What is money laundering?

Money laundering refers to activities involving property derived from benefits connected with the commission of a prohibited act, which serve or may lead to concealing its criminal origin, hindering its detection, seizure, or forfeiture. Importantly, this does not concern only cash or money held in an account. Money laundering may also involve other assets, including property rights, financial instruments, movable property, or real estate.

In practice, the purpose of such activities is to separate assets from their illegal source, make it more difficult to reconstruct their history, or create conditions allowing them to be used further without revealing their actual origin. Under Polish law, the concept of money laundering is linked to Article 299 of the Criminal Code, to which the Act on Counteracting Money Laundering and Terrorist Financing refers.

How does Polish law define money laundering?

The AML Act does not create a separate descriptive definition of money laundering. It provides that money laundering should be understood as the act specified in Article 299 of the Criminal Code. This is important because the scope of that provision is broader than the common understanding of “turning dirty money into clean money”.

Article 299 of the Criminal Code refers to certain assets derived from benefits connected with the commission of a prohibited act and covers, among other things, accepting, possessing, using, transferring, concealing, moving, or converting them, as well as other actions that may prevent or significantly hinder the determination of their criminal origin, location, detection, seizure, or forfeiture.

Money laundering therefore does not have to consist solely of making assets appear to have a legitimate origin. Nor does it have to involve money itself. Such activities may also concern other assets connected with a benefit obtained as a result of a prohibited act. Therefore, the term “legalisation of dirty money” captures the general idea of the practice well, but it does not describe the full range of conduct covered by Article 299 of the Criminal Code.

What does money laundering involve in practice?

The starting point is a financial benefit connected with an earlier prohibited act. In AML practice, the term predicate offence is often used in this context, meaning the offence that is the source of the benefit which subsequently becomes the subject of money laundering. Polish Article 299 of the Criminal Code, however, uses the broader term “prohibited act”.

Sources of such benefits may include, for example:

• fraud,
• corruption,
• drug trafficking,
• certain economic or tax offences,
• other prohibited acts generating a financial benefit.

The mechanism can, in highly simplified terms, be presented as:

prohibited act → financial benefit → activities making it more difficult to determine its origin or subsequent path → possibility of further use of the assets.

Actual cases can take many different forms. Relevant factors include, among others, the type of assets, their source, the entities involved, accounts, assets, and channels through which value flows.

At a high level, money laundering may include, for example:

• moving value through multiple accounts or entities;
• using sham or fictitious business transactions;
• purchasing and subsequently disposing of various assets;
• using companies, intermediaries, or other entities to make it more difficult to identify the actual source of assets;
• splitting or structuring flows in a manner that makes it more difficult to reconstruct their history.

However, none of these elements considered in isolation automatically constitutes money laundering. What matters is the overall context and the connection between the activities being analysed and assets derived from a prohibited act.

What are the stages of money laundering?

The three-stage model of placement, layering and integration is often used to explain the mechanism of money laundering.

1. Placement – placement
   Typically involves introducing value derived from criminal activity into circulation or the financial system. This is the stage at which the assets begin to be separated from the direct source of their origin.
2. Layering – layering or concealment
   Involves creating subsequent transactions, flows, or structures that make it more difficult to reconstruct the path of the assets and link them to their original source.
3. Integration – integration
   Involves reintroducing the assets into circulation in a manner that may make their criminal origin more difficult to recognise or create the appearance of a legitimate source.

This model is useful for understanding the classic money laundering mechanism, but it is not a statutory checklist or a prerequisite for establishing the offence. In actual cases, the individual stages may overlap, occur in parallel, or fail to form a clear three-stage sequence.

Article 299 of the Criminal Code focuses on specific conduct concerning assets derived from benefits connected with a prohibited act. It does not require proof that the assets passed successively through placement, layering, and integration.

Does an unusual transaction mean money laundering?

No. An unusual transaction, a complex flow of funds, or the use of multiple entities may constitute a signal requiring analysis, but in themselves they do not establish that an offence has been committed. From an AML perspective, context is important, including, among other things:

• the customer’s profile and business activity;
• the purpose and nature of the relationship;
• the customer’s previous use of products or services;
• the source of funds or wealth;
• the nature and economic rationale of the transaction;
• the parties and beneficiaries of the flow;
• relationships between the participants;
• other information available to the institution.

Therefore, an alert is not equivalent to a finding of money laundering. It should lead to an appropriate analysis that makes it possible to determine whether the activity can be reasonably explained or whether it requires further review, escalation, or additional actions resulting from applicable regulations and procedures. This distinction is important because the role of an obliged institution is not to automatically classify every anomaly as a criminal offence, but to identify risk, analyse the available information, and make documented decisions.

Money laundering and AML – what is the difference?

Money laundering is a threat and a prohibited act. AML is a system of measures aimed at preventing and combating this phenomenon.

AML (Anti-Money Laundering) covers processes designed to identify and mitigate the risk of an organisation being used for money laundering. In practice, an AML system may include, among other things, customer due diligence, risk assessment, the application of financial security measures, screening, monitoring of relationships and transactions, alert analysis, escalation, and fulfilment of relevant reporting obligations.

This does not mean, however, that the purpose of AML is to identify a single “money laundering transaction” on the basis of one indicator. An effective process involves combining information about the customer, the relationship, the source of wealth, transactions, and other risk factors, and then making an appropriate and justifiable decision.