informal value transfer systems (including the Hawala system). It also highlighted the movement of illicit cash and the purchase of assets: "Serious organised criminals invest in property, shares, trusts, and pensions as well as accumulating high value goods, such as jewellery, vehicles, art and other collectable items. These assets may be held in the names of friends or family to conceal the true ownership. Investment in private and commercial property, including overseas, is especially attractive because it appreciates in value over time."[5] To that list of assets we can now add football clubs.[6]

Terrorist financing

8.  The mounting of terrorist operations is notoriously inexpensive. The 9/11 plotters were estimated to have spent no more than $500,000 to plan and conduct their attack.[7] In the case of the 7/7 London bombings the initial report stated: "Current indications are that the group was self-financed. There is no evidence of external sources of income. Our best estimate is that the overall cost is less than £8,000, the overseas trips, bomb-making equipment, rent, car hire and UK travel being the main cost elements."[8]

9.  But a terrorist group, like any other criminal organisation, needs to build up and maintain a financial infrastructure. For this it must develop sources of funding, a means of laundering those funds and a way to ensure that the funds can be used to obtain material and other logistical items needed to commit terrorist acts. The CIA estimates that it cost Al-Qaida[9] about $30 million a year to sustain its activities before 9/11.[10]

Our inquiry

10.  The subject of our inquiry is international cooperation to counter money laundering and the financing of terrorism.[11] This too is on a global scale, involving cooperation between governments in the United Nations, the Council of Europe, other multilateral and bilateral fora, and—the direct focus of our inquiry—the EU. Our inquiry has therefore concentrated on a number of questions:

  • How effective is EU and international cooperation in countering money laundering and the financing of terrorism?
  • Is enough effort being invested in confiscation of the proceeds of crime, especially by civil recovery?
  • What part is played by the United Kingdom Government, and what could be done to enhance it?
  • Is the effort and cost required of the private regulated sector proportionate and effective for compliance with EU and United Kingdom legislation on money laundering?
  • Is that legislation compatible with fundamental human rights, in particular the right to property, and the right to privacy of persons and businesses?

Lastly we have looked at a number of matters which have lately assumed particular importance, including the relationship between money laundering and piracy.


11.  This inquiry has been conducted by Sub-Committee F (Home Affairs), a list of whose members is printed in Appendix 1. They issued a call for written evidence in December 2008; this is reproduced in Appendix 2. In reply they received evidence from 30 persons and bodies. Between March and May 2009 they received oral evidence from 28 witnesses, and a considerable volume of supplementary evidence. They visited Brussels to take evidence from the Commission, the Council Secretariat and the EU Counter-terrorism Coordinator. The volume of the evidence is such that it is printed in a separate volume. A full list of the witnesses is at Appendix 3. To all of them we are most grateful.

12.  Throughout the course of this inquiry Professor Bill Gilmore, Professor of International Criminal Law at Edinburgh University, has acted as our specialist adviser. His unrivalled knowledge of the subject and wise guidance have been invaluable. We express our gratitude to him.


13.  We start in the next chapter with a detailed examination of the various fora of international cooperation. Chapter 3 considers confiscation of the proceeds of crime, which assumes ever greater importance, and Chapter 4 the contribution of the private regulated sector. We then consider four specific issues: Hawala and other alternative remittance systems; the effect of the global economic downturn; piracy; and data protection. Lastly in Chapter 6 we summarise our conclusions and recommendations.

14.  We recommend this report to the House for debate.

1   Michel Camdessus, Managing Director of the IMF, "Money Laundering: the Importance of International Countermeasures", an address to the Plenary Meeting of the Financial Action Task Force on Money Laundering in Paris, 10 February 1998. Back

2   HM Treasury, The financial challenge to crime and terrorism, February 2007. Back

3   Financial Action Task Force (FATF), Third Mutual Evaluation Report of the United Kingdom, June 2007, para. 17. The typologies are not ranked in any particular order. Back

4   We explain the working of Hawala in Chapter 5, paragraph 147. Back

5   The United Kingdom Threat Assessment of Serious Organised Crime 2008/9, paragraphs 103-110. Back

6   FATF report Money laundering through the Football Sector, July 2009. Back

7   Final report of the National Commission on Terrorist Attacks upon the United States, chapter 5.4. Back

8   Report of the Official Account of the Bombings in London on 7th July 2005, HC 1087, 11 May 2006, paragraph 63. Back

9   This is the spelling commonly used in documents relating to money laundering; see further paragraph 50, footnote. Back

10   Final report of the National Commission on Terrorist Attacks upon the United States, chapter 5.4.  Back

11   The common abbreviation for anti-money laundering is AML, and for countering the financing of terrorism is CFT. Back

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