What is money laundering and what are the most common misconceptions?

In the public, money laundering is often associated with the mafia and movie scripts in which criminals open fictive restaurants or casinos in order to legalize the millions acquired through illegal affairs. However, the reality is much more complex. Money laundering is in fact a process by which illegally acquired money is shown as legal, that is, as if it comes from legal sources. The aim of this process is to conceal the true origin of the money, so that it can be later used freely without suspicion or legal consequences.

The tax adviser Aleksandar Vasic explains that money laundering is not exclusively the domain of organized crime and that it is increasingly present in business as well.

– What should be understood above all is that money laundering essentially entails activities with money or other property that has been acquired through a criminal act. Activities involving property entail the conversion, transfer, concealment, acquisition, possession or use of the property. This is most frequently associated with drug trafficking, but perhaps more frequent cases involve the laundering of money acquired through business by committing one of the tax-related criminal acts – Vasic says for eKapija.
How does money laundering work?

The process of money laundering usually takes place in three phases:
Placement – Illegally acquired money enters the financial system, most frequently through banks, casinos, purchase of real estate or fictive business operations.
Layering – The money goes through a range of transactions, such as international transfers, fictive business operations or transfers through offshore companies, so as to remove the trace.

How can a suspicious transaction be recognized?

Detecting money laundering is entrusted to two groups of subjects – financial institutions and state bodies.

– The entities in charge by law are banks, exchange offices, insurance houses, brokerage and dealership societies, auditors, accountants, lawyers, but also organizers of gambling, mediators in real estate transactions and providers of services having to do with digital property – explains Vasic.

On the other hand, control over transactions is done by the Administration for Prevention of Money Laundering, the prosecutor’s office, taxation bodies and the police. Courts make final decisions on sanctions.

Transactions which include cash, as well as suspicious financial operations related to real estate and off-shore companies, are especially targeted.

– Dirty money is often converted into real estate, which is then leased, so that the income would gain a “laundered” character – says Vasic.

Obligations of companies and entrepreneurs

Companies and entrepreneurs, as entities subject to the Law, have the obligation to identify clients and monitor their transactions.

– Primarily, there is an obligation to make a clear identification of the party with which business relations are established and to continuously monitor its operations. Special attention is paid to transactions which those parties carry out, that is, our clients, as well as the origin of the money which is the subject of transactions. Most attention and suspicion are drawn by cash deposited to personal or business accounts. In that sense, banks play a special role, monitoring and checking the data, but also regularly submitting the data on transactions – says Vasic.

He also points out the importance of companies from the sector of accounting and auditing.

– Subjects which are in the sector of accounting and auditing also have the obligation of monitoring and analyzing the operations of their clients. Obligations proscribed by law are often a big burden on the subjects themselves, which create legal uncertainty and are on the border of realistic capabilities and knowledge of the persons which are obliged to implement them by law – he clarifies.

Penalties and consequences

We can divide the penalties into two groups, our interviewee emphasizes.

The Law on Prevention of Money Laundering and Financing of Terrorism proscribes big penalties for violations and failure to implement the measures – up to three million dinars for companies and responsible persons. These penalties, Vasic clarifies, are imposed on the subjects and responsible persons if they make mistakes in implementing the Law.

However, those who consciously participate in money laundering stand to suffer much more serious consequences.

– In the case of somebody participating in money laundering, they are subject to the Criminal Act. Criminal responsibility entails a conscious intention to carry out or participate in money laundering, due to which prison sentences of up to as many as 12 years can be pronounced. The property and money are confiscated – he clarifies.

Real estate and off-shore business under special supervision

The real estate sector is one of the riskier ones when it comes to money laundering, which is why real estate agents are obliged to do an estimate of the transaction risk.

– The real estate sector is especially susceptible to money laundering. For that reason, real estate agents are subjects to the application of this law and have the obligation to estimate the risk of the parties and the transactions. Dirty money can be and frequently is the subject of conversion into real estate which is later leased and the realized income has a “laundered” origin. Another aspect of the risk are investors and contractors, that is, the construction sector. This sector is highly exposed to the risk of money laundering – says the tax adviser.

Also, operations with off-shore companies carry a high risk, especially if they come from countries with weak mechanisms for the prevention of financial misuse.

– Working with such companies entails an increased risk, but it is allowed and it doesn’t mean that money laundering is involved – concludes Vasic.

Ivana Zikic

Poslovni savetnik doo

Uprava za sprečavanje pranja novca Beograd

tax adviser

Administration for Prevention of Money Laundering

Aleksandar Vasic

money laundering