Money laundering accounts for billions of dollars lost in our economy to criminal and illegal activity. The United Nations Office on Drugs and Crime (UNODC) estimates that between USD$800 billion and USD$2 trillion is laundered every year. Due to the hidden underground nature of money laundering, it is difficult to determine the exact amount lost to the illegal activity.
What is money laundering in Australia?
Money laundering is the act of processing funds in a way that hides their illegal origin. Drug smuggling, human trafficking, fraud, tax evasion, theft, and trafficking of weapons are just some of the dark crimes that underpin money laundering. These crimes generate up to trillions of dollars in any given year; money that criminals process or ‘clean’ so they can purchase goods or services without being detected.
How do criminals launder money?
Criminals typically use financial institutions, including banks and crypto exchanges, as a preferred method of laundering money as it legitimises the cash. Criminals trying to obscure the origins of their funds will often transfer money through several countries by using multiple accounts and people to move it.
Digital currencies, for their part, can be particularly appealing as a channel to launder money, as they offer additional layers of complexity with their pseudo-anonymous and borderless nature.
What are the stages of money laundering?
Criminals can launder money in a myriad of ways; through real estate, casinos, insurance providers, and more. While the avenues are diverse, the underlying methodology remains fairly consistent. There are three principal stages of money laundering, including ‘placement’, ‘layering’, and ‘integration’.
Placement is the initial stage of money laundering and occurs when illegal funds are converted or moved into a legitimate financial system, such as a bank or digital currency. Criminals will attempt to introduce the illicit proceeds through wire transfers, cash deposits, or another method.
Stage two of money laundering is called ‘layering’. This involves the process of mixing funds that are legally sourced with the illicit proceeds that have been ‘placed’ into the financial system (as described in stage one). The purpose of this is to move money further away from the original crimes, thus obscuring their illegal origins.
Criminals may use a combination of fiat or digital currency transactions to obscure the audit trail. These typically include the purchase or selling of real estate, stocks, cryptocurrencies, NFTs, or other commodities. With digital currencies, criminals often take advantage of mixers or privacy coins to further hide their identity, as these offer additional layers of anonymity.
These transactions are often conducted cross-border so criminals have a greater chance of getting away with their illegal activities. Once a transaction moves across jurisdictions it becomes harder for law enforcement to intervene and trace it back to the original source.
Integration is the third and final stage of the money laundering process. ‘Integration’ has occurred when the illegal and legal proceeds have been combined enough that all of the funds seem legitimate. The objective at this stage is to have the money distanced far enough away from their original criminal source so it cannot be detected.
This allows criminals to use their funds in the regular monetary system, as any other typical citizen would, without drawing attention from law enforcement.
How is money laundering prevented?
Governments and businesses around the world work together to fight against financial crime. This is called Anti-Money Laundering (AML) and exists to prevent criminals from using illegal funds or assets from entering the legitimate financial system or being used in other illegal enterprises.
AML benefits the local and global communities in many ways, including the prevention of crime, economic stability, protection from exploitation of businesses, increased national security, and safety for the general public.
Regulations are typically determined by the jurisdiction’s government and Financial Intelligence Unit (FIU). In Australia, AUSTRAC, our FIU, enforces the regulations that reporting entities must adhere to.
AML involves the policies, technology, and programs used to fight fraudulent activities. Specific AML measures vary from country to country, but might usually include Know your Customer (KYC) policies and processes, transaction reporting regulations, record management, and modern technology that can detect risky transactions and improve regulatory reporting.
Using technology to improve AML/CTF compliance
Identitii helps financial institutions to ensure complete and accurate regulatory reporting to regulators like AUSTRAC and NZ FIU. Contact us to learn more about how our platform can improve your reporting, by providing a single overview of your transactions, an auditable trail, reducing your manual processes, and minimising the risk of non-compliance.
Identitii’s compliance reporting platform helps you to automate AML/CTF transactions in a fast, safe, and secure way. To learn more about how our platform can assist with your regulatory reporting, click here.