AUSTRAC is an important member in a number of multi-agency government task forces which have been set up to combat serious national crime. AUSTRAC regularly meets with major partner agencies to ensure that its priorities are aligned and its resources are focused on addressing the nation’s primary criminal threats.
Forming and maintaining effective partnerships has been a cornerstone of AUSTRAC’s work for more than 20 years. Partnerships and collaboration will continue to be crucial to the agency’s success at combating ML/TF as major crime threats adapt and become more dynamic.
Two examples of AUSTRAC’s contribution to multi-agency task forces are:
Project Wickenby is a multi-agency task force, led by the ATO, which targets internationally promoted tax evasion schemes.
Project Wickenby uses AUSTRAC’s financial intelligence to identify the flow of funds between Australia and overseas tax secrecy jurisdictions and uncover potential matters for investigation including individuals participating in a range of illegal offshore arrangements. Illegal offshore arrangements are an established way of evading tax, laundering funds and concealing beneficial ownership.
Money laundering vulnerabilities
The money laundering vulnerabilities associated with illegal offshore arrangements include:
- The layering of funds through overseas jurisdictions. This adds complexity to the money trail and enables criminals to distance themselves from the illegal activity that generated the funds (24).
- Disguising beneficial ownership and control. The use of offshore accounts, corporate structures and transactions assists criminals to hide the true owner and/or controller of funds.
- Illicit international funds flows can be difficult to identify when disguised as legitimate transactions. This could be in the form of payment for false loans or payment of false invoices.
Tax evasion and money laundering typology
Project Wickenby has identified the use of false invoices and loans in illegal offshore arrangements. This typology involves the Australian entity making funds transfers into an overseas account (or a series of accounts), disguising the transfers as payments for expenses, before the funds are later returned to Australia disguised as a ‘loan’. The arrangement aims to:
- create false tax deductions by claiming tax deductions for false expenses
- generate tax-free funds
- launder these funds to hide the ultimate beneficial owner.
This methodology often includes the following elements:
- An Australian company (company A) enters into an agreement with a tax scheme promoter based in a tax secrecy jurisdiction (country 1). The promoter benefits from the confidentiality and privacy offered in the tax secrecy jurisdiction.
- The tax scheme promoter owns and/or controls two offshore companies (companies B and C). Control may involve the use of a trust or the use of third parties; for example, a relative or associate may act as the director of the offshore companies.
- Company B provides consultancy and/or management services and is incorporated in country 2.
- Company C provides a financial service (as a lender of money, for example) and is incorporated in country 3.
- Companies B and C hold bank accounts in country 4. The promoter controls and operates these accounts.
Transfer of funds out of Australia
- Company B generates false invoices and issues them to Australia-based company A for supposed consultancy and/or management services. This gives the appearance of a legitimate commercial transaction, although no consultancy and/or management services were provided to company A.
- Australia-based company A pays the invoices by international funds transfer, transferring funds from its bank account in Australia to company B’s bank account in country 4.
- Company A then claims these payments as deductible business expenses in its tax returns, thereby fraudulently reducing the company’s taxable income and the amount of tax it will be assessed as liable to pay.
Layering of funds to obscure or hide ownership of funds
- The promoter electronically transfers the funds to the bank account of company C in country 4. In doing so, the funds are further layered to disguise their true origin and beneficial owners (25).
- Alternatively, the promoter transfers the funds through a series of offshore accounts in several countries before they are transferred to company C. This further complicates the tax evasion and money laundering process in an effort to avoid detection.
Integration of funds back into Australia’s financial system
- The promoter electronically transfers the funds back to the directors or controlling shareholders of company A in Australia, disguised as ‘loans’
- To disguise the funds being transferred back to Australia, false documents are created purporting to be a loan agreement between company C and company A’s directors or controlling shareholders.
- Disguising the funds as a ‘loan’ gives the appearance the funds have come from a legitimate source. At this point, the funds have essentially been integrated into the legitimate Australian financial system (26).
- Before being returned to the beneficial owners (that is, company A’s directors or controlling shareholders) the funds have passed through various companies and bank accounts. The circular nature of these transactions is a characteristic of a ‘round robin’ tax evasion scheme (27).
- After the funds are returned to Australia the directors or controlling shareholders use the funds for personal and/or living expenses, or lend the funds back to company A.
- Effectively, the ‘loan’ facilitates the untaxed distribution of funds back to the ultimate beneficial owners, company A’s directors or controlling shareholders.
- The funds, disguised as loans, are not disclosed in the personal tax returns of the directors or controlling shareholders. The directors or controlling shareholders are assessed as liable for less tax than they should have been, thereby avoiding income tax obligations.
The ‘loan’ received by company A’s directors or controlling shareholders originated as funds from company A which were disguised by the scheme, allowing the evasion of both company and personal tax.
Case studies 10 and 11 in this report demonstrate how AUSTRAC information and analysis directly contributes to Project Wickenby investigations.
Previous typologies and case studies reports also demonstrate AUSTRAC’s contributions to Project Wickenby – case study 1 in AUSTRAC’s 2013 typologies and case studies report is an example.
The following indicators highlight potential suspicious customer behaviour involving false invoices and loans in an illegal offshore arrangement:
- Customer in Australia receives a loan from an offshore entity, which was preceded by the customer transferring funds out of Australia
- Customer sends multiple international funds transfers without a business rationale
- Customer sends/receives international funds transfers to and from jurisdictions known to be tax secrecy jurisdictions
- Customer sends/receives multiple high-value international funds transfers to and from Australia with no apparent logical reason
- Different ordering customers in Australia send international funds transfers to the same beneficiaries
- Use of offshore company structures and bank accounts to transfer funds seemingly to disguise the true nature and beneficial owner of funds
The Eligo National Task Force was established in December 2012 to address money laundering vulnerabilities within the alternative remittance sector, including the potential for exploitation by serious and organised crime groups.
Task Force Eligocomprises the ACC, AUSTRAC and the AFP, in partnership with the Australian Customs and Border Protection Service and state and territory police. The task force’s activities complement AUSTRAC’s ongoing regulatory activities to increase AML/CTF awareness and professionalism within the remittance sector.
AUSTRAC’s role and contribution to Task Force Eligo
AUSTRAC’s role in Task Force Eligo is to provide financial intelligence to partner agency operations, lead engagement with industry, especially major banks and the remittance sector, and, where appropriate, use its regulatory powers to secure the compliance of high-risk remitters. AUSTRAC leads the taskforce’s engagement with industry, especially in sharing information about the nature of money laundering and terrorism financing risk with the sector.
AUSTRAC’s contribution to the task force since its commencement has included:
- the dissemination of 170 financial intelligence reports and profiles of entities of interest to Task Force Eligo partner agencies
- the referral of 258 SMRs to partner agencies
- the dissemination of two intelligence reports to international partners regarding entities of interest in those jurisdictions
- the dissemination of 46 data mining information reports, containing geographic analysis of remittance payments and international money flows
- 30 disseminations to partner agencies detailing the AML/CTF compliance of entities under investigation by Task Force Eligo
- posting an intelligence analyst full-time with the ACC.
Case studies 16 and 18 within this report are examples of the contribution AUSTRAC has made to Task Force Eligo and highlights the effectiveness of joint task forces and state and federal authorities working together to counter serious and organised crime.
Since its commencement, Task Force Eligo has delivered significant operational outcomes culminating in the disruption of 12 serious organised crime groups. For the period 2013–14, the task force has seized drugs with the estimated street value of AUD140 million and more than AUD21 million in cash and restrained more than AUD30 million worth of assets (28).
Money laundering vulnerabilities
The money laundering vulnerabilities associated with the alternative remittance sector include:
- The cash intensive and high volume nature of the sector makes it vulnerable to exploitation for money laundering.
- The sector can offer an inexpensive service for transferring funds to countries and locations which do not have modern formal banking services. However, this can present an ML/TF vulnerability as funds may be transferred to high-risk jurisdictions or to jurisdictions with weak AML/CTF regimes.
- Smaller businesses operating in the sector may experience difficulties complying with or understanding regulatory obligations, particularly anti-money laundering risk programs and reporting requirements. This may be compounded where the business owner is from a non-English speaking background. This leaves some remittance businesses exposed to the risk of customer identity fraud, money laundering and other serious and organised crime.
- The common remittance method of ‘offsetting’ – also known as ‘informal value transfer systems’ (IVTS) or ‘hawala’ (29) – enables the international transfer of value without transferring actual money between two remittance dealers operating in different countries (30). As outlined in the typology below (see ‘Offsetting and money laundering typology’), criminals can exploit this practice to:
- conceal the amount of illicit funds being transferred
- obscure the identity of those involved in the transfer
- avoid the legal requirement for remitters to report all separate international funds transfers to AUSTRAC.
- Independent remitters bundling individual customer transactions into a single bulk payment which is transferred through mainstream banking channels, often after the original deposit by the customer. This process can (inadvertently or deliberately) obscure or hide the sender and beneficiary details of each individual transaction (31).
Offsetting and money laundering typology
Organised crime groups can exploit offsetting to conceal the amount of illicit funds being transferred and obscure the identity of those involved, including through non-reporting or incorrect reporting to AUSTRAC.
This method can be explained as follows:
- Third parties in Australia collect illicit cash on behalf of an international money launderer based in country 2. They deposit large amounts of illicit cash into bank accounts held by a remitter based in Australia. Some of the deposits are ‘structured’ so they fall below the AUD10,000 cash transaction reporting threshold.
- Once the deposits are made, the international money launderer instructs the remitter in Australia to transfer the illicit funds into overseas accounts controlled by the international money launderer.
- Separately, a legitimate business in country 3 provides funds to another complicit remittance dealer and requests the funds be remitted to a manufacturing business in country 2. These funds are payment for goods which the business seeks to legitimately purchase from the overseas manufacturer.
- Rather than transfer the payment from the legitimate business in country 3 to the overseas manufacturer in country 2 as instructed, the complicit remitter pays the manufacturer using the illicit funds which have been transferred from Australia to an account located in country 2. The manufacturer is unaware of the illicit origin of the funds, and accepts as legitimate the payment sent by the business in country 3.
- The funds given to the complicit remitter in country 3 by the legitimate business (and intended to be used to pay to the manufacturer) are instead given to the organised crime group, located in country 3. As a result, the illicit profits from the criminal activity in Australia are transferred to country 3, without leaving a money trail that connects the illicit cash in Australia to the payment received by the crime group.
The following indicators highlight potentially suspicious customer behaviour involving the alternative remittance sector.
- Business account activity inconsistent with customer profile
- Cash deposits made by third-party into remitter’s accounts
- Customer structuring cash deposits and withdrawals over a period of time to avoid transaction threshold reporting requirements
- Financial activity does not match established customer profile
- High-value transactions inconsistent with customer profile
- International funds transfers to high-risk jurisdictions
- Large amounts of cash used to pay for international funds transfers
- Large cash deposits made at different bank branches on the same day
- Large international funds transfers to common beneficiaries
- Multiple customers conducting international funds transfers to the same overseas beneficiary
- Multiple international funds transfers to different beneficiaries sharing the same overseas address
- Multiple international funds transfers undertaken through different remitters on the same day
- Use of false identification to conduct transactions
- See the Glossary for a definition of ‘layering’.
- See the Glossary for a definition of ‘layering’.
- See the Glossary for a definition of ‘integration’.
- See the Glossary for a definition of ‘round robin tax evasion scheme’.
- Australian Crime Commission, Australian Crime Commission Annual report 2013–14, ACC, Canberra City, ACT, 2014, viewed 10 November 2014.
- See the Glossary for a definition of ‘informal value transfer systems’
- See the Glossary for a definition of ‘hawala’
- Australian Transaction Reports and Analysis Centre, Money Laundering in Australia 2011, AUSTRAC, West Chatswood, NSW 2011, viewed 20 February 2014.