What is money laundering?

Placement introduces criminal cash into the financial system: deposits to bank accounts, purchases of high-value items such as cars and boats, or immediate remittance overseas. Red flags include frequent cash deposits just below reporting thresholds and rapid cash-to-asset purchases. Layering distances the money from its source through complexity and movement: transfers between many accounts, trade mis-invoicing, shell companies and conversion into virtual assets, with unexplained wire activity and round-trip transfers as warning signs.

Integration brings the money back into the legitimate economy looking like lawful income or assets: loans repaid from illicit sources, profitable deals funded by laundered money, or the sale of assets bought with it. Rapid reinvestment into businesses and unexpected cashflow in a small enterprise are the tell-tale signs. Modern schemes blend the stages, so controls need to catch anomalies across all three.

Structuring, or smurfing, breaks large cash sums into small deposits to avoid threshold reporting. Trade-based laundering uses mis-invoicing and false shipping documents to move value across borders. Shell companies and nominee structures hide the beneficial owner. Professional gatekeepers such as lawyers, accountants, real estate agents and financiers can be used to give transactions a legitimate face. Gambling and luxury assets store and move value. Virtual assets move it through exchanges, mixers and decentralised finance.

Finance is a target in its own right: loans, insurance, leasing and complex finance arrangements can integrate proceeds, and SME facilities such as factoring, invoice finance, merchant cash advances and lines of credit can be used to move or disguise funds. That is why lenders build source-of-funds checks into their credit and asset documentation.

The Anti-Money Laundering and Counter-Terrorism Financing Act 2006 sets the obligations for reporting entities, regulated by AUSTRAC; the Proceeds of Crime Act provides restraint and forfeiture powers; and the Criminal Code creates the laundering offences prosecuted by the Commonwealth Director of Public Prosecutions after investigation by the Australian Federal Police. AUSTRAC can issue infringement notices, accept enforceable undertakings and seek civil penalties; criminal prosecution can end in imprisonment and confiscation.

A reporting entity must register with AUSTRAC, maintain a risk-based AML/CTF program, identify and verify customers and beneficial owners, apply enhanced due diligence to higher-risk relationships, monitor transactions, submit suspicious matter reports without tipping off the customer, file threshold transaction reports, keep records for the statutory period, appoint an accountable compliance officer, train staff and have the program independently reviewed.