Raids earlier this month by the Australian federal police provided a rare window into the shady world of international money laundering. Australia is far from a model global citizen when it comes to cracking down on money laundering – and property has become a favoured vehicle for organised crime to hide and transfer dirty money.
The AFP arrested nine people, including the alleged head of the money-laundering organisation, Stephen Xin, at his Vaucluse home. They have now been charged with multiple money-laundering and proceeds-of-crime offences, allegedly carried out in support of the organisation’s extensive activities.
The police also obtained restraining orders over more than 20 properties in Sydney, worth $150m, including multiple commercial buildings in the CBD, two high-value houses in Sydney’s eastern suburbs worth more than $19m combined, a 360-hectare tract of land near the site of Sydney’s second international airport worth $47m, 66 bank accounts, cash and more than $1m in luxury vehicles.
While luxury cars and trophy homes have been favoured as safe havens for illicit money in the past, the seizure of a major housing development site on the fringes of Sydney hints at a whole new dimension to alleged money laundering.
A place to hide
Land transactions, like the ones allegedly uncovered by the AFP in Sydney, are only possible with the help of other professionals: real estate agents, lawyers and accountants.
Xin is accused of running a shadow banking operation, which was used to move cash across international borders without having to report it to authorities.
While the allegations against Xin and the others arrested last week are still to be tested before a court, speaking generally, shadow bankers often do not physically transfer money, but rather match transactions in two countries. They also find places to invest funds that are safe and help disguise the actual ownership.
A typical (hypothetical) transaction might look like this: a criminal in Australia needs to pay a supplier in another country for methamphetamine precursors that are being covertly shipped to Australia.
A person in the other country might have ill-gotten profits they want to park somewhere safe, like in Australian real estate.
The shadow bank matches the transactions, with any transfers or cash or funds occurring locally or possibly elsewhere, like in a tax haven.
The money in Australia might then be used to buy a legitimate asset like real estate or a business. The money of the foreign national is on its way to having a legitimate paper trail, while the Australian criminal has paid their overseas supplier.
The person running the money-laundering operation has the connections in both countries to avoid banks, as well as willing professionals to transfer the land without questions being asked.
Banks and other financial institutions are required to inquire about the identity of their customers under the strict “know your customer” rules. They must also report transactions over $10,000 to Austrac, which monitors thousands of transactions each day. And there is additional sensitivity around cash.
‘Large amounts of cash’
But other professionals involved in the transfer of wealth – real estate agents, lawyers, accountants and companies that set up companies – are not required to report suspicious transactions or report when their clients hand them bags of cash.
“We have spoken to real estate professionals who say they are aware of large real estate companies that don’t ask too many questions about where the money is coming from. They turn up with large amounts of cash and provided they don’t say it’s the proceeds of crime, no one asks,” the spokesperson for Tax Justice Network Australia, Mark Zirnsak, said.
“We have seen over time companies that set up companies and lawyers and accountants facilitating deals, sometimes knowingly and sometimes recklessly, where they are not asking questions and proceeding with suspicious transactions,” he said.
Zirnsak said that in the US there are many more seizures of assets, compared with Australia.
“If you look at the assessment by the global watchdog, Financial Action Task Force (FATF), and the recent review in 2018 by the UN Office on Drugs and Crime, the argument would be that Australia has quite a solid basic framework there [to prevent money laundering].
“But I think the reality is we hamstring our enforcement agencies by not giving them the tools that other governments around the world have done.”
The assessments noted that Australia remained largely non-compliant on regulating professions that are known to facilitate money laundering: lawyers, accountants, real estate professionals and companies that set up companies.
In March last year the Senate legal and constitutional affairs references committee recommended that commonwealth government implement “tranche 2” of the anti-money-laundering reforms recommended by FATF nearly two decades ago and accelerate consultation with affected professionals.
It also recommended that bodies like Austrac and the Department of Home Affairs, needed to be given more resources to police the broader number of bodies: lawyers, accountants, real estate agents, trustee companies and dealers in high-end goods.
Opposition to reform
One of the major sticking points has been opposition from legal bodies such as the Law Council of Australia, which opposes tranche 2 obligations.
“Whilst the Law Council recognises the importance of addressing laundering and other illegal financing risks, the Australian legal profession is currently subject to broad obligations that relate to identification verification and not facilitating illegal activities,” the council said in its submission to the Senate inquiry.
“To the extent that the AML/CTF [anti-money-laundering and counter-terrorism financing] regime would impose more onerous obligations to those that currently apply to the Australian legal profession, those obligations would impermissibly undermine fundamental tenets of the law, such as legal professional privilege and confidentiality.”
But other countries with similar legal systems have managed to implement the tranche 2 reforms, including the UK, New Zealand and Canada, which faced similar concerns from its legal profession.
A spokesperson for the attorney general, Mark Dreyfus, said: “The government is now considering the findings of that inquiry and will respond in due course.”
The NSW Greens senator David Shoebridge, a longtime campaigner against corrupt conduct during his time in NSW parliament, said the time for action was now.
“Whether it’s buying a trophy home in Sydney’s north or an up-zoned apartment block in Parramatta, the lack of financial transparency required from lawyers, accountants and real estate agents is driving up prices and hiding ill-gotten gains,” he said.
“The legal profession in particular needs to get on board and support tranche 2 and not put its members’ financial interests ahead of the public interest,” he said.
“Australia is known to be an attractive destination for foreign proceeds, particularly corruption-related proceeds flowing into real estate, from the Asia-Pacific region. Despite calls from Australia’s crime-fighting agencies and increasing international pressure, we still have no commitment from the federal government to implement tranche 2 anti-money-laundering laws this year.”
Without the extension of tranche 2 controls, there are fears criminal elements will find new ways to wash cash, through unscrupulous real estate agents and structures created by lawyers and accountants.
