Money Laundering

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Through the process of money laundering, organised criminals conceal their illicit profits to avoid prosecution, conviction and confiscation of their criminal proceeds by authorities.

Nature of Money Laundering

The basic motivation behind most crime is to make money. However, if criminals wish to use that money they need it to lose its criminal connection and appear legitimate— they need to clean or ‘launder’ it.

Money laundering is the way that criminals conceal or disguise the proceeds of their crimes. Criminals attempt the following steps in order to launder money:

• Money must be placed in the financial system without arousing suspicion. This may be done by breaking up large amounts of cash and depositing money into bank accounts or buying money orders or cheques that are then deposited into other accounts.
• Money is moved around or layered, to create complex money trails which make it difficult to identify its original source. This is usually done through a series of transactions that can occur quickly, involve businesses and extend to other countries.
• Money is integrated or moved back into the financial system for end use so that it appears as legitimate funds or assets. This may involve buying real estate and luxury assets, or investing in businesses.

Money launderers have traditionally used banks and financial institutions as conduits to hide their illegal profits. While that still holds true, criminals are also attracted to other sectors that use or receive significant amounts of cash, where limited controls and regulations exist, or where there is lower risk of detection.

Other money laundering methods involve professionals who are employed by criminals to work around the regulations and controls in the Australian financial sector. These facilitators use their specialist knowledge and expertise to exploit legal loopholes or find opportunities for criminal activity.

Extent

Based on reported proceeds of crime, the Australian Institute of Criminology estimated that in 2004 between $2.8 and $6.3 billion of crime proceeds were laundered.¹ The full cost of money laundering to the Australian community is likely to be much higher when lost taxation revenues and the full scope of unreported proceeeds of crime is taken into account.

Impact

Money laundering is a serious crime which has many social, economic and policy ramifications. The Australian Crime Commission (ACC) and the Australian Transaction Reports and Analysis Centre (AUSTRAC) have a major focus on money laundering as it is often a by-product of other criminal activity.

Money laundering can harm the Australian community in many ways, including:

• ‘crowding out’ legitimate businesses in the marketplace when money laundering front businesses subsidise their products and services at levels well below market rates
• affecting the reputation and integrity of financial institutions where they become involved, albeit unwittingly, in dealing with the proceeds of illegal activity
• distorting investment patterns
• assisting in the financing of terrorism
• financing further criminal activities and motivating criminals who are benefiting from their crimes.

How Money Launderers Work

There is no one method of laundering money. Money launderers have shown themselves to be imaginative, creating new schemes to get around the counter-measures designed to stop them.

Money launderers may buy and re-sell real estate or luxury items such as cars or jewellery. They may pass money through a complex and intertwined web of legitimate businesses and ‘shell’ companies. A shell company has no significant assets or operations when it is legally established.² Shell companies can be used for legitimate business purposes. However, because shell companies provide the ability to hide true ownership and financial details, they have become a popular method for laundering money. As an example, illicit profits can be placed into the business after it has been legally established overseas by another entity.³ Criminals may also use businesses that send money overseas and operate in a similar way to conventional banking systems. For example:

• sending numerous smaller value wire transfers to several overseas-based beneficiaries in a short period of time
• use of a number of people, including payment of commission, to carry out small transactions or smuggle cash into or out of the country on their behalf to avoid alerting authorities
• use of gambling outlets to facilitate money laundering activities by placing illegal proceeds of crime into gaming machines or purchasing casino chips only to cash out the chips shortly afterwards.

Links to Serious Organised Crime

Criminals generating large sums of money through illicit activities are more likely to seek out ways of ‘legitimising’ their ill-gotten gain through money laundering. More and more organised crime groups are becoming involved in money laundering to either disguise their illicit gains or to fund other criminal activities such as illicit drug trafficking, fraud, firearms trading, or intellectual property crimes.

Identifying Money Laundering

Australia’s anti-money laundering and counter-terrorism financing regime enables the Australian Transaction Reports and Analysis Centre (AUSTRAC) to collect financial transaction reports from regulated entities including the financial and gambling sectors. These reports significantly assist in identifying and analysing money laundering activities and methods. This reporting mechanism contributes to investigative and law enforcement work to combat financial crime and prosecute criminals in Australia and overseas.

Government Responses

The Australian Government launched the Organised Crime Strategic Framework in November 2009 to ensure Commonwealth agencies are working together to prevent, disrupt, investigate and prosecute organised crime. As part of the Framework, the ACC has produced two biennial classified Organised Crime Threat Assessments (OCTAs) which identify the highest organised crime threats to the Australian community. The OCTA informed the development of the Government’s inaugural Commonwealth Organised Crime Response Plan (OCRP) in 2010 to help prioritise Commonwealth agencies resources against these threats.

Recognising that organised crime is a national issue that requires a nationally coordinated response, the Commonwealth and the States and Territories agreed to the National OCRP 2010-13 in 2010 to strengthen multijurisdictional approaches, coordination, information sharing and joint activities to combat the national threat of serious and organised crime. Preventative partnerships with industry and the community are part of the strategies to respond to organised crime. These organised crime fact sheets describe the breadth and impact of organised crime activities and provide an insight into how industry and the community can help combat organised crime.

Further information on the Organised Crime Strategic Framework and the OCRP can be found at <http://www.ag.gov.au/www/agd/agd. nsf/Page/Publications_OrganisedCrime>.

To read more about AUSTRAC and the reporting obligations of regulated entities, visit <www.austrac.gov.au>.

This fact sheet was developed in collaboration with Attorney-General's Department, Australian Customs and Border Protection Service, Australian Taxation Office and Australian Transaction Reports and Analysis Centre.

Endnotes

1. Stamp, J & Walker, J 2007, ‘Money Laundering in and through Australia, 2004’, Trends and Issues in Crime and Criminal Justice, No.342, Australian Institute of Criminology, Canberra.
2. Financial Action Task Force (FATF) 2010, Money Laundering Using Trust and Company Service Providers, FATF, October.
3. Ibid.