Money laundering process

Money laundering process
Marek Cieślak

Marek Cieślak

CEO CGO Finance

Money laundering process is an activity that aims to give the appearance of legitimacy to funds that come from illegal sources. What are the consequences of this practice? How to report suspected money laundering? Find answers to these and other questions in the article below.

What is Money Laundering Process?

Money laundering process serves to legitimise funds from illegal activities, such as:

  • Smuggling
  • Drug trafficking

It involves transactions that hide the illegal source of money and create an illusion of legality. The Act of 1 March 2018 on preventing money laundering and terrorism financing regulates it. The Penal Code imposes specific sanctions for money laundering.

Money Laundering Process in European Law

Directive 2015/849/EU defines money laundering process as:

  • Converting or transferring property to conceal its illegal origin. Facilitating the evasion of the legal consequences of such acts is also a crime. The same applies to helping those avoiding legal consequences.
  • Concealing information about the origin, location, and ownership of property from a crime.
  • Acquiring, possessing, or using property while knowing its illegal origin.
  • Participating, assisting or incitement to commit any of the above actions.
money laundering process

Mechanism of Money Laundering Process

The money laundering process consists of three stages:

Introducing, the so-called PlacementIt involves introducing illegal funds into the financial system.
LayeringPerforming complex financial operations to cover the money’s real origin.
IntegrationAcquiring capital from transactions based on illegal funds in a way that appears to be legal.
Stages of money laundering process

The law requires accounting offices to report any suspicions of money laundering. They should notify the General Inspector of Financial Information (GIIF) about related circumstances. Failure to report money laundering or terrorism financing can result in a fine of up to 1 000 000 PLN.

The report should:

  • include any doubts about the legality of clients’ or contractors’ activities. Even if no transaction or asset transfer has occurred yet.
  • be immediate, no later than within 2 business days from confirming the suspicion.

The subjective feeling is enough to report suspicion of money laundering. The notification should rely on objective information.

money laundering process

Reporting Suspicion of Money Laundering Process – Contents of the Notification

A notification to the General Inspector of Financial Information should include:

Identification details of the accounting officename of the accounting office,
address of the accounting office, National Court Register (KRS) number, Tax Identification Number, name and surname of the person authorised to represent the accounting office
Identification details of the accounting office’s clientname and surname (or company name)
residential/business address, Tax Identification Number, Personal Identification Number (PESEL) (if assigned), series and number of the identity card (if applicable), other identification data (if available)
Information about assetstype of assets, e.g., cash, transfers, real estate,
value of assets, their location
Information about bank accountIBAN, account number (if there is no IBAN)
Information about transactionsdescription of transactions or attempted transactions transaction date transaction amount information about transaction parties
Information about the European Economic Area countryEEA country involved in the transaction (for cross-border transactions)
Information about risk and crimedescription of recognised risks indicating money laundering or terrorism financing description of the prohibited act from which the assets may originate
Justification of reportingdetailed description of circumstances indicating suspicion of committing money laundering or terrorism financing, arguments supporting justified suspicion
Additional informationany other information relevant to the case.
Signatureof the person authorised to represent the accounting office.
Elements of the notification on the suspicion of money laundering process

What are AML and KYC procedures and why is it worth knowing them? Check here.

Consequences of Money Laundering Process

Article 299 of the Penal Code defines the crime of money laundering. It is an act that aims at giving legitimacy to funds originating from illegal sources, such as:

• drug trafficking,

• smuggling,

• corruption.

Money laundering process is, according to criminal law provisions, an offence. It is punishable by imprisonment from 6 months to 8 years. Those who commit it with others or gain significant financial benefits may face 1 to 10 years in prison. Persons participating in crime of money laundering may include:

  • accomplice
  • instigators
  • managing instructors
  • supporters and inciters

even if they do not bear criminal liability.

Risks of Money Laundering Process

Money laundering process is not only a crime described in specific Acts and the Penal Code. It is a phenomenon that can trigger many negative consequences.

Negative PhenomenonConsequence
Economic DestabilizationFunds from crime distort free-market mechanisms. This leads to unfair competition and weakening of other operating companies. Investments from illegal sources disrupt healthy economic development and hinder long-term planning.
Financing Organized CrimeMoney laundering provides a continuous flow of cash for gangs and mafias. This enables them to expand criminal activities. For example: drug trafficking, human trafficking, or corruption.
Loss of Trust in Financial InstitutionsMoney laundering may exploit loopholes in banking systems and other financial institutions. This leads to a loss of trust in these institutions and undermines financial system. In extreme cases, this can lead to financial and economic crises.
Security ThreatMoney from crime is used to finance terrorism. It also supports other actions destabilising national security. Money laundering hampers criminal prosecution and complicates counter-terrorism efforts. This could lead to political and social destabilization.
Negative Social ImpactMoney laundering can contribute to increased corruption, social inequality, and other social pathologies. It can weaken people’s trust in justice. In extreme cases, it can lead to the breakdown of state structures and anarchy.
Consequences of Money Laundering Process
money laundering process

Money Laundering Process – Summary

Money laundering is a negative phenomenon. It is quite a challenge for institutions, businesses, and society as a whole. It can generate many negative consequences for both the economy and citizens. The legislator has recognised its importance. This is why he has regulated it in a special law and the Penal Code.

Interested in learning more about fighting money laundering? Our experts are at your disposal. We will answer all your questions and provide comprehensive legal advice. Contact us!

FAQ – Questions and Answers about Money Laundering Process

What is money laundering?

Money laundering is hiding the origin of illegal funds to make them seem legal. These funds can come from various crimes. For example: drug trafficking, human trafficking, corruption, or theft.

What are the methods of money laundering?

There are many methods of money laundering, but the most common ones include:
Placement – introducing illegal funds into the legal financial system. It can occur e.g. through deposits into bank accounts or purchases of luxury goods.
Layering. It is dividing large sums of money into smaller amounts to make them more difficult to trace.
Integration – mixing illegal funds with legal money. For example, by reinvesting them in legal businesses.

Who fights money laundering?

Various institutions are responsible for fighting money laundering, including:
General Inspectorate of Financial Information (GIIF). It supervises money flow in Poland and fights financial crime.
Law enforcement agencies. Police, prosecutors, and other authorities that conduct investigations into money laundering cases.
Banks and other financial institutions. These institutions must report suspicious transactions to GIIF.

What are the penalties for money laundering?

Penalties for money laundering are severe and depend on the case. In Poland, this is punishable by imprisonment from 6 months to 10 years.

What can I do to fight money laundering?

You can contribute to fighting money laundering by:
Reporting suspicious transactions to GIIF. If you notice anything suspicious in financial transactions, report it to GIIF.
Adhering to principles of honesty and legality. Do not engage in illegal activities. Stop using the services of companies with questionable reputations.
Raising awareness about money laundering. Discuss this issue with your family and friends to increase their knowledge.

Featured expert

Marek Cieślak

CEO CGO Finance