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Money laundering methodologies

This section details some of the common methods of money laundering in use in Australia. These methods are illustrated further in the case studies of this report.


Cash

The use of cash remains prominent in the money laundering process. The profits made from criminal activities are often returned to the criminals in the form of cash, which then needs to be re-introduced to the mainstream financial system to appear legitimate.

Methods of money laundering include:

  • 'structuring' of transactions; that is, breaking down large quantities of cash into amounts which will fall under the Australian financial system's $10,000 cash transaction reporting threshold. Structuring can be achieved through:
    • regular deposits of cash into accounts in amounts that fall below the reporting threshold
    • regular use of cash to purchase 'instruments' such as bank cheques and bank drafts, or to load onto credit or stored value cards in amounts below the reporting threshold
    • using multiple branches or agencies, often within a short timeframe, to avoid detection
    • establishing accounts at multiple institutions
    • using third parties to make deposits into a single account or multiple accounts
  • depositing cash during busy periods, holiday shutdowns and closing times to avoid raising suspicion
  • exchanging smaller denomination notes into larger denomination notes
  • purchasing and/or exchanging Australian currency into foreign currencies to obtain large denominations such as the 500 euro note or the United States $100 bill
  • exchanging or making deposits of foreign currency at Australian financial institutions
  • purchasing other commodities such as gold and precious stones which can be quickly converted back into cash, often at a profit
  • making cash payments for either the purchase or lease of assets such as motor vehicles, or using cash to purchase cheques for the same purpose
  • regularly depositing cash into established loans or investments - of particular interest are services which offer less scrutiny of a customer's income such as 'no-doc' and 'low-doc' loans which do not require significant evidence of customer identification.

Betting accounts

Betting accounts offer an alternative to accounts held with mainstream financial institutions and in many instances can be used as de facto savings and deposit accounts. The frequent movements of funds through such accounts for non-gaming purposes should raise suspicion and may be indicative of money laundering or revenue evasion.


Cuckoo smurfing

'Cuckoo smurfing' has been identified as another emerging form of money laundering and has recently received coverage in the Australian media.

Australia's AML/CTF professionals need to become familiar with this organised, transnational and highly coordinated process so that they may then incorporate this information into AML/CTF programs and staff training.

The term 'cuckoo smurfing' originated in Europe because of similarities between this typology and the activities of the cuckoo bird. Cuckoo birds lay their eggs in the nests of other species of birds which then unwittingly take care of the eggs believing them to be their own. In a similar manner, the perpetrators of this money laundering typology seek to transfer wealth through the bank accounts of third parties.

There are four key steps in this process:

Step 1

A customer deposits funds with an alternative remitter in a foreign country for transfer into another customer's Australian bank account. This is an activity and is often a cheaper and faster alternative to using a mainstream bank.

Step 2

The alternative remitter is part of a wider criminal syndicate involved in laundering illicit funds. This criminal remitter, while remaining in the foreign country, provides details of the transfers, including the amount of funds, to a criminal based in Australia. This includes the account details of the intended recipient in Australia.

Step 3

The Australian criminal deposits illicit cash profits from Australian crime syndicates into the bank account of the customer awaiting the overseas transfer. The cash is usually deposited in small amounts to avoid detection under transaction threshold reporting requirements. After an account balance check, the customer believes that the overseas transfer has been completed as arranged.

Step 4

The Australian criminal travels overseas and accesses the money that was initially deposited with the alternative remitter. The illicit funds have now been successfully laundered - the criminal owes nothing but a commission to the money launderer for their work.

It is important to recognise the high level of sophistication and organisation required to successfully operate a cuckoo smurfing syndicate. The essential actors in a typical scenario are:

  • a customer seeking to transfer funds from overseas into Australia. This customer could be either:
    • an Australian customer overseas seeking to transfer funds into their own account in Australia, or
    • a customer overseas seeking to transfer funds to another customer located in Australia
  • a criminal alternative remitter located overseas
  • a complicit, Australian-based criminal seeking to transfer funds overseas
  • an organiser or coordinator in Australia
  • associates of this organiser or coordinator who make third party deposits into the Australian customer's account.

Bank staff in particular should be alert to third parties making structured, or otherwise unusual, cash deposits into third party accounts. The essential weakness being exploited by cuckoo smurfing is the lack of identification required of persons depositing funds into third party accounts.


Domestic electronic transfers

The ability to pool funds in accounts has been made much easier with internet banking. Although financial institutions have established internet banking thresholds, customers still have the capacity to transfer large amounts over a relatively short space of time. Customers may deposit cash funds into an account and then undertake rapid domestic transfers to separate accounts. This type of activity can be indicative of any number of criminal activities and should be viewed as a possible indicator of illicit activity, particularly if the activity is inconsistent with information about the customer, their business or previous account history.


False and fraudulent identification

Identity fraud is a significant issue for law enforcement in Australia. Through the use of false names and fraudulent identity documentation, bogus accounts, debit and credit facilities, loans, equity and assets can be obtained. These legitimate financial products can be exploited for money laundering and fraudulent participation in tax schemes where money appears to be borrowed legitimately against established equity.


Gatekeepers

A 'gatekeeper' is a person with specific knowledge about services or structures which can be misused for money laundering. These people are not necessarily directly involved in money laundering but they may wittingly or unwittingly assist third parties to distance their criminal activity from their illicit profits.

Gatekeepers are commonly accountants, legal practitioners, notaries, and other similar professionals. Reporting entities should be alert to the roles certain professionals can play in money laundering.


Wire transfers

International funds transfers, or wire transfers, are often used by criminals to rapidly transfer funds across international boundaries. Multiple wire transfers, each bearing different transfer details, are often sent to disguise their true nature. This method also creates a convoluted audit trail which hampers investigations of both private sector AML/CTF staff and law enforcement.

Criminals may also set up illegitimate businesses or corporations to send wire transfers. This not only conceals the true identity of the criminal, but the transfers can be hidden among the complexities of established international trade and financial market activities.

By having a good knowledge of customers and businesses, and by monitoring unusual spikes in activity, reporting entities can detect suspicious activity and report it to AUSTRAC as appropriate.


Other resources

There are several other key sources of information about ML/TF methodologies and typologies.

The Financial Action Task Force (FATF) website, and particularly its 'Publications' link to 'Methods and Trends', details the history of research undertaken by global experts on money laundering (see Appendix B of this report for a detailed list of FATF research topics). Of interest is the report entitled FATF Terrorist Financing Typologies Report.

Similarly, the Asia/Pacific Group on Money Laundering (APG) produces information on typologies relevant to our region, and the Egmont Group of Financial Intelligence Units provides a library of sanitised case studies on its website.

Public records of court proceedings in criminal cases provide another source of information. Before passing sentence in a criminal case, judges will read onto the public record a statement outlining the crime and the reasons for the sentence. This will often include a summary of the investigation and the evidence that was presented to the court during the case. In ML/TF cases, such evidence can reveal the methods used by the criminals.

Judges' remarks are publicly available from the websites of every court in Australia. The search functions of these websites are not specifically designed for ML/TF research, so it may be necessary to use a specific law enforcement agency or crime committed as search criteria. Internet searches on topics such as money laundering or terrorism financing, or specific crime types, can provide additional information.

Last modified: 28/08/2018 09:06