ACW 501

MONEY
LAUNDERING



















Submitted by
Shabd Roop Satsangi (132043)
Vishal (132057)

Table of Contents
WHAT IS MONEY LAUNDERING?

PROCEDURE OF MONEY LAUNDERING

EFFECTS OF MONEY LAUNDERING

Economic Impact

Legal Impact

Effects of Money Laundering on Society

Effects of Money Laundering on Business

CASE STUDY ON MONEY LAUNDERING - AUSTRALIAN

CANNABIS NETWORK

CONCLUSION

BIBLIOGRAPHY AND REFERENCES

What is Money Laundering?

The word laundry literally means cleaning. Metaphorically, money
laundering refers to cleaning on money. Simply, any financial transaction which
generates an asset or a value as the result of an illegal act is called money
Laundering. In other words, money laundering is the practice of engaging in
financial transactions in order to conceal the identity, source, and/or destination of
money, and is a main operation of the underground economy.
According to Swiss Bank:
Money laundering is a process whereby the origin of funds generated by illegal
means is concealed (drug trafficking, gun smuggling, corruption, etc.
Money laundering has been affecting the global economy for many years. Large
sums of money are laundered every year, posing a threat to the global economy
and its security. Money laundering encompasses illegal activities that are used to
make illegally-acquired funds appear legal and legitimate. Illegal sources of money
and financial assets are often disguised and concealed using a smoke screen of
deceptive practices. The main drivers of money laundering are:
Corruption,
Organized crime,
Financial fraud,
Arms dealing,
Drugs/sex trade, and
Terrorist Financing.
The typical drivers for money laundering are similar across the globe. However,
there are regional variations in terms of what primarily drives money laundering.
For example, corruption is one of the primary drivers for money laundering in
developing nations due to higher levels of corruption overall. Across the globe,
organized crime, drugs, and smuggling are some of the major contributors to
money laundering.

Procedure of Money Laundering

Money laundering is the process used to legitimize illegal funds by concealing or
disguising the true source of financial assets. Organized crime groups use
laundered money to profit from illegal activities and sometimes even finance
terrorist activities.
The methods used for money laundering can vary in complexity and sophistication,
though the following stages have been frequently observed in the process used by
money launderers

1) Placement
Placement involves placing unlawful cash proceeds with banks and other financial
institutions using deposits, wire transfers, or other financial instruments.
2) Layering
Layering involves converting the proceeds of illegal activities into other forms and
creating complex layers of financial transactions. Money launderers make it
difficult to trace the source and ownership of financial assets by buying and selling
stocks, commodities, and property. The intent behind layering is to blur the audit
trail of the financial sum involved.

3) Integration
Integration attempts to provide a seemingly legal explanation for the placed and
layered financial assets. It is used to distribute laundered funds back to the
criminals. Various false transactions and fake invoices are used to enable the
transfer of this money.

Effects of Money Laundering

Overall, the negative implications of money laundering on a particular nation can
be broadly grouped into three main categories as described below.
Economic Impact
Money laundering goes hand-in-hand with tax evasion and duty evasion (which is
the non-payment of import and export duties by smuggling goods in and out of a
nation). Such activities deprive public service departments of important revenue
sources. Additionally, money launderers have a tendency to direct and redirect
their money from one asset class to another. This creates a complex cycle of
financial transactions that hides the illegal origin of the money. Money launderers
disguise their illegal money and park it in places where the possibility of being
caught is minimal, rather than making profits with it. Such logic-defying
investment activities have the ability to destabilize the overall financial system by
weakening investor confidence due to unnecessary volatility, especially when the
fund inflows and outflows of these laundering activities are disproportionately
high.
Another negative consequence of money laundering activities for a nation is the
increase in interest rates and foreign exchange volatility on account of irregular
and unanticipated capital flows, which makes policy making an arduous task for
the government.
Legal Impact
Money laundering and criminal activities form a vicious cycle. The quest to
legalize illicit earnings spawns money laundering, which in turn provides the
required financial boost for these illegal activities to survive. Several large-scale
illegal activities such as arms dealing, organized crime, terrorist financing, as well
as drug and sex trafficking, do not just drive money laundering but thrive on it.

There generally exists a direct relation between countries having weak anti-money
laundering regulations and prevalence of such illegal and criminal activities.
However, in certain countries which have purposefully relaxed anti-money
laundering regulations to attract capital, the negative effects of the increased illegal
activities may not be felt in their own territory, but could enable illegal activities in
other countries.
Effects of Money Laundering on Society

(1) Increase In Criminal Activities:

Money Laundering allows drug traffickers, smugglers, and other criminals to
expand their operations. This drives up the cost of government due to the need for
increased law enforcement and health care expenditures (for example, for
treatment of drug addicts) to combat the serious consequences that result.
(2) Concentration Of Power To Criminals:
Among its other negative socioeconomic effects, money laundering transfers
economic power from the market, government, and citizens to criminals. As the
economic power is in the hands of criminals so they have a corrupting effect on all
elements of society. In extreme cases, it can lead to the virtual take-over of
legitimate government.
(3) Undermines Democracy:
The economic and political influence of criminal organizations can weaken the
social fabric, collective ethical standards, and ultimately the democratic institutions
of society.
Effects of Money Laundering on Business
If funds from criminal activity can be easily processed through a particular
business either because its employees or directors have been bribed or because
the institution turns a blind eye to the criminal nature of such funds the institution
could be drawn into active complicity with criminals and become part of the
criminal network itself. Evidence of such complicity will have a damaging effect
on the attitudes all stakeholders of company i.e. shareholders, suppliers, customers,
employees etc.

Case Study on Money Laundering - Australian Cannabis Network

The AUSTRAC (Australian Transactions Reports and Analysis Centre) uncovered

the case if an Australian drug syndicate which used multiple scams to wash its
dirty money generated from sale of cannabis (a drug).
An Australian drug syndicate used multiple money laundering methods to launder
more than AUD1 million worth of proceeds of crime. Trust accounts, a front
company, high-value goods and real estate were used to launder the profits from
cannabis sales. The syndicate also misused the services of two professional
facilitators (an accountant and solicitor) to facilitate its criminal activity. The
business model was simple, a case of arbitrage, the profit to be made by buying at
one price and selling in a different location for a lot more.
As a cover, the syndicate bought a truck and rented a warehouse under a company
name. The truck was handy to move the cannabis interstate and as a structure to
wash money through.
The procedure they adopted for money laundering was:
Cash proceeds from cannabis sales went into the transport companys
account.
A wages processing company was then engaged to pay syndicate members a
wage from their new transport company. This then looked like legitimate
wages of around $100,000 a year per syndicate member.
Trust accounts and investment companies were then created. The syndicate
gave an accountant $100,000 cash and told him to buy stocks in the name of
the trust accounts and investment companies.
One syndicate member also bought a property worth more than $700,000 in
a family members name. The property purchase was financed using a
mortgage.
Over a two-month period the syndicate member paid more than $320,000 in
16 cash deposits to a solicitor (who provided conveyancing services and
acted on behalf of the syndicate member in the transaction) to pay off the
mortgage.
The syndicate members also kept cash back to support their lifestyles by
buying cars, jewellery, designer clothing and electronics.

The syndicate was undone when two suspect transaction reports alerted
AUSTRAC, which passed on the intelligence to the police. One member of the
syndicate was clocked making multiple cash deposits on the same day but at
different bank branches in amounts just below the $10,000 cash transactionreporting threshold.

Detection
The indicators that alerted AUSTRAC of possible money laundering were
Client pays cash to accountant to purchase shares in the clients trust account
and in the name of investment companies
Mortgage for real estate taken out in relatives name
Purchase of high-value goods in cash
Structured same-day cash deposits at multiple bank branches within a two to
three-week period
Structured cash payments into solicitors account
Use of multiple large cash payments for mortgage repayment
Unexplained source of funds used to conduct cash deposits

Action
The Authorities confiscated $600,000 of assets. Two members of the syndicate
pleaded guilty to multiple money laundering and drug trafficking charges and both
were sentenced to six years jail.

The entire operation can be shown in the form of a chart.

Conclusion
To conclude we can say that money-laundering process involves multiple layers of
transactions and the money is spun so many times in the financial system that it
becomes difficult to identify its original source. Money-laundering has seriously
harmful economic and social impacts and constant vigilance, alertness is needed to
check it and strong laws and penalties are needed to deter people from engaging in
this activity.

Bibliography and References

www.int-comp.org/careers/a-career-in-aml/what-is-money-laundering/
https://en.wikipedia.org/wiki/Money_laundering
https://www.moneylaundering.ca/public/law/3_stages_ML.php
http://www.austrac.gov.au/sites/default/files/documents/typ13_full.pdf
http://www.smh.com.au/nsw/nsw-police-fbi-swoop-on-alleged-drugsyndicate-20150910-gjjy5f.html
http://www.businessinsider.com.au/chart-heres-how-an-australian-cannabisdrug-syndicate-laundered-its-dirty-money-2013-12