Money Laundering and its Impact

The assignment delves into the historical evolution of money laundering, beginning with practices used by Chinese merchants centuries ago. It emphasizes the significance of the 9/11 attacks in bringing international attention to the issue and prompting nations like Australia to implement strict measures against it through agencies like AUSTRAC. The document uses references from academic texts and reports to illustrate the gravity of money laundering's consequences.

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Executive Summary
Money laundering is an activity whereby the money earned from unlawful acts is transformed
into appearing as if the same has been earned from the legitimate sources. The history of money
laundering can be traced back to centuries where the Chinese merchants used to save their stash
from ruler, owing to the fear of the same being taken away by the ruler. With the advent of 21st
century and the increased terrorist activities, money laundering has become a huge case of
concern, particularly because the money which is obtained from undertaking money laundering
activities is used to fund criminal and terrorist activities. There are different forms through which
it could be undertaken, for instance bouncing money through shell companies, so that it cannot
be traced back to the wrongdoer. This has led to stringent actions been taken against money
laundering. In Australia, the AUSTRAC system, along with different acts, makes money
laundering an offence and attempts to curb such illicit activities.
Through this report, these very aspects of money laundering have been detailed to present a
comprehensive view of this issue.

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Table of Contents
Introduction......................................................................................................................................4
Historical Background.....................................................................................................................4
What is money laundering?.............................................................................................................7
Conclusion.....................................................................................................................................10
References......................................................................................................................................12

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Introduction
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 background both in international and Australian context and the present day standing
on this issue in Australia.
Historical Background
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

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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).

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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).

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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 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).
What is money laundering?
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. 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).

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There are different methods of undertaking money laundering; some of these have been
elucidated here.
Smurfing
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).
Bank cash smuggling
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).
Shell companies and trusts
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).
Cash incentive business
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

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in legitimate work, but has an illicit cash business running parallel or on the backyards
(Peterson Institute for International Economics, 2017).
AUSTRAC system and other legislative instruments
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

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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

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system 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.

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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.

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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.