Question:
Discuss about the Laundering Complex and Compliance Industry.
Money laundering can be best put as such a process in which the profits of corruption and crime are transformed into supposedly genuine assets. A majority of regulatory and legal systems include a range of different activities in money laundering, and is seemed as other kinds business or financial crime, which is often used in a general manner, for evasion of international sanctions, for funding terrorism and for misusing the financial systems particularly the digital currency, traditional currency and plastic currency, along with securities (Madinger, 2016). It is also referred to as complicating the sources of money by using financial services and systems, or in an international manner, so that the source and the destination of such activity cannot be tracked or identified. Some other nations have stated money laundering as being a manner of inclusion of money, which comes from such an activity which is deemed as a criminal activity in the particular nation, even when the same activity may be legal, in which such transaction or conduct took place (Unger & Busuioc, 2007).
This report is focused on what money laundering actually is, what it includes, its historical management both in international and Australian context and the present day standing on this issue in Australia.
The money laundering, as a concept, is not a new thing and its origins can be traced back to the ancient times and in the development of banking and money, it has always been intertwined. At the beginning, it was deemed as the wealth being hidden by people from the state in order to avoid its confiscation or its taxation, and at times, even a combination of both of these. Around 2000 BCE in China, those who were found hiding the wealth from the rulers, particularly the merchants, used to be banished by the ruler or the money would simply be taken away. So, the merchants, apart from hiding their stash, used to move it around and would invest it in the businesses outside China or in remote provinces of China (Seagrave, 2012).
With time, the rules and states brought forward rules which take away the wealth from the citizens and this ultimately resulted in the birth of tax evasion and more importantly, of offshore banking. With regards to money laundering, a leading and continuous method, which is even a problem of the present time, is the use of informal value transfer system like hawala and the parallel banking, which has permitted the individuals to shift out of nation and also avoid the scrutiny of the state (Lilley, 2006).
As an additional tool of crime prevention, back in the twentieth century, the wealth being seized became a very popular concept. During the 1930s, this took place for the very first time, and this was the period of “Prohibition in the United States”. With this, the law enforcement agencies and the state got a new focus, particularly for tracking and confiscating the money (Rider, 2015). Due to the Prohibition, the organized crime got a major boost and a huge chunk of requisite new funds were attained through the unlawful sale of alcohol. The war on drugs, back in 1980s, resulted in the government to take strict actions against money laundering, and new rules were formed with a view of seizing the proceeds from the drug related criminal activities for catching up with the individuals and organizers who were running the big drug empires (Verhage, 2011).
This was particularly beneficial from the point of view of law enforcement as the rules of evidence were being turned upside down. This was because in general, the enforcers of law were required to establish that the individual was guilty, i.e., mens rea, for getting a conviction (Reuter, 2004). However, with the money laundering laws, the money could be easily confiscated and the onus of proof lied on the individual from whom the money was recovered, to show that the confiscated funds are legitimate, in case they wanted their funds back. This was a huge sigh of relief for the law enforcement officers and agencies as it lowered the burden of proof (Betz, 2017).
With the ominous 9/11 attack in 2001, the United States came up with the Patriot Act and similar legislations were formed across the world, which increased the focus over money laundering legislation, particularly for combating the financing of terrorism. The Financial Action Task Force on Money Laundering was used by the Group of Seven (G7) nations, in order to impose a pressure over the governments across the globe for increasing the surveillance, as well as, monitoring over the financial transactions, apart from mutually sharing the obtained information. 2002 saw the governments across the globe working on up-gradation of their statutory instruments for money laundering, along with the financial transactions’ surveillance and monitoring systems (Bures, 2016).
With the passage of time, the regulations related to anti-money laundering had grown manifolds and there has been a major stepping up f the financial institutions and the law enforcement in this aspect. In the period of 2011-2015, a number of banks had to deal with increased fines due to the regulations related to money laundering being contravened. Included in these are the fine of $1.9 billion imposed on HSBC back in December 2012, the fine of $1.0 billion on Dutch Bank in October 2013, and the fine of $8.9 billion in July 2014 (Skiner, 2017). In order to strengthen and introduce better border controls with regards to the cash limit which could be carried by an individual and could be introduced in the central transaction reporting system, the financial institutions were made a requirement for reporting all of the undertaken financial transactions management in an electronic manner. A leading example of this is the AUSTRAC system set up in Australia back in 2006 where the financial transactions are required to be reported (D’Souza, 2011).
When money is attained from activities which can be deemed as criminal activities, like drug trafficking, unlawful gambling, insider trading and extortion, and the money is essentially dirty, which needs cleaning up, so as to present a picture that the same has been attained from lawful activities, in such a manner that he financial institutions and the banks deal in such money, without raising any suspicion, it is deemed as a process of money laundering. As can be analysed from this entire process, it has a lot of stages with varied sophistication and complexities (Cox, 2014).
It usually takes place in three steps, i.e., placement, layering and integration management. In the placement step, the cash is introduced in the financial system through some or other means. This is followed by the next stage of layering where the complex financial transactions are carried out for disguising the unlawful sources of cash. And this is finally followed by integration, where the wealth generated from such unlawful transactions is acquired for the illicit funds. At times, one or another step can be skipped, depending upon the particular transaction. An example of this can be found in the cash which already exists in the financial system already, thus giving away with the stage of placement (Platt, 2015).
There are different methods of undertaking money laundering; some of these have been elucidated here.
It is also known as structuring and is a method where cash is placed by being broken in smaller deposits of money and this helps in giving away with the notion of presence of money laundering, and at the same time, helps in avoiding the anti-money laundering reporting needs. Within smurfing is the method of breaking the cash into smaller proportions by purchasing bearer instruments and depositing them again in smaller amounts (Peterson Institute for International Economics, 2017).
This is another common method where the cash is smuggled physically in some other jurisdiction and the same is deposited in the financial institution, for instance offshore banks, where there is greater secrecy and also, there is less stringent money laundering enforcements (Peterson Institute for International Economics, 2017).
Another famous method is that where the true money owners are disguised through using the trusts and shell companies. Based on the particular jurisdiction, the corporate vehicles and the trusts require the nondisclosure of the real owner. The slang used to denote this is rathole and refers to the individual which acts as a fake owner instead of a business entity (Peterson Institute for International Economics, 2017).
In this form, the businesses receive large cash revenues due to their nature and this criminally derived cash is deposited into banks. On the face of it, the business is indulged in legitimate work, but has an illicit cash business running parallel or on the backyards (Peterson Institute for International Economics, 2017).
The Australian Transaction Reports and Analysis Centre, shortly known as AUSTRAC is the financial intelligence unit of the nation, which combats money laundering, as well as, funding of terrorism. The responses of the nation to money laundering are quite the same as that of most of the western nations. The Financial Transaction Reports Act, 1988 is a commonwealth act whereby the cash dealers are under an obligation to report to the Australian Transaction Reports and Analysis Centre, particular information. Where the accounts are opened under fictitious names, the purpose of the act is frustrated. Under section 24 of this act, it is deemed as an offence to open up or to operate an account which is based on a false name. Further, stringent processes have been established which have to be adopted where any new account has to be opened in the banks of the nation (Cox, 2014).
The criminal penalties are imposed through the Proceeds of Crime Act, 1987 which is also an act of commonwealth, for such individuals who are involved in the money laundering activities. This act also attacks the problems which are associated with the money laundering by confiscating the property and deeming it as an offence. This act provides that the proceeds which are derived from such activities are to be deprived to the one who undertook such activity; the property of such person which was used for this purpose need to be forfeited; and the law enforcement authorities are to be enabled to race these proceeds in an effective manner, along with the property and the benefits (Ryder, 2015). Anti-Money Laundering and Counter-Terrorism Financing Act 2006, is again an act of commonwealth, and is deemed as the key legislative instrument, apart from the offence provisions covered under criminal Code Act, 1995 (Cth) Division 400 (The World Bank, 2009).
The Australian businesses and industries collaborate with AUSTRAC working with regards to the compliances on counter terrorism and money laundering financing legislations. The Australian financial institutions have to keep a track of their major cash transactions which can be used for financing the terrorist activities, which are both inside and outside the borders of Australia and have to report them to this system, particularly where the value is over Australian $10,000 or its equivalent in physical cash amount (Ryder, 2012).
Conclusion
Thus, in the preceding parts the discussion highlighted that money laundering is a criminal activity whereby the cash earned from illegitimate activities is given the appearance of having being earned from legitimate activities, by adopting different methods. Including in these methods are smurfing and shell companies and trust formation, where the individuals misuse the appearance of these bodies to make the criminally earned money, a legitimate currency. There are three different stages of money laundering; though at times, one may be skipped. The historical background of money laundering traced back its origin to ancient times, where the Chinese merchants used to hide their wealth to safeguard it from being taken away by the rulers.
The concept of money laundering gained significance due to the 9/11 attacks in US which highlighted that money laundering had funded the terrorists, which had enabled them to carry out an attack of this magnitude against the world leader. This led to every nation working on making strict norms against it. Australia too was not behind in this and came up with the AUSTRAC system management which is the key instrument for safeguarding against money laundering and criminal funding. The mayhems caused due to money laundering have led to these swift government actions.
References
Betz, K. (2011). Proving Bribery, Fraud and Money Laundering in International Arbitration: On Applicable Criminal Law and Evidence. Melbourne, Vic: Cambridge University Press.
Bures, O. (2016). EU Counterterrorism Policy: A Paper Tiger?. Oxon: Routledge.
Cox, D. (2014). Handbook of Anti-Money Laundering. West Sussex: John Wiley & Sons.
D’Souza, J. (2011). Terrorist Financing, Money Laundering, and Tax Evasion: Examining the Performance of Financial Intelligence Units. London: CRC Press.
Lilley, P. (2006). Dirty Dealing: The Untold Truth about Global Money Laundering, International Crime and Terrorism (3rd ed.). London: Kogan Page Limited.
Madinger, J. (2016). Money Laundering: A Guide for Criminal Investigators (3rd ed.). London: CRC Press.
Peterson Institute for International Economics. (2017). Money Laundering: Methods and Markets. Retrieved from: https://piie.com/publications/chapters_preview/381/3iie3705.pdf
Platt, S. (2015). Criminal Capital: How the Finance Industry Facilitates Crime. New York: Palgrave Macmillan.
Reuter, P. (2004). Chasing Dirty Money: The Fight Against Money Laundering. Washington DC: Institute for International Economics.
Rider, B. (2015). Research Handbook on International Financial Crime. Northampton, MA: Edward Elgar.
Ryder, N. (2012). Money Laundering – An Endless Cycle?: A Comparative Analysis of the Anti-Money Laundering Policies in the United States of America, the United Kingdom, Australia and Canada. Oxon: Routledge.
Ryder, N. (2015). The Financial War on Terrorism: A Review of Counter-Terrorist Financing Strategies Since 2001. Oxon: Routledge.
Seagrave, S. (2012). Lords of the Rim. London: Transworld Publishers Limited.
Skiner, C. (2017). BNP Paribas’ $9 billion fine is peanuts. Retrieved from: https://thefinanser.com/2014/06/bnp-paribas-9-billion-fine-is-peanuts.html/
The World Bank. (2009). Combating Money Laundering and the Financing of Terrorism. Washington DC: The World Bank.
Unger, B., & Busuioc, E.M. (2007). The Scale and Impacts of Money Laundering. Northampton, MA: Edward Elgar.
Verhage, A. (2011). The Anti Money Laundering Complex and the Compliance Industry. Oxon: Routledge.
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