Michael Petty What is money laundering and financial crime?

History of Money Laundering  1920’s - US Gangsters earned huge sums of money from extortion, prostitution, gambling and from the prohibition on alcohol  Laundromats, being cash businesses were chosen to hide the proceeds of organised crime  Illicit earnings mixed with the earnings received from the businesses

Major International Policy Initiatives 1988 UN Convention against the Illicit Traffic in Narcotic Drugs and Psychotropic Substances (Vienna Convention) which urges signatories to:  Establish money laundering as a criminal offence  Enact legislation to identify, trace, seize and forfeit proceeds of drug trafficking  Implement measures designed to combat money laundering  Make money laundering an extraditable offence

Major International Policy Initiatives  1990 Convention on Laundering, Search, Seizure and Confiscation of the Proceeds of Crime (Strasbourg Convention)  2000 UN Convention against Transnational Organised Crime (Palermo Convention) of which article 6 requires signatories to adopt such legislative and other measures as may be necessary to establish as criminal offences actions that have the effect of laundering the proceeds of crime

Major International Policy Initiatives  2005 UN Convention against Corruption (Merida Convention) which criminalises the laundering of the proceeds of corruption and addresses the tracing, freezing, seizure and confiscation of the proceeds of corruption

Major Australian Legislative Initiatives Financial Transaction Reports Act 1988, which also established AUSTRAC 1 January 2003 commencement of Proceeds of Crimes Act civil forfeiture legislation 1 January commencement of new money laundering laws - Division 400 Criminal Code Act 1995 Anti-Money Laundering & Counter-Terrorism Financing Act 2006

What is Money Laundering?

Definition of Money Laundering Money Laundering involves turning dirty money into clean money … it is the process of converting cash or other property derived from criminal activity, to give it the appearance of having been obtained from a legitimate source …

Money laundering In Australia the term money laundering is much broader Under Commonwealth Law, money laundering has been extended to include instruments of crime Instrument of crime – money or other property used in the commission of or used to facilitate the commission of an indictable offence

Why do Criminals launder money? 1.Money laundering provides a legitimate cover for a criminals source of income 2.Money laundering helps criminals to avoid prosecution, conviction and confiscation of their illegal funds

Why Engage in Money Laundering? 1.Escape taxation 2.Escape regulation 3.Escape prohibitions 4.To further corruption

Australian Institute of Criminology 2004 Report  Crime in Australia generates between $2.8 billion and $6.3 billion per year  $4.5 billion most likely figure  $2.8 billion is laundered in Australia annually  $2.3 billion from fraud laundered every year  $300 million from illicit drugs laundered every year

Effects of Money Laundering Prevents detection – assets do not draw the attention of law enforcement Prevent confiscation of proceeds - offenders enjoy illegal profits Unfair competition in business Corruption of business and government Threatens integrity of the financial system

Effects of Money Laundering Assists in the financing of terrorism Funds further criminal activity by reinvesting proceeds of previous activity Supports luxurious lifestyles which contribute to the creation of false economies

Three Stages of Money Laundering 1.Placement 2.Layering 3.Integration

5/06/2016 Placement Placement is the first stage of the money laundering cycle It involves putting or introducing illicit funds into the financial system Most vulnerable stage in money laundering cycle

Placement Placement can also be effected through non-bank entities e.g. Western Union, Travelex, casino’s, TAB’s

Examples of placement activity Large amounts of cash are broken into smaller amounts & deposited over time into different branches of a financial institution Exchange of one currency into another Conversion of smaller notes into larger denominations Conversion of funds into financial instruments e.g. money orders, bank cheques, travellers cheques Purchase of precious metals or art

Examples of placement activity Gambling at a casino Currency smuggling Co-mingling of illicit cash with the proceeds of a legitimate business

Illegal Money Placement Deposited into Accounts Bank Cheques Bank Drafts Telegraphic Transfer Stored (Safety Deposit Box) Gambled Cheques purchased Chips exchanged for Cash Notes exchanged Smuggled Real or false name Use of a Nominee Corporate name Structured transaction Using

Layering Most complex stage of the process Layering objective is to separate funds derived through illegal activity from their true source Layering achieves the objective by obscuring the money trail to foil any pursuit by law enforcement

Layering Layering is commonly achieved by splitting funds into different denominations or form and moving it between different accounts, different entities and/or locations – usually offshore

Examples of Layering Funds are telegraphically transferred to multiple financial institutions Funds are used to purchase other securities e.g. shares Use of offshore companies Accounts held offshore are used to receive or transmit funds

Examples of Layering Use of on line banking to move money Internet Gambling and using Casino’s Use of “Smart Cards” e.g. prepaid cards and stored value cards

Illegal Money PlacementLayering - Offshore False Name Singapore Account Company A European Account Company B Tax Haven Account False Name Tax Haven Account Company X Hong Kong Account Company Y USA Account

Integration Integration is the final stage when funds return into the legal economy The money is made available to the criminal again, once the manner of its acquisition and geographical provenance cannot be traced

Integration Illegal money has the appearance that the funds were derived from a legitimate source Accomplished through the purchase of assets: real estate, luxury goods, securities etc. But not necessarily in the jurisdiction where the offender principally resides

Illegal Money PlacementLayeringIntegration Singapore Account European Account Tax Haven Account

Money Laundering Stages PlacementHide Conversion or transfer LayeringMove Concealment or Disguise IntegrationInvestAcquisition, possession or use of property

Financial Intelligence Unit Attorney General’s Office/ DPP Financial Institutions Eg. banks Provides reports Police, Customs & Immigration Provides reports Work together on POC and prosecution - Receives and analyses reports -Issue guidelines -Ensures Financial Institutions Comply Guidelines & Compliance Provide info eg Report Border Currency Seizures Extradition Mutual Assistance Judiciary

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