Current estimates are that the value of money being laundered through Australian banks by criminal enterprises approaches $12 billion per year. This amount is equivalent to about 1% of Australia’s GDP - except that it adds nothing to it. In the roughest of terms, it suggests that as many as 1 out of 100 Australian adults may be involved in criminal activity.
The numbers are staggering. The $12 billion per year represents only criminal profits, so the amount of money involved in all aspects of criminal activity is much higher. Such penetration into the fabric of Australian society touches everyone.
Money laundering has been a fact of life ever since banking services became generally available. It involves all aspects of the financial services made available to the public.
As financial services have become more sophisticated so have the activities of criminals who manipulate the banking/financial system for their own ends. Prior to the events of 9/11/2001, the focus of law enforcement, world-wide, with respect to money laundering had been almost exclusively on criminal activity. Since then efforts to curb the financing of terrorism has been conjoined with anti-money laundering initiatives because much the same mechanisms are used.
Very little publicity is given to the battle against money laundering activities by the Federal Government. I suspect that the low profile is deliberate because the extent of criminal endeavours in Australia would be a significant shock to the general population. We do tend to live in an era where ignorance equates to bliss and where the prevailing public thought is that the government and the police are successfully tackling the problem and that the rogue element is small.
World-wide, the extent of money-laundering is estimated at $300 billion annually. With such significant amounts at stake it would be tempting to think that the very best technical minds in IT and law enforcements are developing the necessary technologies to tackle the problem.
Be prepared for another shock - it is not so. In fact, technology is almost impotent in its ability to detect illegal money movement activity. The sheer volume and amounts involved in daily transactions, in the global financial system, completely overwhelms the ability of technological oversight.
So what is our response to this challenge? It is AUSTRAC. The following is from the home page of the Australian Transaction Reports and Analysis Centre:
The Australian Transaction Reports and Analysis Centre (AUSTRAC) is Australia's anti-money laundering and counter-terrorism financing regulator and specialist financial intelligence unit. AUSTRAC was established under the Financial Transaction Reports Act 1988 (FTR Act) and is continued in existence by the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act).
In our regulatory role, we oversee compliance with the requirements of the FTR Act by a wide range of financial services providers, the gambling industry and others. Since 12 December 2006, we also oversee compliance with the AML/CTF Act, which comes into effect on various dates from 12 December 2006 to 12 December 2008.
In our intelligence role, we provide information to State, Territory and Australian Government law enforcement, security, social justice and revenue agencies.
Among the many initiatives implemented by AUSTRAC is a requirement upon Australian financial institutions to report all financial movements of amounts exceeding $10,000. Effectively, moving $9,999.99 is not reported. This is not an oversight or a loophole. Irrespective of what the threshold amount is, one cent less means regulatory invisibility. The only way to close this loophole would be set the threshold low enough to be impractical as a method of moving money. Unfortunately this would be impossible, requiring government IT resources that would almost duplicate what was being used in the whole private sector.
Acknowledging the loophole’s propensity to be exploited, AUSTRAC have introduced a different regulatory initiative which has placed the burden of detecting all money laundering activities upon the banks and other financial institutions. It is now obligatory for all Australian financial institutions to train their staff in anti-money laundering detection.
So you friendly bank teller/bank manager/financial services officer is now an honorary policeman/woman. As you might imagine, the ability to effectively train tens of thousands of workers in anti-money laundering techniques and the true effectiveness of the people being trained is questionable. The result is that our bankers are required to suspect everyone and report all suspicions. The rationale, actually quite reasonable, is that the frontline employees will know their customers well enough to ascertain when something unusual has happened. At this point, they are obliged not to analyse but to report. To ensure that there is the appropriate response, draconian penalties are included in the AUSTRAC legislation for both the businesses and employees that fail to notify suspicious transactions or who abet them.
That the burden is now falling upon the businesses says much about how difficult this aspect of criminal activity is to eliminate.
Thanks Roger
I pity the poor tellers.
And I hear that people often use ATM's these days (so the way to evade the teller is pretty close to hand).
I find it really difficult to come up with any ideas for tackling this problem.
A Matter Of Perspective
Paul and Evan, you raise a perspective on "legitimate" business that keep the public bars and backyard barbecues buzzing.
When a "philanthropist" like Richard Pratt is named as as one of Australia's worse miscreants and yet he goes home to his mansion and his billions with a slap on the wrist it makes one cynical.
The royalty of the word are all descendants of some of the world's most callous robber barons.
This is not to say that the legitimising of criminal proceeds should be allowed to proceed unhindered. Apart from the misery and degradation that is promoted into our society with illicit drugs along with the petty crime that is committed by those that are hooked, we have the even worse crime of losing $3 billion dollars in tax revenue that would be garnered from a business with a profit of $12 billion per annum.
The cynical view is that is often hard to tell the legitimate business person from a criminal. We have numerous examples from all over the world where captains of industry end up in prison because they cannot see the difference between legal and illegal behaviour.
My father who I regard as a genuine folksy philosopher/commentator is adamant that no one except maybe for popular performers has made a million dollars ethically. Bill Gates is a good example of "legal" rapaciousness. Supposedly he is saved by the extent of his philanthropy. As we see with Pratt that is hardly an endorsement.
Matter of Perspective
Roger Fedyk, "we have the even worse crime of losing $3 billion dollars in tax revenue that would be garnered from a business with a profit of $12 billion per annum".
This is peanuts to what is being skimmed off by plumbers, electricians, painters, or any other tradesman who comes to your house. You pay cash, you get a discount, and the tradesman avoids tax. I have just had my house painted, and got a great deal because I paid cash. Richard Pratt is small time compared to the millions of tradesmen out there.
Care Required
Alan, I made the comment originally that perhaps 1% of the Australian population is engaged in criminal activity and you have confirmed that to some extent.
I would not be so forthright as to put in writing in a public forum that I knowingly aided and abetted an illegal transaction. The ATO have draconian powers.
The problem of combatting criminal activity is obviously intractable when people who would probably describe themselves as good citizens are so cavalier about their responsibilities to obey the laws of the land.
First Turn Left Past Downer
Anyone looking for what I think must be Alex's campaign launch should be able to find it from that. Any place in Stirling with a huge poster and a bunch of marquess is probably the site for his campaign launch. Then His Lordship had obviously raked the driveway, as he was careful to ensure that the effect wasn't disturbed..
I'm watching you, Alex. I blame you and your Adelaide Hills Aristocracy for a lot of what's happening. It's because I know how you and your ilk think of normal people that I don't trust how you act on Australia's behalf.
Enjoy your campaign launch. I will. I've watched V for Vendetta too many times.
A Forever Changing Meaning
That the burden is now falling upon the businesses says much about how difficult this aspect of criminal activity is to eliminate.
The difficult aspect about money laundering is in the knowing of exactly what it is. As of yet I am still unsure. The Bahamas I suspect is some of the most expensive real estate in the world, a beautiful place without doubt, though is that really all it is? Of course, tax evasion is not really money laundering – it is a legitimate business practice. How can one launder their own money? Many a New York practice will be quite willing to legally explain the difference. I wonder how many of the vigilant banks have a little off-shoot set up in that neck of the woods?
Money that is being laundered is in fact money that the government has yet to get its greedy little hands on. Take the example of Miami in the early 1980's. A rather sleepy 1950's like setup until the magic of Bolivian marching powder was discovered by all. During the Carter-induced recession Miami sold more luxury cars than all States combined. It was in the middle of a massive construction development. The population exploded, the price of real estate exploded, Miami banks (record number of banks) turned more cash into the Fed monthly than all other State Reserves combined etc etc etc. The Miami of today is lock stock and smoking barrel built by 1980's cocaine dollars. I recommend the documentary Cocaine Cowboys.
The truth is that Miami merely recycled what was built, placed it into "legit hands", and continued on – pretty much as New York and Chicago did after prohibition. What we all know as money laundering was in fact true business at its most pure, as devious and as unsavory as that business may have been. More interestingly, it actually proved that without undue outside influence (overbearing government) the economy is indeed recession-proof.
Money laundering seems to me to exist only when an unseen authority says it exists. And that is why it will never cease existing.