Money Laundering Explained—for Retailers

money laundering explained

What is money laundering? Most people will describe it as:

  • Turning dirty money into clean money.
  • Turning money from the illegitimate economy into money from the legitimate economy.
  • Washing drug money.
  • Disguising criminal money.

From the definitions above, most people would not be far off the mark, except that the definitions don’t explain enough about the nature of money laundering or the impact it has globally.

I don’t believe there is an accurate figure out there that gives a good indication of the cost impact of money laundering on the global economy, but I have seen figures estimating hundreds of millions to trillions.

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Even if you try to work out a rough average, you get the picture that this is a significant problem and one that needs some focus.

Money Laundering Explained for Retailers

I prefer the following definition, as it really helps describe the breadth and depth of the problem and that it is not just the regulated sector that needs to be worried about it.

Money laundering occurs every time any transaction takes place OR any relationship is formed that involves any form of property or benefit that has come from crime.

That definition makes it clear that money laundering is not just about “dirty” cash. It can be almost any asset derived from criminal activity.

The primary objective of money laundering is to realize the benefits of the crime. But to do this, the criminal must achieve four secondary objectives:

1. Concealing the fact that they own the property.
2. Concealing the fact that they might manage or control the assets.
3. Placing as much distance between them and the assets, both physically and on paper.
4. Concealing the fact that the property is derived from criminal activity.

This is no easy task, particularly when dealing with the regulated sector. Criminals are now looking elsewhere to carry out this activity and in an environment where they are less likely to be detected.

That leaves the retail industry largely exposed on the basis that most retailers do not believe that there is any need to instigate anti-money-laundering (AML) policies and procedures. This might be the case as they are not regulated, but money laundering regulations are changing constantly to adapt to criminal behaviors, and it is only a matter time before we find retailers are mandated to set up robust AML programs that can be compliance tested.

Retailers face a challenge in that they also provide criminals with easy access to the financial system, such as banks. The most common areas used by criminals are fixed value cards including electronic gift cards, bank transfers, jewelry (particularly watches), debit and credit cards, and, of course, cash.

Most retailers do not have processes in place to check these transactions are genuine. This makes them relatively easy targets for criminals. Some retailers accept cash as payment for store cards, and no checks are carried out, although I know of one major retailer that now has AML (anti-money laundering) controls in place.

Steps for Retailers

So what can retailers do about this growing problem? Firstly, the phrase “reasonable and practical” comes to mind. No one expects non-regulated businesses to have the same integrity as the regulated sector. This is neither logical nor cost effective. But as a minimum, organizations should focus on some key elements:

Policies and Procedures. Most experts can write these, but my advice would be to ask someone with retail experience in these matters; otherwise your policy objectives may be largely unachievable.

Governance. All retailers have good governance structures and committees. Money laundering could easily be accommodated by one of them, such as the risk committee. Some businesses may need a trained money laundering reporting officer (MLRO) appointed to be the “competent” person. It should, however, be noted that the MLROs are legally accountable for any breach of regulations or legislation.

Communication and Awareness. Everyone should get some form of awareness training at induction. This can be developed to more in-depth up-skilling for senior management, finance, and investigations teams. A simple compliance program will give the company a health check on its issues.

Now that we have a framework set up, retailers need to carry out a risk assessment of all their activities where money laundering might be carried out and colleagues exposed. These might include high-cash sales, electronic gift card sales and redemption, bank transfers, and store card payment. Once identified, these processes should have a training, monitoring, and compliance program built around them.


The Shifting Sands of Money Laundering” was originally published in LP Magazine Europe in 2017. This excerpt was updated September 24, 2018.

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