Exploring fraud as a predicate offence to money laundering

Abstract

Criminality has stemmed from the origin of man, and crimes have significantly increased its influence on society time has progressed. It is fair to say that criminality has skyrocketed in the 21st century, with the evolution of transport and technology making crimes more accessible than ever to even the most average of criminals. (FATF, 2020) Two distinct crimes, which have stood the test of time and remain prevalent to this day, are fraud and money laundering. Fraud has been a persistent crime since the presence of early human societies. Its presence has lasted throughout the centuries and continues to be an issue to this day. The Cambridge Dictionary defines fraud as “the crime of getting money by deceiving people” (Cambridge Dictionary, 2023). The element of deception is the core element that constitutes fraud. What defines fraud is the fact that proceeds are gained illicitly through methods that require deceit. A prime example of what fraud entails is when an investor wants to invest money into a fund, believing they are investing in an energy-related project, only to discover that the investment does not exist (Thompson & Choi, 2001). Fraud is the initial step where criminals gain illegal money, and we have seen multiple cases where individuals have defrauded millions of dollars from even the savviest of investors. On the other hand, money laundering, as defined by the international police organisation INTERPOL, is “the concealing or disguising the origins of illegally obtained proceeds so that they appear to have originated from legitimate sources” (INTERPOL, 2023). The definition of the crime is standardised across jurisdictions and international legislation, as the main goal behind money laundering is to conceal the trace of illegal funds and where they have originated from (INTERPOL, 2023). Money laundering has been a major headache for prominent institutions such as the FATF (Financial Action Task Force) and the IMF (International Monetary Fund). Due to the economic damage money laundering inflicts on businesses and corporations, institutions such as these have been working for decades to provide solutions on how to combat it (FATF, 2020). When working in the financial industry, one can uncover an array of deficiencies within the economic system. A key inspiration behind this dissertation is the need to strengthen the anti-money laundering and anti-fraud checks within financial institutions and businesses. When low-risk jurisdictions, such as the UK and Italy, are still enabling the commission of these crimes directly or indirectly through their systems, one cannot help but express profound concern (HM Treasury, 2022). Approximately 4 billion pounds are laundered just in the UK alone through banks and other economic entities (National Crime Agency, 2023). This figure is particularly alarming as it highlights a core problem within anti-fraud and anti- money laundering checks and balances of companies; that these crimes can occur both externally and internally within an organisation (National Crime Agency, 2023). Both money laundering and fraud can be carried out by any individual or organisation for the sole purpose of profit. Over the years, financial regulators around the world have been providing extensive guidelines, policies, and procedures to enhance the enforcement of the anti-money laundering spectrum of economic institutions. Nonetheless, the unending issue of enormous economic numbers still prevails. It is important to explore why this phenomenon is still happening and why the efforts from regulators are proving futile. Another aspect that triggered the aim of this research paper is the historical relationship between fraud and money laundering. If one delves into criminological and sociological theories, put forward by various criminological schools of thought, one can observe a pattern whereby scholars have always tried to evidence a relationship between both crimes (Kumar, 2012). Theories such as Smith’s rational choice theory have, throughout the decades, sustained the relationship between both crimes and provided us historical insight as to how they are related (Herfeld, 2001). Nonetheless, one cannot only rely on theory; there also needs to be data and statistics that sustain it. By examining ideologies and statistics surrounding both crimes from a generational point of view, one can deduce that the crimes have had a relationship, and this dissertation aims to examine to what extent this statement is true.