September 8, 2022

The Who, What, When, Why and How of Reporting Money Laundering Activities

To protect against money laundering, it’s essential to implement anti-money laundering systems and controls so that suspicious activity can be detected and reported early.

# Insights

Money laundering poses a number of risks to businesses and individuals. The process of money laundering allows criminals to support their illegal operations and bypass tax revenue which undermines the financial sector and damages the economy.

In order to protect against money laundering, it’s essential to implement anti-money laundering (AML) systems and controls so that suspicious activity can be detected and reported early.

Who is behind money laundering schemes?

Money laundering is used by criminals to conceal the nature of money sourced from illegal activities such as human trafficking, cybercrime, child exploitation, drug trafficking, fraud and other financial crimes.

What is money laundering?

The Australian Federal Police (AFP) defines money laundering as activities that are intended to conceal the true source of monies. As these funds are often the profits of illegal sources, it's generally assumed that people involved with money laundering are dealing with the proceeds of crime.

The ultimate goal of money laundering is to convert the proceeds of crime, also known as ‘dirty money’ into money that has come from a legitimate source, or ‘clean money’.

The money laundering process tends to involve three steps:

  1. Placement: introducing ‘dirty money’ into the legitimate financial system (EG. depositing funds into bank accounts),

  2. Layering: the act of concealing the source of money moving it around through a number of transactions and bookkeeping tactics,

  3. Integration: where the laundered money is withdrawn from the legitimate account to be used for further criminal activity or genuine business.

Types of money laundering

Criminals employ a number of techniques to launder money, from highly complex systems to simple methods.

Smurfing or structuring is a common form of money laundering that involves splitting large sums of money into smaller deposits and spreading them across a number of different bank accounts.

Electronic money laundering has made the detection of illegal funds and transfers even more difficult. From internet banking to online sales, gambling and gaming, there are a number of web-based avenues through which dirty money can be converted into an online currency and then transformed back into untraceable, clean money.

Another avenue for money laundering that’s quickly gaining mainstream popularity is cryptocurrency. Unlike traditional banks and financial institutes, the crypto market offers speed, reliability and anonymity, making it ideal for criminals looking to convert their illicit funds into clean money. As the use of cryptocurrency for money laundering purposes becomes more commonplace, Know Your Customer (KYC) systems are becoming increasingly important for anti-money laundering practices.

Why it’s important to stop money laundering

Money laundering helps to conceal the proceeds of criminal activity, which allows them to continue their illegal enterprises. Implementing anti-money laundering processes makes it more difficult to conceal dirty money, which may ultimately lead to a reduction in criminal activity.

When to report money laundering?

There are a number of red flags that could indicate potential money laundering activities. Besides the three steps of money laundering detailed above, some of the other signs to look out for include:

  • Transaction volumes: larger or more frequent transactions than usual,

  • High-risk areas: transactions and transfers originating from high-risk regions or countries such as Iran and North Korea,

  • Suspicious identification: using false or stolen identities to open or access bank accounts,

  • Unusual account activity: transaction activity that’s inconsistent with the customer’s profile or previous account activity.

How do you report money laundering?

Financial institutions and companies are obligated to implement KYC processes to verify the identities of their customers, helping to reduce the risk of money laundering. However, if an individual or business suspects money laundering or suspicious financial activities are taking place, there are a number of ways to report it to the relevant authorities.

As an individual in Australia, you can submit a Commonwealth crime form online through the Australian Federal Police (AFP) or make a tip-off to the Australian Taxation Office (ATO) using their online tip-off form or by calling 1800 060 062.

A business that provides any of the designated services set out in the Anti-Money Laundering and Counter-Terrorism Financing Act (AML/CTF Act) have a legal obligation to report any suspicious financial activities.

If such a business, also known as a ‘reporting entity’, notices dubious activity they must submit a suspicious matter report (SMR) to the Australian Transaction Reports and Analysis Centre (AUSTRAC). These reports must be submitted in a timely manner. SMRs are subject to ‘tipping off’ prohibitions, meaning that it’s against the law to tell anyone that an SMR has been submitted, however, if the activity puts anyone at immediate risk of harm the police should also be notified.

Data Zoo makes it easy to onboard and verify customers quickly

Get in touch and let us know how we can help