Typologies and case studies report 2010

The Australian Transaction Reports and Analysis Centre (AUSTRAC) is Australia's anti-money laundering and counter-terrorism financing (AML/CTF) regulator and specialist financial intelligence unit (FIU).

AUSTRAC's purpose is to protect the integrity of Australia's financial system and contribute to the administration of justice through its expertise in countering money laundering and the financing of terrorism.

AUSTRAC's role

As Australia's AML/CTF regulator, AUSTRAC supervises industry's compliance with the requirements of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act) and the Financial Transaction Reports Act 1988 (FTR Act).

Entities subject to the AML/CTF Act and FTR Act include financial services providers, bullion sellers, designated remittance service providers, the gambling industry and other specified reporting entities, as well as cash dealers (as defined under the FTR Act).

AUSTRAC offers a range of education and guidance to assist industry in complying with its AML/CTF obligations. The AUSTRAC typologies and case studies report 2010 is one example of such guidance, and the typologies and case studies within this report highlight the value of industry's reporting of financial transactions and suspicious matters to AUSTRAC.

As Australia's FIU, AUSTRAC collects and analyses the financial transaction reports submitted by Australian businesses. AUSTRAC disseminates the financial intelligence obtained from these reports to its partner agencies to assist them in their investigations.

AUSTRAC's partner agencies include Australian Government law enforcement, national security, revenue, regulatory and social justice agencies, as well as state and territory law enforcement and revenue agencies, and international counterparts.

Industry's contribution to combating money laundering and terrorism financing

This report is designed to inform businesses about the various methods criminals use to conceal, launder or move illicit funds, and to commit other crimes. It contains 31 case studies detailing investigations and operations by AUSTRAC's partner agencies.

Highlighting the important role industry plays in Australia's AML/CTF regime is the fact that each case utilises AUSTRAC information in some way - much of this information originated from transaction reports and reports of suspicious matters submitted by reporting entities.

For authorities attempting to unravel a complex international money laundering or terrorism financing operation, even a single seemingly unremarkable transaction report could form the crucial final piece in an investigative puzzle.

By reporting to AUSTRAC, Australian businesses are doing more than complying with legislation - they are making an important contribution to the prevention and detection of financial and other serious crime.

The information contained in this report has been generated from the following research material:

• sanitised cases from AUSTRAC's partner agencies
• existing AUSTRAC strategic and typology research, including previous AUSTRAC typologies and case studies reports
• publicly available information.

This report identifies some key methods that have been used in Australia to conceal the origins of illicit funds or, in the case of terrorism financing, conceal the purpose for which those funds were intended. These methods are illustrated with case studies and diagrams.

Please note that the case studies presented in this report are limited to those cases that have been approved for external use.

Each case study within this report is accompanied by a summary table highlighting the common elements involved in the money laundering or terrorism financing process. These are:

• Offence - the crime or civil proceeding involved (not the actual charges).
• Customer - the type of customer/s involved in perpetrating the offence (this can be an individual, business or foreign entity).
• Industry - the industry through which transactions were conducted - in some cases multiple industries were involved.
• Report type - if relevant, the types of reports submitted by reporting entities (either under the FTR Act or AML/CTF Act) that contributed information to the investigation or operation.
• Channel - the means by which the offenders completed or attempted to complete transactions (predominantly in person, via electronic means or through an intermediary/third person).
• Jurisdiction - the location (domestic or international) in which the transactions were facilitated.
• Designated service - the category of 'designated service', or other financial product, used in the offence. AUSTRAC groups the designated services listed in section 6 of the AML/CTF Act into categories containing similar activities (as per the 'Designated services category' table which follows). The case studies within this report have been arranged according to the primary designated service used within each case.
• Indicators - the 'red flag' activities which could indicate the possibility of money laundering or terrorism financing. An extensive list of the indicators used in this report can be found in Appendix A on page 60.

Australia is not immune from terrorism. In recent years Australian authorities have arrested suspects alleged to be supporting terrorism abroad or preparing to commit acts of terrorism in Australia. The funding methodologies outlined below, although not specific to the arrests in Australia, provide a key insight into the manner in which funding can be generated.

The World Bank defines 'terrorist financing' as 'the financial support, in any form, of terrorism or of those who encourage, plan or engage in terrorism' (1). Terrorism financing can be divided into two broad areas:

Funding of terrorist attacks - funding the cost of conducting an actual terrorist attack, including the cost of explosive materials, firearms, communications equipment, vehicles, travel and accommodation.

Logistical funding - funding required to support groups or individuals who may plan a terrorist attack, or direct, recruit for and provide training to terrorist groups. The funding may also be used to maintain terrorist infrastructure such as training camps.

As part of Australia's response to the threat of terrorism, our national intelligence and law enforcement agencies investigate the financial activity of individuals and groups. These agencies use financial transaction reports, including suspicious matter reports (SMRs), to inform their enquiries and investigations.

Financial intelligence, including details contained in selected SMRs and other transaction reports, can assist agencies to develop a more comprehensive assessment and understanding of terrorism financing. The information enables analysts and investigators to better detect, monitor and disrupt terrorist planning or operations. The analysis of financial activity can assist investigators to:

• reveal behavioural information about the subjects of investigations
• highlight personal relationships of subjects, either within Australia or offshore
• identify attempts to purchase controlled or 'dual-use' goods (that is, tangible items developed to meet commercial needs, but which may be used either as military components, or in the development or production of military systems).

Analysis of past terrorist attacks overseas has found such attacks can be relatively inexpensive to carry out, especially when compared with the damage and economic disruption caused. For example, past attacks in Indonesia (the Bali bombings in 2002 and 2005, the 2004 bombing of the Australian Embassy and the attack on the Marriott Hotel in 2009) are assessed to have cost between AUD2,000 and AUD20,000 per attack.

Australian investigations into terrorism financing indicate this financial activity often involves amounts of less than AUD10,000. However, this does not exclude larger amounts being of interest to investigating authorities.

The lower dollar amounts involved in terrorism financing may be attributed to:

• the relatively small amounts of money required to fund terrorist attacks and support terrorism
• limited access to funds or assets by individuals who seek to raise funds for terrorism
• a general awareness of Australian regulations and financial transaction reporting limits by those who may seek to raise funds for terrorism.

Following are a number of general observations Australian national security agencies have made about the methods that may be used to raise and move funds in support of terrorist activity or terrorist organisations.

Raising funds

The most common methods of raising funds in Australia include:

• the use of an individual's or group's own income for logistical funding or to fund actual terrorist attacks
• financial contributions collected from witting or unwitting donors, occasionally through formal charitable donations. These funds may be diverted to support terrorism by the individuals who control the end use of the collected funds
• in limited circumstances, the proceeds of criminal activity, which may contribute to logistical funding within or from Australia.

Once raised, funds are kept as cash reserves or stored in bank accounts so they can be readily moved as and when required.

Movement of funds

Methods used to transfer funds generated in Australia to support terrorist activity either domestically or offshore include:

• formal bank transfers using the Society for Worldwide Interbank Financial Telecommunication (SWIFT) system for international funds transfers
• formal, non-bank remittance service providers
• informal, cultural-based remittance arrangements. These systems predate formal banking systems and often provide a cheaper and faster service with little or no paper trail involved. In some countries, informal arrangements can also reach more remote areas than the formal bank and non-bank systems
• cash couriering, whereby passengers physically carry cash as they travel to another country. The lack of records and the ability to conceal cash on the person, in luggage or within other items makes this activity difficult to detect. Often, as individuals are aware of reporting thresholds, the amounts carried are less than the AUD10,000 cross-border movement reporting threshold.

Methods of misusing the financial system

Australian agencies have identified a number of potential methods that could be employed to misuse the Australian financial system to generate and manage funds to support terrorism. These include:

• opening and operating an account in a false name
• conducting transactions using the names of other individuals or groups
• providing or having access to the accounts of other individuals or groups
• providing access to bank accounts within Australia and offshore, particularly via electronic means, including automatic teller machine (ATM) networks
• obtaining loans, especially through fraudulent applications, where the funds are used for purposes other than those stated or where the borrower has no intention to repay the loan
• using online international funds transfer systems, especially in combination with false identification.

Individuals seeking to financially support terrorism are likely to have a general understanding of the relevant transaction reporting requirements and thresholds. They are also likely to have a general awareness of the financial sector and the means used by government authorities to monitor financial transactions. These individuals will employ various methods to conceal their activity, such as structuring, use of false identification and use of third parties.

Any financial activity considered suspicious by reporting entities should be referred to AUSTRAC in an SMR - where the suspicion relates to the financing of terrorism, the report must be submitted within 24 hours of the suspicion being formed.

AUSTRAC analyses SMRs and disseminates relevant reports to its partner agencies for their action. Australian agencies regularly provide feedback to AUSTRAC about the valuable contribution such reports make to their enquiries into the activities of individuals suspected of supporting terrorism. Where feedback is also provided to reporting entities about these matters, this feedback is provided through confidential bilateral discussions with the entity.

1 World Bank and International Monetary Fund, Reference Guide to Anti-Money Laundering and Combating the Financing of Terrorism, (2003).

Criminals are adept at identifying vulnerabilities in financial products or sectors, and exploiting these vulnerabilities to facilitate financial crime and launder the proceeds of their illicit activities. In compiling this report, AUSTRAC reviewed both public and restricted material to identify current and emerging threats posed by financial crime and money laundering activities.

Criminals continue to misuse the legitimate financial system to perpetrate crimes such as card skimming, online scams, ponzi and illegal superannuation schemes. In addition, emerging, or in some cases re-emerging, criminal threats include trade-based money laundering, bulk cash smuggling, and the misuse of new payment methods, including prepaid debit cards and mobile payment services.

Trade-based money laundering

In order to transfer a large volume of money across international borders and integrate it into the formal economy, some criminals employ a method known as trade-based money laundering. This process involves disguising and moving the proceeds of crime using trade transactions in an attempt to legitimise the source of the funds. In practice, this can be achieved through the misrepresentation of the price, quantity or quality of imports or exports.

Trade-based money laundering has continued to evolve, and common methods include:

• over and under-invoicing of goods and services - misrepresentation of the price of the goods and/or services in order to transfer additional value between the importer and exporter
• over and under-shipment of goods and services - overstating or understating the quantity of goods being shipped or services provided. In some cases, no goods are shipped
• multiple invoicing of goods and services - issuing more than one invoice for the same trade transaction
• falsely describing goods and services - misrepresenting the quality or type of goods and services.

There are a number of general indicators that may prompt a suspicion that trade-based money laundering is being perpetrated. Financial institutions may notice irregular account activity among their clients: the client may have received significant amounts of money within a relatively short period of time, or been involved in large international funds transfers to or from an overseas company located in a country of interest to authorities (for example, a known tax haven country).

Bulk cash smuggling

Criminals continue to rely upon bulk cash smuggling to move the proceeds of illicit activity across international borders. Recent information from various Australian law enforcement agencies indicates that criminals have attempted to smuggle significant amounts of money out of the country to avoid cross-border reporting requirements. In addition, a number of recent cases have identified criminals stockpiling large amounts of cash, possibly in preparation for bulk cash smuggling operations.

For example, a recent investigation uncovered AUD3 million cash hidden in 13 suitcases at Sydney airport and a further AUD5 million was found in a storage facility. The money was allegedly destined for the Middle East (2).

In another case, a person was found to have AUD1.5 million cash stashed in cardboard boxes inside the boot of his Mercedes-Benz. A search of his home uncovered a further AUD250,000 cash (3). In a third case, police seized AUD3 million cash hidden in the roof of a house (4).

Mules and third parties

To avoid direct involvement in the money laundering process, criminals may use 'mules' (people unrelated to the initial criminal activity, who are used to unwittingly transfer funds to criminals overseas) or complicit third parties who have no criminal record to carry out the laundering on their behalf. In some instances, these people may be known to the criminal; for example, they may be family members or associates. Criminals may also recruit other parties such as unemployed persons or students looking for work to assist in their illegal activities.

The mules or third parties may be given instructions to:

• deposit funds into their own account and then transfer the funds to another entity
• deposit funds into another entity's account
• undertake international funds transfers to other entities.

The inclusion of third party or agent details in transaction reports assists law enforcement officers to identify criminal associations and follow the trail of illicit proceeds. Depending on the circumstances, reporting entities may also consider the involvement of a third party in a transaction as suspicious, and therefore the submission of an SMR to AUSTRAC is also warranted.

New payment methods

The use of new payment methods and 'e-money' has also emerged as a money laundering vulnerability.

Prepaid debit/credit card

Prepaid cards permit users to load money onto a card prior to its use. There are a wide variety of prepaid cards which can be used in many different ways; some allow limited use while others offer multiple uses. Some prepaid cards can be linked to an individual account, while others can be linked to a collective account. In addition, cards can be issued by financial institutions or non-traditional banking institutions.

Prepaid cards are particularly vulnerable to misuse for the purposes of money laundering. Customers purchasing multiple prepaid cards which can be accessed overseas and customers reloading significant amounts of cash onto cards are potential indicators of illicit activity to which institutions should be alert.

Online money transmitters

Online money transmitters are also gaining wide use. E-currencies (such as e-gold) offer an electronic means of exchange which is backed by precious metals or bullion, and which can be converted into a globally accepted currency (5).

Web-based operators who offer financial services across borders and do not authenticate the identities of their customers before transactions are conducted are particularly at risk of being misused for money laundering.

Mobile payment services

Mobile payment services offer a new mechanism for the transfer of funds. For example, mobile devices can be used to access bank accounts and conduct transactions. Similarly, where mobile payment services are not linked to bank accounts, the mobile service provider can act as a payment intermediary (6). Mobile payment options can potentially be misused for money laundering and the financing of terrorism, or used as a cash substitute for other forms of criminal activity; for example, drug sales. Several features of mobile payment services render them particularly vulnerable to exploitation by money launderers:

• funds can be transferred or withdrawn anywhere, anytime
• funds can be transferred or withdrawn anonymously due to the difficulty in identifying those undertaking mobile payments carried out using prepaid mobile accounts
• multiple accounts can be used to facilitate the structuring of multiple transfers. By employing several different SIM cards, users can use multiple mobile payment accounts to structure these transfers
• funds can be transferred in small values, so the transfers will appear random, inconsequential and unrelated to criminal activity
• funds (for example, charitable donations) can be transferred, knowingly or unknowingly, to criminal groups or terrorist organisations through apparently legitimate charities.

Appendix B of this report lists a number of other publications developed by Australian and international organisations that provide more information about money laundering and terrorism financing typologies.

2 'Terror cash claims', The Sunday Telegraph, 2 August 2009, p.7.

3 'A Sydney driver, a flash car and the $1.5m found in a Mercedes Benz in Cabramatta', The Daily Telegraph, 20 November 2009.

4 'Police seize millions in roof', The Sydney Morning Herald, 30 April 2009.

5 See Glossary for an explanation of e-currencies.

6 Financial Action Task Force, 2006, Report on New Payment Methods.

The cases included in this and previous AUSTRAC typologies and case studies reports have been selected from AUSTRAC's repository of money laundering and terrorism financing case studies. Normally, cases that demonstrate one or more of the following elements are considered for inclusion in these reports:

• where the use of data from financial transaction reports contributed to the success of an investigation by authorities
• where a report submitted about a suspicious transaction or matter triggered a law enforcement investigation
• where AUSTRAC and partner agencies pooled resources to advance an investigation
• where analysis of information from financial transaction reports identified money laundering or terrorism financing activities.

AUSTRAC analysis of the 174 case studies appearing within the typologies reports published from 2007 to 2010 has generated a broad picture of the environment within which money laundering and terrorism financing occurs in Australia. Through this exercise, AUSTRAC has identified trends in offence types, the types of designated services used for money laundering and terrorism financing, and the industries most commonly associated with these activities.

Trends in offence types

The analysis of case studies found that money laundering and fraud were equally prevalent, and represented the two most commonly occurring offence types. As shown in Figure 2 below, fraud and money laundering combined constituted more than half (52 per cent) of all the offences identified in the case studies. The next most commonly identified offences were the importation of drugs (13 per cent), drug trafficking (8 per cent), structuring of financial transactions (8 per cent) and tax evasion (6 per cent).

It is important to note, however, that in some instances the case studies involved more than one offence.

These offences have been the main focus of investigations and remain ongoing concerns for law enforcement agencies. Fraud, in particular, is of increasing concern to authorities. Many fraud-related cases involve large amounts of money and numerous victims. This is partly due to the rise in corporate fraud and technology-based fraud in Australia. These types of fraud have caused billions of dollars in losses to the Australian economy in recent years.

Trends in the use of designated services

As seen in Figure 1 below, the three most common types of designated services used to launder the proceeds of crime were account and deposit-taking services (used in 39 per cent of case studies), remittance services (14 per cent) and electronic funds transfers (12 per cent). This is unsurprising as these services offer fast and efficient methods of transferring large sums of money. As the preferred methods for laundering the proceeds of illegal activity, these services are likely to remain high-risk designated services which require the ongoing vigilance of reporting entities to help detect money laundering and terrorism financing.

Trends in industries affected by money laundering and terrorism financing activities

As seen in Figure 3, below, the industries most commonly used by criminals in money laundering and terrorism financing offences were the banking industry (involved in 45 per cent of case studies), remittance services (18 per cent), gambling services (9 per cent) and professional services, consisting of accountants, solicitors and real estate agents (13 per cent). The vulnerability of the banking industry and remittance services correlates with the high incidence of account and deposit-taking services and remittance services being used by criminals to launder illicit funds.

Figure 1: Designated service types recorded - AUSTRAC case studies, 2007-10

Note: percentages indicate the percentage of cases in which each designated service was used. Due to the rounding of figures, percentages may total more than 100.

Figure 2: Offence types recorded - AUSTRAC case studies, 2007-10

Note: percentages indicate the percentage of cases in which each offence occurred

Figure 3: Industries involved - AUSTRAC case studies, 2007-10

Note: percentages indicate the percentage of cases in which each industry was involved

The value of suspicious matter reports (SMRs) cannot be underestimated as a source of intelligence for AUSTRAC's law enforcement, national security, revenue collection and social justice partner agencies. SMRs can be a catalyst for an investigation, provide crucial intelligence to support an existing investigation, or prompt law enforcement officers to conduct further risk assessments on the subject of the report.

In addition to the details of the actual transaction, frontline staff are encouraged to include any comments or observations in the SMR that may provide useful leads to investigating agencies. Examples of useful information include:

• physical condition of the currency (for example, the currency was worn, stained or had an unusual smell)
• relationships between customers (for example, a person accompanying the account holder appeared to be the one controlling the transaction, not the actual account holder)
• any additional, unsolicited information disclosed by the customer which may suggest involvement in criminal activity (for example, the customer may admit to deliberately using various bank branches to conduct transactions)
• number plates of vehicles used by customers
• information about previous transactions conducted by the same customer
• customer responses to questions posed by staff, including information about the source of the funds or the purpose of the transaction
• a description of the customer (for example, distinctive tattoos)
• observations of the customer's behaviour (for example, the customer was evasive or nervous).

The anti-money laundering and compliance units of some reporting entities provide 'value-added' information in SMRs. This includes additional and/or more detailed information than that initially provided by frontline staff, and serves to reinforce original observations contained in the SMR. Examples of additional information that may provide useful leads or intelligence to law enforcement agencies include:

• copies of customer account statements
• account-opening documents
• copies of identification or other supporting information about the customer (for example, company checks)
• a review of and comments on any other accounts/products held by a customer with the reporting entity.

Transaction monitoring systems have been introduced by some reporting entities as part of their AML/CTF programs. These systems allow for an aggregated view of a customer's activities across multiple accounts and/or branches. AUSTRAC has received valuable SMRs generated through transaction monitoring systems identifying:

• sudden spikes in customer account activity
• unusual account activity (for example, transfers into and out of an account on the same day at different branches)
• apparent structuring of transactions
• rapid cash repayment of loans at different branches, which may be an indicator of tax evasion or funds from illicit sources
• activity which is inconsistent with a customer's profile (for example, large cash payments into a business account that normally receives electronic transfers).

Examples of instances where law enforcement agencies have used the additional information provided in SMRs include:

• the restraint of funds deposited into an account where the funds were suspected of being the proceeds of crime
• the detection of a large amount of foreign currency being carried by a customer attempting to leave Australia, which was not declared to authorities.

Law enforcement agency feedback about the value of SMRs

'The customer is the subject of a current investigation. These [suspect matter] reports provide more evidence of non-legitimate activity by the customer.'

'Due to the large amount of money withdrawn, the entity's refusal to disclose reasons for the cash withdrawals, the ownership of a company with previous imports and the fact that this entity has come to the notice of [law enforcement agency], this entity is to be further investigated.'

'This suspicious report will assist in identifying those involved in a third party deposit scheme and the criminal groups utilising this system.'

'As a result of the SMRs, [law enforcement agency] will be undertaking an investigation into the customer and his associates.'

'This SMR is associated with a suspected vehicle sales scam in Australia and open source information coincidently finds links to vehicle sales in [overseas country].'

Case 1 - $10 million cannabis operation dismantled

A law enforcement investigation into a suspected illegal drug operation led to the restraint of a number of properties, and the seizure of 1,550 cannabis plants and a substantial amount of money and other assets. In total, the items and money seized were estimated to be worth AUD10 million.

The investigation began after AUSTRAC disseminated information to a law enforcement agency which identified a series of local and overseas funds transfers worth AUD3.2 million over a two-year period. The activities consisted mainly of large cash deposits made by ten suspects connected to 13 common addresses in Victoria.

These same suspects also sent numerous high-value international funds transfer instructions (IFTIs) to common beneficiaries in New Zealand. The large amounts of money involved in the transfers were inconsistent with the stated occupation of the suspects, who claimed to be working in the retail industry, studying, or unemployed.

The investigation revealed the suspects had purchased properties in Australia and used them to grow and cultivate cannabis plants. The funds generated by this activity were used to purchase additional properties in Australia and New Zealand.

The suspects were charged with cultivating, trafficking and possessing commercial quantities of drugs, conspiracy to cultivate, traffic and possess a large quantity of drugs, and knowingly dealing with the proceeds of crime and theft.

Case 2 - International fraud syndicate stole identities of wealthy victims

AUSTRAC information assisted Australian and Hong Kong law enforcement officers investigating a suspected international fraud syndicate.

The investigation concerned an Asian crime syndicate suspected of stealing the identities of high net worth banking clients and conducting transactions using their accounts while the victims were overseas. The same syndicate was also suspected of having produced, distributed and used false documentation (usually drivers licences) to commit other frauds.

AUSTRAC assisted authorities to trace substantial transfers between accounts linked to the suspects. One account frozen by Hong Kong authorities received funds directly from an account in Australia linked to the suspects. Before the account was frozen, syndicate members in Hong Kong visited a branch of the bank and withdrew funds worth AUD3.6 million dollars from the account using a bank cheque.

The investigation led to the arrest of two Australian members of the syndicate who were subsequently imprisoned for two years. Law enforcement officers also restrained funds worth approximately AUD2 million.

Case 3 - Suspect faked multiple passports to launder funds

A law enforcement investigation uncovered a suspect who was creating false passports in his family home, and using them to launder money overseas.

Law enforcement officers conducted a search of suspect A's home, where he lived with his wife and child. The search revealed AUD152,000 cash in a box in a cupboard, and a CD-ROM containing software for producing false Korean and Chinese passports. They also found two drivers licences bearing different names but featuring photographs of the same person. The search also found several passport-sized photographs of different individuals.

Suspect A told authorities that the cash was being stored on behalf of another individual, suspect B, who was subsequently charged with offences relating to the use of false accounts.

Further investigations revealed a false bank account was opened under one of the names used by suspect A, using one of the false passports discovered in his house. Over a three-month period, AUD97,000 had been deposited into this account. During the same period, suspect A had conducted nine funds transfers, worth a total of AUD89,100, from this account to an Indonesian account.

In addition to the arrest of suspect B, suspect A was arrested and ultimately sentenced to four years jail for offences against the Crimes Act 1900 (NSW) and the Criminal Code Act 1995.

Case 4 - Thousands of dollars in drug money laundered through timber yard

Law enforcement officers began investigating a significant drug selling operation, as well as the money laundering methods used by the suspects to launder the proceeds of their drug sales.

To launder the illicit cash from the sale of the drugs, suspect A and his brother, suspect B, entered into an agreement with an associate who owned a timber yard. The timber yard owner received the cash from the proceeds of the drug sales and then provided the suspects with legitimate cheques which were placed into personal accounts or a property development account in the name of suspect A. In this way, the suspects attempted to 'co-mingle' the illicit funds with the legitimate funds from the timber yard. The timber yard owner retained a profit of 13 per cent of the amount laundered.

Over a nine-month period, approximately AUD509,000 was deposited into accounts held by suspect A. This amount includes AUD319,000 laundered through the timber yard, as well as cash from drug sales which was directly deposited into various bank accounts held by suspect A.

Both suspects A and B were arrested and charged with various offences including money laundering under the Confiscation of Proceeds of Crimes Act 1989 (NSW).

† While this particular customer behaviour may not be directly observable by reporting entities, it is an activity commonly used to facilitate or hide money laundering and other offences.

Case 5 - Suspects laundered millions for illegal abalone operation

AUSTRAC information assisted in a law enforcement investigation into money laundering undertaken by two suspects, who were trusted employees acting on behalf of an abalone fishing business that was also involved in illegal activity.

Over a nine-month period, suspect A made 335 cash deposits at two different banks. Each transaction was structured into amounts of less than AUD10,000 in order to avoid the cash transaction reporting threshold. The money was then sent overseas via international funds transfer instructions (IFTIs). In total, the suspect transferred more than AUD3 million to Hong Kong and China, for which he received fees worth approximately AUD30,000 from the abalone business owner. The suspect was a problem gambler, which in part motivated his involvement in the money laundering scheme.

Over a two-month period, suspect B made 59 structured cash deposits, depositing amounts of just less than AUD10,000 into bank accounts. These transactions were conducted at various branches of two different banks in and around Sydney. In total, suspect B transferred AUD556,000 to bank accounts in Hong Kong. The suspect received AUD3,000 in fees for conducting the transfers.

Following their arrests, both suspects pleaded guilty to conducting transactions to avoid reporting requirements under the Financial Transaction Reports Act 1988 and money laundering under the Criminal Code Act 1995 (Cwlth).

Case 6 - AUSTRAC information helped unravel international drug syndicate

AUSTRAC information assisted a law enforcement investigation which ultimately led to the dismantling of an international drug syndicate. AUSTRAC provided financial intelligence including details of bank accounts, family members and money trails related to those suspected of importing drugs.

The main suspect allegedly arranged the importation of a large amount of drugs from overseas. AUSTRAC transaction reports identified money being sent to the suspect and his associates while they were overseas, in particular South America where the drugs originated. AUSTRAC information also raised suspicions among authorities that members of the suspect's family were laundering the proceeds of crime on his behalf.

AUSTRAC identified accounts linked to the suspect and a family member from which large amounts of cash had been withdrawn. AUSTRAC information also indicated large cash deposits had been made by the de facto partner of the suspect's mother. Soon after, these funds were transferred to another account and withdrawn via cheque by the main suspect, with which he purchased property.

A number of the suspects were charged with supplying prohibited drugs and drug importation offences. In addition, confiscation proceedings were initiated against the suspect and his family members and over AUD100,000 was forfeited to the Commonwealth under the Proceeds of Crime Act 2002.

Case 7 - Drug trafficker intercepted with 1.5 kilograms of cocaine

A money laundering and drug importation syndicate was dismantled as a result of a joint operation between Australian law enforcement agencies.

An investigation into a suspected money laundering syndicate led law enforcement officers to stop and question a Canadian man at an Australian airport upon his arrival from Hong Kong. The man was searched and allegedly found to be carrying approximately 1.5 kilograms of cocaine strapped to his legs. The law enforcement investigation continued and officers searched two properties and uncovered a significant amount of cash. Two other men were also arrested as a result of the investigation.

Authorities had previously been monitoring the syndicate for suspected money laundering. AUSTRAC's database was used to monitor the syndicate's financial activities, which included numerous international funds transfer instructions (IFTIs) into and out of Australia. The details of these international transfers assisted law enforcement agencies to identify overseas associates of the syndicate.

AUSTRAC information was also used to trace the activities of the syndicate members within Australia and to assist law enforcement officers investigating the syndicate under the Proceeds of Crime Act 2002. Information contained in financial transaction reports linked members of the syndicate to each other through their activities, addresses and mobile phone numbers.

Following their arrests, the three men faced charges including importing a prohibited substance and attempting to possess a prohibited import. All three were also charged with dealing with proceeds of crime relating to money or property worth AUD50,000 and were remanded in custody.

The syndicate member who attempted to smuggle the cocaine into Australia pleaded guilty and was sentenced to six years with a non-parole period of four years. Another member of the syndicate received a six-month suspended sentence with a two-year good behaviour bond for possession of cash which was reasonably expected to be the proceeds of crime.

As a result of the investigation, authorities also restrained assets worth AUD1.3 million under the Proceeds of Crime Act, including three houses, two vehicles and AUD67,000 cash.

Case 8 - Fraudster used false names for 20 years

An unlawful non-citizen used false identities to conceal his true identity for more than 20 years. The suspect used a variety of false documents, including health care cards and drivers licences, to establish and maintain these false identities.

Investigations revealed the suspect was also operating two bank accounts, both under false names, and was moving large sums of money between the accounts using structured transactions.

AUSTRAC received several suspect transactions reports (SUSTRs) about the suspect submitted by bank employees. The reports came from different bank branches throughout the one state, and detailed various suspicious aspects of the suspect's activities, including his possible involvement in tax-related offences:

• The suspect conducted transactions using two accounts in two different names (both of which were later found to be false). However, the suspect had used one of the names for a considerable time, and it was only later in the investigation that his real identity was discovered.
• When questioned by bank staff about some of his transactions, the suspect indicated they were for house renovations. The suspect openly told bank tellers he deliberately structured cash transactions for 'tax purposes', so the money could not be traced. He also told the tellers he was structuring transactions at several other bank branches in the area.
• The suspect made large cash deposits into his accounts, and then subsequently withdrew the cash with structured withdrawals either through a bank branch or an automatic teller machine (ATM). This cash was subsequently deposited into another of his accounts.
• The suspect also used cheques to transfer funds between his accounts.

The suspect was subsequently arrested and several hundred thousand dollars was seized by law enforcement. He was convicted and fined on seven charges of opening an account in a false name under the Financial Transaction Reports Act 1988 and convicted and fined on eight charges of fraud under the Queensland Criminal Code Act 1899.

Case 9 - Laundered funds linked to multiple ATM thefts

Over a one-month period, approximately AUD714,000 was stolen in separate thefts from five Sydney automatic teller machines (ATMs). AUSTRAC information helped law enforcement officers track the various transactions undertaken by two individuals suspected to be involved in the theft.

At the time of the thefts, suspect A was an employee of a cash transit company, working as a member of a crew responsible for emptying and replenishing ATMs. Soon after the thefts occurred, suspect B (an associate of suspect A) made a number of substantial cash deposits totalling approximately AUD70,000 into the account of one of the companies he owned. At the time, suspect B was an employee of a law enforcement agency and also the owner of several businesses.

Suspect B then purchased a AUD60,000 boat, of which AUD30,000 was paid for in cash. The balance was paid by a cheque drawn from a company bank account. A month later, suspect B deposited a further AUD10,000 cash into a company bank account. Suspect B later travelled to Melbourne and delivered AUD250,000 cash to an associate to be used to purchase real estate.

Additionally, suspect B bought a property in the name of one of his companies (company A):

• He paid an initial deposit of AUD37,400 for the property. Most of this deposit was funded by a bank cheque drawn on the account of another of his companies, (company B).
• He then settled the purchase of the property with another bank cheque for AUD39,000, which was also drawn on the bank account of company B.
• Finally, suspect B made two further cash deposits into company B's bank account, worth AUD12,000 in total.

As a result of the investigation, both suspects were charged with various offences, including making or using false instruments contrary to the provisions of the Crimes Act 1900 (NSW), giving false testimony under the Crimes Act 1914 (Cth), and obtaining money by false or misleading statements under the NSW Crimes Act.

† While this particular customer behaviour may not be directly observable by reporting entities, it is an activity commonly used to facilitate or hide money laundering and other offences.

Case 10 - False identification used to structure $400,000 in international funds transfers

AUSTRAC information assisted a law enforcement investigation into the activities of a suspect who attempted to transfer thousands of dollars overseas using structured transactions.

Over a three-month period the suspect used his name or that of a trust associated with him to conduct 20 international funds transfers in amounts of less than AUD10,000 to overseas bank accounts. The transfers were paid for with cash and undertaken through various bank branches.

During the same period, an associate of the suspect was undertaking cash transfers, also in amounts of less than AUD10,000, to overseas bank accounts on behalf of the suspect. This second person conducted the transfers using both her own name and a false name. Law enforcement investigations revealed the suspect was paying the second person a commission for carrying out the transfers. A total of AUD413,000 was transferred by both parties.

Law enforcement officers searched the suspect's premises and found bank transfer documents and a piece of paper with the false name, address and phone number used by the second person.

The suspect was charged under section 31 of the Financial Transaction Reports Act 1988 for structuring transactions to avoid the AUD10,000 threshold reporting requirements of the Act. The suspect was convicted and sentenced to two years imprisonment.

Case 11 - Drugs, firearms and explosives seized following law enforcement operation

Law enforcement officers investigated a criminal group suspected to be involved in serious offences such as drug and firearms trafficking, large-scale fraud and money laundering.

AUSTRAC information assisted the investigation, and included details of the group's financial activities, the majority of which were large cash withdrawals and international funds transfers to Lebanon. The large cash withdrawals were worth a total of AUD317,000 and the international funds transfers amounted to AUD22,000. A regulated entity also submitted a suspect transaction report (SUSTR) detailing one suspect's purchase of a bank draft with a bank cheque and cash valued at AUD35,000.

The suspects were ultimately arrested on firearms-related charges, as well as charges of drugs trafficking and possessing explosives.

Case 12 - Australian caught laundering proceeds of child pornography

An Australian suspect, who was the administrator of a child pornography website hosted in Russia, received funds and provided passwords for offenders who purchased access to the material.

The offenders purchased access to the website using cash, money order or through a money transfer agency. The suspect collected the funds and then deposited them into his domestic bank account, before later transferring them to overseas accounts. The suspect withheld a commission fee of 2-3 per cent for this service. The overseas beneficiaries of the funds were front companies located in Estonia and the United States which then transferred the funds back to Russia, where the offending material originated.

The suspect was involved in transactions worth more than AUD600,000, most of which were international funds transfers instructions (IFTIs) transferring funds from his domestic bank account to accounts overseas, including in the United States, Estonia, Germany, France and the Netherlands.

The Australian suspect was arrested by law enforcement and pleaded guilty to his involvement in the matter.

Case 13 - Neighbourhood pharmacy linked to motorcycle drug gang

A joint law enforcement investigation began scrutinising the activities of a pharmacy that was receiving regular bank deposits of AUD20,000 to AUD30,000 per week. This was a higher than normal turnover compared with other pharmacies in the area. Further adding to the suspicions of the investigating officers was the fact that the owner of the pharmacy was linked to members of an outlaw motorcycle gang.

In total, AUD1.1 million in cash was deposited into the pharmacy's accounts over a 15-month period. The funds were deposited through a bank branch near the pharmacy.

Law enforcement investigations also established that the pharmacy purchased significantly more pseudoephedrine-based products than other pharmacies in the area. This led authorities to suspect the owners or someone involved in the pharmacy had been diverting legal pseudoephedrine-based products from the legitimate market and selling them to be used in the manufacture of illegal drugs.

Case 14 - Suspicious transfers revealed structured transactions worth $1 million

A law enforcement investigation resulted in two people being arrested and charged with two counts each of structuring transactions under the Financial Transaction Reports Act 1988 (FTR Act).

The investigations revealed that in a one-month period the suspects had conducted 19 separate cash withdrawals from a joint bank account, with each withdrawal structured to fall beneath the AUD10,000 cash transaction reporting threshold. Within the next eight days, the suspects made a further 125 separate cash deposits - each worth less than AUD10,000 - into a joint account at a different bank.

Bank staff at two branches documented their suspicions about the pair's actions in suspect transaction reports (SUSTRs) submitted to AUSTRAC. The SUSTRs detailed obvious structuring of cash transactions to fall below the AUD10,000 reporting threshold, and the reports prompted law enforcement officers to initiate an investigation into the suspects, and ultimately charge them under the FTR Act.

The investigating officers executed search warrants on the homes of the suspects and worked with the Office of the Commonwealth Director of Public Prosecutions to restrain approximately AUD1.18 million under section 17 of the Proceeds of Crime Act 2002 (Cwlth). The funds were restrained on the grounds that they were used by the suspects to commit the structuring offences.

Both suspects pleaded guilty to structuring and appeared in court two months later for sentencing. The pair was ordered to forfeit approximately AUD1.18 million and each was released on a AUD5,000 good behaviour bond for three years.

Case 15 - Structured transactions used to launder thousands of damaged $2 coins

AUSTRAC information assisted an investigation into individual suspected of carrying more than AUD150,000 cash from China to Australia. A large proportion of the cash was made up of damaged (or 'mutilated') AUD2 coins†.

As required by law, the suspect declared the currency at the airport when he was carrying AUD10,000 or more. However, authorities suspect the individual may have carried even more cash into Australia, but he was not required to report these amounts when they were less than the AUD10,000 reporting threshold for international currency transfers.

Authorities believe the individual purchased the damaged AUD1 and AUD2 coins in China for less than the face value of the coins. He then brought the coins into Australia and, within a week of his arrival, deposited them with banks. When depositing the coins, the suspect attempted to conceal the fact that the coins were damaged. Unaware of the true condition of the coins, the banks then credited the suspect with the full face value of the deposited coins (whereas bearers of 'mutilated' Australian coins are only entitled to receive the scrap metal value of the coins).

After depositing an amount of damaged coins, the suspect would then withdraw the same amount of funds from his account, usually the following day. Occasionally the suspect transferred the funds to another bank account before withdrawing them. On a couple of occasions the suspect also exchanged the cash for gambling chips at a casino, and then converted the funds back into cash after undertaking minimal gambling activity.

Other details of the suspect's financial activities included:

• Over a three-year period, the suspect was the subject of eight suspect transaction reports (SUSTRs) after regularly attending banks to deposit damaged coins in amounts below the AUD10,000 cash transaction reporting threshold.
• In eight years, the suspect deposited approximately AUD300,000 in cash and made cash withdrawals worth the same amount - these transactions were made to or from a number of bank accounts linked to the suspect. These transactions all involved amounts of AUD10,000 or more, and consequently were reported to AUSTRAC in significant cash transaction reports (SCTRs).
• The suspect undertook two cash buy-ins worth approximately AUD43,000 and two chip cash-outs totalling the same amount at a casino*.
• The suspect carried a total of AUD150,000 cash on six flights into Australia from China and AUD11,685 cash on a flight from Australia to China.
• The suspect was the ordering customer for five outgoing international funds transfer instructions (IFTIs) to two beneficiary customers in China totalling AUD47,000.

The law enforcement investigation resulted in the suspect being charged with fraud and money laundering. He was also charged with offences under the Crimes (Currency) Act 1981.

* See Glossary for explanation of chip cash-outs and chip buy-ins.

* See Glossary for explanation of chip cash-outs and chip buy-ins.

Case 16 - Australian laundered suitcase of cash for Nigerian fraudsters

The suspect in this case was originally convicted of fraud offences involving motor vehicles. During the course of the motor vehicle fraud investigation, the offender revealed that he and several members of his family had fallen victim to a Nigerian fraud scam and had transferred large sums of money to the perpetrators of the scheme.

The offender told police he had become involved in an apparent money laundering scheme operated by the Nigerian fraudsters. The offender claimed he had been dealing with African solicitors based in Spain and London and that he had laundered at least one suitcase full of cash on their behalf. He had travelled to Spain twice and London four times couriering as much as AUD800,000 in total.

AUSTRAC data included many reports of international funds transfer instructions (IFTIs) undertaken by the suspect, mostly in amounts of less than AUD9,000, to beneficiaries in South Africa, Nigeria, the United Kingdom, Italy, Singapore and the United States. AUSTRAC identified 48 IFTI reports, detailing transfers worth AUD398,190.

In addition, AUSTRAC identified nine suspect transaction reports (SUSTRs) describing the offender's suspicious activities involving international funds transfers, cheque deposits into bank accounts and large cash withdrawals. One cross-border movement of physical currency (CBM-PC) report concerning the offender also appeared to correspond with a SUSTR submitted by a foreign exchange dealer located within an Australian international airport.

The offender pleaded guilty to fraud offences and received two years imprisonment.

Case 17 - Major drug syndicate paid workers in gold

An investigation into a well-organised and resourced drug syndicate identified a former bank manager as the head of the operation. The suspect was involved in financing and facilitating the multi-million dollar cannabis and amphetamines operation and was linked to several well-known criminals.

The suspect is alleged to have laundered the proceeds from the drugs through the purchase and sale of gold, the purchase of cattle, and through gambling.

Authorities believe the suspect used the illicit cash from the drugs sales to purchase gold from prospectors at a premium price, and then sold the gold to unrelated businesses and declared the proceeds to be legitimate revenue.

Another key player in the syndicate was initially paid to turn a blind eye to its activities; however, he later became a drug courier and scout for the operation. Following his arrest he led police to a large quantity of gold nuggets and AUD161,000 cash hidden by the syndicate.

Those involved in the operation were well rewarded and some received bonuses of drugs and gold. One worker was paid a total of AUD250,000 in cash, drugs and gold during the four harvesting seasons he was involved in the operation.

Syndicate chiefs were paid more than AUD300,000 each harvest, as well as gold bullion. A drug mule was reportedly paid up to AUD40,000 to travel to Amsterdam to find the perfect variety of marijuana for the growing operation.

Commonwealth proceeds of crime action was taken against the offenders and resulted in the restraint of over AUD4 million worth of assets, including rural properties, cattle, machinery, AUD220,000 cash and a large quantity of gold.

The law enforcement operation led to the arrest of a number of syndicate members, who were subsequently charged and sentenced to as many as 10 years imprisonment.

Case 18 - Currency exchange dealer jailed for assisting money launderer

The manager of a foreign exchange business received a jail sentence after being convicted of providing false information and assisting another suspect to avoid legislated reporting requirements.

The suspect visited the manager's foreign exchange business in Sydney to purchase AUD43,000 worth of traveller cheques, with the cheques requested in US dollars (USD). During the transaction the suspect paid AUD14,000 as a 'deposit' for the purchase, and then indicated he did not intend to fill out any forms associated with the transaction.

A meeting was arranged between the suspect and the owner/manager of the foreign exchange business. During this meeting the suspect and the manager negotiated an agreement in which the suspect received a lower AUD to USD exchange rate for his purchase of the cheques. In return, the manager agreed to circumvent the reporting obligations normally required for a cash transaction of AUD10,000 or more by not submitting a significant cash transaction report (SCTR) to AUSTRAC.

The suspect returned to the foreign exchange business a few days later, where he was instructed to provide names for the travellers cheques and asked to fill out purchase records and sales receipts for the purchase. The suspect completed the documents under a number of different names. The suspect purchased a number of travellers cheques worth USD100 and USD1,000 each using various different names and addresses. In total, the suspect purchased cheques worth USD26,500, after paying the exchange business AUD43,600 cash.

Following a law enforcement investigation, the manager and his foreign exchange business were prosecuted for providing false information to AUSTRAC and avoiding reporting requirements. The manager was sentenced to 10 months jail and his foreign exchange business was fined AUD100,000.

Case 19 - Drug syndicate recruited heroin couriers from casino

A law enforcement investigation into a suspected drug importation syndicate led to the arrest of a number of suspects and the seizure of a large amount of cash and commercial quantity of drugs.

The investigation identified a syndicate using couriers to import high-grade heroin from Vietnam. The couriers were all members of the same community who were recruited by contacts at casinos and coerced into becoming couriers to pay their significant gambling debts.

The suspects were the subject of a number of suspicious transaction reports (SUSTRs) submitted to AUSTRAC by a casino due to a spike in their gambling activity. AUSTRAC also received significant cash transaction reports (SCTRs) detailing AUD710,000 worth of gambling activity by the suspects and reports of international funds transfers (IFTIs) to Vietnam worth AUD18,000.

As a result of the investigation, the suspects were charged with drug trafficking, conspiracy to traffic drugs and importation of drugs.

† While this particular customer behaviour may not be directly observable by reporting entities, it is an activity commonly used to facilitate or hide money laundering and other offences

Case 20 - Drug trafficker caught after suspicious casino behaviour reported to AUSTRAC

AUSTRAC alerted a law enforcement agency to a series of suspicious transactions at a casino, sparking an investigation that led to the arrest of several members of a crime syndicate and the seizure of cash and a large, commercial quantity of drugs.

One of the suspects triggered an alert in the AUSTRAC database after his gambling activities at a casino prompted the submission of a large number of significant cash transactions reports (SCTRs). Over a 12-month period, AUSTRAC also received a large number of suspicious transaction reports (SUSTRs) detailing the suspect's continual purchase of bank cheques. Other SUSTRs detailed the suspect's significant cash buy-ins at the casino*.

AUSTRAC information also assisted authorities to identify the probable money laundering methods used by the crime syndicate. The syndicate's illicit funds were sent overseas and then returned to Australia through legitimate channels as 'clean' funds. The funds were returned to Australia as seemingly legitimate proceeds from the sale of property or as gifts from overseas family members.

All suspects involved in the case were charged with trafficking a commercial quantity of cocaine, and one offender faced an additional charge of possessing the proceeds of crime.

* See Glossary for explanation of chip cash-outs and chip buy-ins.
† See Glossary for explanation of a 'u-turn' transaction.

Case 21 - Tax fraudsters used casinos, businesses to launder funds

AUSTRAC began monitoring the financial activities of a network of suspects after reporting entities submitted a series of reports about the network's financial activity.

AUSTRAC received suspect transaction reports (SUSTRs), reports of international funds transfer instructions (IFTIs) and significant cash transaction reports (SCTRs), all detailing the suspects' substantial gambling activities. The reports, which had triggered AUSTRAC's automated monitoring system, revealed casino chip cash-outs worth more than AUD1 million and casino chip buy-ins worth almost AUD500,000*.

Additionally, more than AUD80,000 was sent to Vietnam by one member of the network. A subsequent SUSTR revealed this same individual was purchasing casino chips on behalf of another suspect.

This financial intelligence was found to relate to an ongoing joint investigation by law enforcement agencies into taxation fraud. Initial search warrants executed as part of this investigation resulted in the seizure of AUD735,000 in cash.

Further investigation by law enforcement officers revealed that two of the suspects were the directors of a company involved in a 'round-robin' money laundering scheme, where illicit funds generated by tax fraud were filtered through sub-contractor companies to launder them. The scheme revealed the following activity by the suspects:

• payment of cash wages to their employees, some of whom were illegal immigrants and/or recipients of welfare payments. Authorities believe that over AUD2 million in cash income was hidden using this method
• creation of sub-contractor companies linked to the main company, which they co-owned, and which were used to issue false invoices. Through the use of false invoices, more than AUD1 million was over-claimed as GST input tax credits through the sub-contractor companies when, in fact, the suspects had actually withdrawn the funds from the sub-contractor companies as cash for their own use.

The suspects were each convicted on two counts of defrauding the Commonwealth, several counts of obtaining property by deception and dishonestly causing a risk of loss to the Commonwealth, and one count of dealing with money or property intended to become an instrument of crime. They were sentenced to a total of 10 years imprisonment.

* See Glossary for explanation of chip cash-outs and chip buy-ins.

* See Glossary for explanation of chip cash-outs and chip buy-ins.

Case 22 - Fijian fraud proceeds paid credit card debts in Australia

A suspect, located in Fiji, fraudulently obtained a bank loan from a bank in Federated States of Micronesia to develop a resort in Fiji. The suspect fraudulently obtained the loan for USD580,000 by representing himself as the beneficial owner of the borrowing company. The company was in fact a Fijian 'shelf company' (see information box below), of which the suspect was not actually the owner.

The bank, which had not previously lent to an entity from Fiji, requested the services of a Fijian solicitor to facilitate the loan. The suspect provided contact details for a Fijian solicitor; however, the suspect himself posed as the solicitor without the solicitor's knowledge. In the guise of the solicitor, the suspect provided a number of fraudulent documents to the bank including falsified financial statements and a forged receipt for registration of the mortgage for the proposed resort.

By the time suspicions were raised about the loan, AUD240,000 of the funds had already been transferred from Fiji to three separate entities in Australia, where they had been used to pay credit card debts and rental arrears.

The suspect was arrested on his arrival in Australia. He was charged under the Criminal Code Act 1995 with money laundering resulting from a fraud committed overseas, and was sentenced to four-and-a-half years jail.

Shelf corporations

A shelf corporation is a company or corporation that has been legally established but has not yet traded. The company's name and documentation can be bought 'off the shelf'. This allows those wishing to start a company to bypass the registration or incorporation process normally involved in establishing a brand new company, and may also give a business the appearance of corporate longevity.

Case 23 - Airline pilots suspected of smuggling $10 million of drug money to Vietnam

A money laundering syndicate was suspected of using airline pilots and crew to smuggle millions of dollars worth of cash out of Australia to Vietnam. Authorities suspect that the money was the proceeds of drug sales in Australia and payments for drugs imported into Australia.

The cash was given to the pilots by owners of several remittance service businesses, and authorities suspect the money laundering network used pilots to smuggle more than AUD10 million from Australia to Vietnam over an 18-month period.

Searches of AUSTRAC's information database identified that one of the suspect Vietnamese pilots had previously declared AUD19,000 on an international currency transfer report (ICTR). Since that declaration, the pilot had made no further reports of currency being carried into or out of Australia.

The suspect pilot was arrested after attempting to smuggle AUD500,000 out of Australia without declaring it. He pleaded guilty to charges of money laundering under the Criminal Code Act 1995 and was subsequently jailed for four-and-a-half years for smuggling a total of AUD6.5 million out of Australia.

† While this particular customer behaviour may not be directly observable by reporting entities, it is an activity commonly used to facilitate or hide money laundering and other offences.

Case 24 - Mexicans arrested after 64kg cocaine importation thwarted

A joint international law enforcement investigation led to the arrest in Melbourne of three Mexican citizens attempting to import 64 kilograms of cocaine into Australia. The cocaine is believed to have originated in South America and was transported through the United States en route to Australia.

The criminals attempted to make the shipment appear legitimate by establishing a front company and concealing the cocaine inside cement cylinders, flower pots and statues, each weighing 210 kilograms.

The sophistication of the smuggling network, rather than the size of the shipment, suggested that a high-level criminal network was involved in the operation.

Considering the size of the operation, there was minimal financial transaction activity involved in the importation. AUSTRAC information indicated the following transactions had taken place:

• a number of outgoing international funds transfer instructions (IFTIs) from one suspect in Australia to another in Mexico, usually in amounts of less than AUD1,000
• incoming IFTIs, worth a total of AUD5,716, from a suspect in Mexico to another suspect in Australia. This amount was split between three transactions, all of which were undertaken on the same day.

The international law enforcement investigation ultimately resulted in the disruption of a transnational drug trafficking syndicate and prevented an estimated AUD16 million worth of cocaine from being distributed on Australia's streets. Three people were charged with attempting to import and conspiracy to import a commercial quantity of a border controlled drug contrary to section 307.1 of the Criminal Code Act 1995.

Case 25 - Accountant committed fraud after falling for Nigerian scam

AUSTRAC received 40 suspect transaction reports (SUSTRs) detailing the fraudulent activities of an accountant, who authorities believe may have fallen victim to a Nigerian fraud scheme.

The suspect sent funds to Nigeria using international funds transfers (IFTIs) conducted through various money transfer agencies. The transfer amounts varied considerably, but were generally in amounts of less than AUD10,000. The suspect sometimes travelled long distances from her home to conduct the funds transfers.

Over a three-year period the suspect sent IFTIs worth approximately AUD900,000 to more than 100 different beneficiaries in several countries, with the majority of the transfers sent to Nigeria, Hong Kong, the United Kingdom and Singapore. During this period, the suspect also made several significant cash withdrawals, worth AUD120,000.

The resultant law enforcement investigation found that, after having fallen victim to the overseas scam, the suspect had allegedly committed a number of frauds herself to fund her international funds transfers to the fraudsters. It appears she also may have induced other people to send money to the fraudsters, although it was not established whether she profited from these transfers.

Case 26 - Police intercept $450 million ecstasy shipment

A criminal syndicate became the focus of a joint law enforcement investigation after it was suspected of having imported a commercial quantity of ecstasy into Australia from Italy.

Law enforcement officers identified and seized a shipping container which was found to contain approximately 4.4 tonnes of ecstasy tablets, with an estimated street value of AUD455 million.

Authorities suspected that the criminal syndicate responsible for the attempted importation included high-ranking Australian organised crime figures, who were also suspected of being involved in other large-scale importations of various drugs, particularly cocaine.

Investigators suspected that five separate organised crime syndicates were working cooperatively to import drugs into Australia. These organised crime groups were from Italy, the Netherlands, Eastern Europe and South America, and some were involved in the production of ecstasy and cocaine, allowing them to supply multi-tonne consignments of drugs.

Authorities identified 26 main suspects in Australia, with an additional four suspects in Belgium and one in the Netherlands. A principal member of the Australian syndicate was suspected to have been a member of the Calabrian mafia and had extensive criminal associations in Italy, South America and the Netherlands.

This investigation identified Australian-based syndicate members responsible for laundering money on behalf of local and international groups through the use of cuckoo smurfing (see text box below) by remittance dealers in Singapore. These Singapore-based associates also directly participated in the laundering of funds from Australia to Europe. It is estimated that AUD10 million was laundered from Australia using the method of cuckoo smurfing, although authorities suspect this figure may be higher.

AUSTRAC provided significant financial intelligence support to the investigating law enforcement agencies, including a number of financial intelligence assessment reports. AUSTRAC information also included more than 50 suspicious transaction reports (SUSTRs) detailing the money laundering activities of one suspect, which included account deposits worth more than AUD500,000.

As a result of this extensive investigation, law enforcement agencies seized numerous properties and vehicles, as well as cash, from the suspects. Members of the syndicate were charged with conspiracy to import ecstasy, trafficking ecstasy, importing cocaine, conspiracy to import precursor drugs (which are used in the manufacture of illegal drugs), and laundering more than AUD1 million.

† While this particular customer behaviour may not be directly observable by reporting entities, it is an activity commonly used to facilitate or hide money laundering and other offences.

Cuckoo smurfing

This sophisticated money laundering technique involves the overseas transfer of criminal funds through the accounts of third parties.

Cuckoo smurfing requires the coordination of two complicit remittance dealers in different countries - the remitters arrange for illicit funds to be deposited into the accounts of third parties who are expecting overseas remittances.

The third party accesses and uses the illicit funds, assuming they are legitimate funds remitted from overseas - the illicit funds are thus integrated into the legitimate economy. Subsequently, the criminals retrieve from the complicit overseas remittance dealer the legitimate funds (which were originally meant to have been sent to the third party).

Case 27 - Gambling debts drove drug couriers to smuggle heroin

Law enforcement officers commenced a joint agency investigation into a Vietnamese syndicate suspected of using drug couriers ingesting heroin to smuggle it into Australia.

The main suspect of the syndicate came to the attention of law enforcement officers during a previous law enforcement operation against her associates. These associates had been charged with drug trafficking and importation after also using couriers who had ingested drugs.

The heroin was purchased in Vietnam with funds remitted via remittance dealers serving Vietnamese communities in Australia. The couriers were then flown to Vietnam to make the return journey with the drugs concealed internally.

The joint law enforcement investigation led to the arrest of the main suspect, as well as six couriers recruited in Melbourne - it is suspected that some of the couriers may have been coerced into trafficking drugs because they owed gambling debts.

The main suspect was a partner in a business that used a cheque cashing service to pay staff wages, and she had been using the cheque cashing service to help fund the heroin purchases.

The suspect was charged with importing and trafficking commercial quantities of heroin and crystal methamphetamine hydrochloride ('ice').

Case 28 - Remittance dealer laundered drug money for Middle Eastern crime gang

AUSTRAC information assisted law enforcement officers investigating a Sydney-based family and their associates who were suspected of engaging in criminal activities.

AUSTRAC disseminated 14 financial intelligence assessments and numerous suspect transaction reports (SUSTRs) to law enforcement partner agencies detailing the activities of the criminal network.

The SUSTRs included details of cash being deposited into an account in one state and then being withdrawn shortly after from an interstate location. The syndicate also made significant cash withdrawals and deposits. Furthermore, there were a number of international funds transfers in and out of Australia, with the majority of funds being transferred into Australia. This information proved valuable to the investigators in helping to clarify the size and structure of the network.

The investigation focused on a particular remittance dealer who was suspected to have remitted funds to Lebanon on behalf of Middle Eastern organised crime groups. Authorities also alleged that the remittance dealer had a reputation within his community as someone who could transfer funds out of Australia without the transfers coming to the attention of law enforcement agencies or AUSTRAC.

As the law enforcement investigation progressed, it identified a second money laundering syndicate operating predominantly through a casino.

Law enforcement officers conducted a series of raids across Sydney and Melbourne, and ten men were arrested for alleged involvement in trafficking AUD250,000 worth of cocaine, ice and cannabis from NSW to Victoria.

Case 29 - Elderly couple sent $500,000 to overseas scammers

AUSTRAC alerted a law enforcement agency to a number of suspicious international funds transfers made by an elderly Australian couple to various overseas recipients. Over a six-month period the couple used a money transfer agency to send AUD512,000 overseas, including to the United Kingdom, Ghana, Hong Kong and Ivory Coast.

Law enforcement officers visited the couple in relation to the following money transfers:

• Ghana - the couple told the officers they had befriended a woman on the internet, who in correspondence referred to the couple as 'mother' and 'father'. In response to her requests, the couple sent money to the woman to assist her with food, rent and other expenses. The couple believed that the woman eventually wanted to move to Australia. In addition, the husband had travelled to Ghana to meet the woman, and arranged to pay USD20 per day for the storage of the woman's family treasure chest.
• United Kingdom - the couple sent funds to a recipient in London as part of what was subsequently revealed to be an 'inheritance' scam (a variation on the 'advance fee fraud' scam - see text box adjacent).
• Hong Kong - the couple sent AUD57,000 to an overseas recipient, also part of an inheritance scam.
• Ivory Coast - the couple had befriended a girl whose parents had been killed, and provided her with financial assistance for food and accommodation. They believed that she, too, wanted to move to Australia.

Subsequently, AUSTRAC informed authorities that the couple were continuing to send money overseas. The couple sent a further AUD60,000 overseas even after being warned by law enforcement officers that their overseas recipients were most likely international fraudsters.

Advance fee fraud and inheritance scams

Advance fee fraud scams are generally spread via unsolicited emails, or conducted in conjunction with friendship or dating scams. A typical scam unfolds like this:

• The scammer emails the intended victim, claiming to be a representative of an overseas government agency or a solicitor.
• The scammer asks for the victim's assistance in moving a substantial sum of money out of their country, often claiming that the money is trapped in banks due to civil wars or government restrictions.
• The scammer advises that they intend to forward the money to the victim's bank account, and that the victim will retain 10 to 20 per cent of the funds as payment for their assistance.
• However, the scammer informs the victim that, before they can transfer the funds, the victim will first need to pay various 'transfer costs', such as the cost of anti-terrorist certificates, taxes or storage expenses.
• The victim pays the transaction costs as instructed by the scammers - the victim's money and the scammers disappear and the scam is complete.

The typical 'inheritance' scam uses similar methods. The scam spreads via email or through 'friendship' connections, and begins by claiming that the intended victim is due to receive a massive, unexpected inheritance from an overseas benefactor. However, before the victim can receive their 'inheritance', they must first transfer funds to cover the various transaction fees (as described above) involved in the inheritance.

Case 30 - 'Boiler room' share scam cost Australian victims $21 million

Australian victims lost AUD21.5 million in a typical 'boiler-room' scam, in which they were offered the chance to buy discounted shares in overseas companies.

The victims were approached by overseas callers who offered them the opportunity to purchase discounted shares in major overseas companies. In each case, the caller knew the victim's name and details of their prior shareholdings. In preparation for the scam, the offenders had either purchased or stolen company shareholder registers with the full details of the victims and their prior purchases. The scheme worked like this:

• The scammers targeted the victims and offered to arrange the purchase of worthless shares owned by the victim - shares held in defunct companies. The offenders claimed they were in contact with a buyer prepared to purchase the victims' worthless shares, while also offering the victims the chance to purchase discounted shares in major US companies.
• The scammers then requested the payment for the sale of the victims' low-value shares be offset against the discounted purchase price of the shares in the US companies.
• The victim, lured by the apparent opportunity to purchase blue-chip shares at discounted rates (while also offloading their worthless shares), paid the scammers the difference between the payment for the low-value shares and the cost of the 'discounted' blue-chip shares.

In completing these 'sales', various Australian victims transferred a total of AUD21.5 million to the scammers' bank account in Hong Kong (which had been opened using a fake name and identification). Law enforcement investigations revealed these funds were withdrawn from the Hong Kong account to purchase high-value assets. When some victims suspected they had been scammed and stopped sending money, the scammers threatened them with 'legal action' in the hope they would send more money.

To identify the extent of the fraud operation, AUSTRAC data was incorporated with information provided by overseas financial intelligence units. This combined financial intelligence identified the flow of funds around the world and revealed the true scope of the fraud, which extended to Thailand and the United States.

Case 31 - Suspect attempted to smuggle drug money using travellers cheques

A suspect involved in the importation of cocaine into Australia deliberately avoided legislated reporting requirements in an attempt to smuggle drug money out of the country. Over a two-month period the suspect used various methods to launder the illicit cash proceeds:

• In one instance the suspect attempted to purchase a large number of travellers cheques at a currency exchange outlet. The suspect intended to purchase several travellers cheques, each valued less than AUD10,000, to avoid AUSTRAC's transaction threshold reporting requirements. However, the suspect was informed that he would, in fact, be required to complete a significant cash transaction report (SCTR) as the total value of the purchase was greater than AUD10,000.

  Rather than complete the SCTR, however, the suspect left AUD14,000 cash as a 'deposit' to persuade the currency exchange employee to conduct the purchase. The employee subsequently fulfilled the suspect's request.

• The suspect also visited at least three currency exchange outlets and converted large sums of Australian dollars into travellers cheques. On each occasion the suspect refused to complete the SCTR forms and did not sign the travellers cheques himself, enabling other recipients to cash them. The suspect also used a false name to sign the purchase record for the cheques. In total the suspect purchased AUD96,000 worth of travellers cheques.

The suspect divided the travellers cheques into 16 batches, wrapping each batch in carbon paper inside a greeting card, and attempted to mail them to various destinations in the United States. The suspect disguised some of the envelopes to appear as if they came from a corporation.

The suspect was ultimately sentenced to thirteen-and-a-half years jail on charges of importing cocaine, money laundering and conspiracy to import cocaine.

Appendix A - Indicators of potential money laundering/terrorism financing activity

There are numerous indicators which may act as 'red flags' for reporting entities to identify potential money laundering or terrorism financing activity.

Although a single indicator does not necessarily indicate illicit activity, the existence of a 'red flag' indicator should encourage further monitoring and examination. In most cases it is the existence of multiple indicators that raises a reporting entity's suspicion of potential criminal activity, and influences their response to the situation.

AML/CTF officers should include these money laundering/terrorism financing indicators in staff training, and encourage their staff to use these indicators when describing suspicious behaviours for inclusion in suspect transaction or suspicious matter reports.

Money launderers and terrorism financiers will continuously look for new techniques to obscure the origins of illicit funds and lend their activities an appearance of legitimacy. AML/CTF officers should continually review their products, services and individual customers to ensure their internal AML/CTF systems and training are effective.

The list below features indicators which appear within the case studies of this report, and should be treated as a non-exhaustive guide.

• business undertaking transactions that appear to be inconsistent with its profile and/or transaction history
• cash deposits made to an account in one location, only for the funds to be withdrawn in a different location a short time later
• cash payments for international funds transfers
• cash withdrawals conducted at various bank branches on the same day
• co-mingling of illicit funds with legitimate sources of income†
• common addresses provided for funds transfers conducted by different people
• consecutive cash withdrawals below AUD10,000
• customer refuses to complete the documentation required to complete the transaction
• customer undertaking transactions that appear to be inconsistent with their profile and/or transaction history
• increase in gambling activity
• international funds transfers to a country/jurisdiction of interest to authorities (e.g. a high-risk drug/fraud jurisdiction)
• large cash deposits
• large cash deposits to company account
• large cash withdrawals
• large casino chip buy-ins/cash-outs
• large international funds transfers
• large withdrawal using a bank cheque
• multiple ATM withdrawals
• multiple cash deposits
• multiple cash deposits and withdrawals below AUD10,000
• multiple cash deposits at different banks/into different accounts
• multiple cash deposits at different banks, rapidly followed by outgoing international funds transfers
• multiple cash withdrawals from accounts
• multiple cashing of cheques
• multiple customers conducting international funds transfers to the same overseas beneficiary
• multiple deposits below AUD10,000
• multiple funds transfers below AUD10,000
• multiple high-value international funds transfers
• multiple international funds transfers below AUD10,000
• multiple low-value international funds transfers
• multiple overseas customers transferring funds into the same Australian account
• multiple purchases of bank cheques
• multiple visits to currency exchange businesses to purchase travellers cheques
• outgoing international funds transfer with corresponding incoming funds transfer - appears to be a u-turn transaction*
• purchase of a bank draft with bank cheque
• purchase of high-value assets (jewellery, motor vehicles, real estate)
• purchase of high-value assets with cash and company cheques
• purchase of multiple travellers cheques
• purchase of multiple travellers cheques below AUD10,000
• purchasing gaming chips for a third party
• same day transactions conducted at different bank branches
• significant deposits into personal account from an apparently unrelated company
• structuring of cash deposits
• structuring transactions to avoid reporting requirements
• third party cash deposits into several different accounts (with varying amounts) conducted on the same day
• transactions conducted in various geographical locations
• unusual customer behaviour at a casino
• use of front companies
• use of trust accounts to conduct international funds transfers
• use of cash couriers
• use of cheque cashing service to cash business cheques
• use of false documentation/identification
• use of false invoices
• use of international remitter †
• use of overseas bank accounts
• use of third parties to carry cash
• use of third parties to conduct funds transfers/transactions
• use of third party accounts

* See Glossary for an explanation of a 'u-turn' transaction.

† While this particular customer behaviour may not be directly observable by reporting entities, it is an activity commonly used to facilitate or hide money laundering and other offences.

Appendix B - Further information on money laundering/terrorism financing typologies

International AML/CTF organisations

• Financial Action Task Force (FATF)
• Asia/Pacific Group on Money Laundering (APG)
• Egmont Group of Financial Intelligence Units

FATF typologies work

The FATF and APG conduct annual typologies exercises, which include active participation by their respective members. Each organisation publishes an annual typologies report which focuses on recent money laundering and terrorism finding methodologies identified by their members.

The FATF also publishes a series of reports on money laundering risks and threats in specific sectors. Recent reports in this series include:

• money laundering and terrorist financing in the securities sector
• money laundering in the football sector
• vulnerabilities of casinos and the gaming sector
• money laundering and terrorist financing vulnerabilities of commercial websites and internet payment systems
• misuse of corporate vehicles including trust and company service providers
• trade-based money laundering.

Australian Crime Commission

In 2009, the Australian Crime Commission published its Organised Crime in Australia 2009 report, the second report in a series.

This report endeavours to provide a current picture of organised crime in Australia, including the efforts being made by law enforcement agencies in disrupting and dismantling organised crime groups.

The report highlights the increasingly widespread criminal involvement in money laundering and its affect on the Australian community.

Australian Institute of Criminology

The Australian Institute of Criminology is Australia's national research and knowledge centre on crime and justice and undertakes research into various issues in order to reduce crime and promote justice.

Two publications recently published by the AIC provide further information on money laundering and terrorism financing:

• Transnational crime brief no. 7, Risks of money laundering and the financing of terrorism arising from alternative remittance systems, which was released in April 2010
• Challenges in dealing with politically exposed persons report, published in February 2010 as part of its ongoing Trends & issues in crime and criminal justice series.

The AIC also published its Money laundering risks of prepaid stored value cards report in 2008. This report examines the ways criminals use prepaid stored value cards to keep the proceeds of crime and move them across borders without alerting law enforcement and financial intelligence units.

All of the above publications are available on the AIC's website.

Glossary of terms

Abbreviations

• ADIs - authorised deposit-taking institutions
• AML/CTF Act - Anti-Money Laundering and Counter-Terrorism Financing Act 2006
• APG - Asia/Pacific Group on Money Laundering
• ATM - automatic teller machine
• AUD - Australian dollars
• AUSTRAC - Australian Transaction Reports and Analysis Centre
• CBM-PC report - cross-border movement of physical currency
• EFT - electronic funds transfer
• FATF - the Financial Action Task Force
• FIU - financial intelligence unit
• FTR Act - Financial Transaction Reports Act 1988
• GST - Goods and Services Tax
• IFTI - international funds transfer instruction
• ML/TF - money laundering/terrorism financing
• RSA - retirement savings accounts
• SCTR - significant cash transaction report *
• SWIFT - Society for Worldwide Interbank Financial Telecommunication
• SMR - suspicious matter report
• SUSTR - suspect transaction report **
• USD - United States dollars

Legislation

• Anti-Money Laundering and Counter-Terrorism Financing Act 2006
• Confiscation of Proceeds of Crimes Act 1989 (NSW)
• Crimes (Currency) Act 1981
• Crimes Act 1900 (NSW)
• Crimes Act 1914
• Criminal Code Act 1995
• Financial Transaction Reports Act 1988
• Proceeds of Crime Act 2002
• Queensland Criminal Code Act 1899

* Significant cash transaction reports are submitted to AUSTRAC under the FTR Act, in respect of a currency transaction involving AUD10,000 or more. As of 12 December 2008, the AML/CTF Act equivalent is the threshold transaction report (TTR).

** Suspect transaction reports are submitted to AUSTRAC under the FTR Act when a cash dealer has reasonable grounds to suspect that a transaction may be relevant to investigation of an offence against an Australian law. As of 12 December 2008, the AML/CTF Act equivalent is the suspicious matter report (SMR).