AUSTRAC. Typologies and Case Studies Report 2008

AUSTRAC Typologies and Case Studies Report 2008

Commonwealth of Australia 2008 This work is copyright. You may download, display, print and reproduce this material in unaltered form only (retaining this notice) for your personal, non-commercial use or use within your organisation. Where material has been sourced from other third-party sources, copyright continues. Acknowledgement: The valuable contribution of reporting entities and AUSTRAC s designated agencies in producing this document is acknowledged. Disclaimer: The information contained in this document is intended to provide only a summary and general overview on these matters. It is not intended to be comprehensive. It does not constitute nor should it be treated as legal advice or opinions. The Commonwealth accepts no liability for any loss suffered as a result of reliance on this publication. AUSTRAC recommends that independent professional advice be sought. The information contained herein is current as at the date of this document.

AUSTRAC Typologies and Case Studies Report 2008 Foreword Foreword AUSTRAC provides many resources to improve the community s understanding of the threat of money laundering and terrorism financing in Australia, and to assist its regulated population to comply with the Anti-Money Laundering and Counter-Terrorism Financing Act 2006. The AUSTRAC Typologies and Case Studies Report 2008 is an important addition to this growing collection of resources. Based entirely on Australian case studies, this report details some of the known elements and indicators of money laundering and terrorism financing. It draws on the combined knowledge of AUSTRAC s financial intelligence analysts and government partner agencies to offer real-life examples of how commercial systems can be misused by criminal elements. While the report is intended to be a valuable tool to help reporting entities comply with their regulatory and reporting obligations, it will also support law enforcement, national security and revenue agencies by drawing together the work of their counterparts into an up-to-date resource to assist investigations into serious and organised crime. AUSTRAC is extremely grateful for the contribution made by its Australian partners to the preparation of this report. Neil J Jensen PSM Chief Executive Officer, AUSTRAC AUSTRAC typologies and case studies report 2008 1

AUSTRAC Typologies and Case Studies Report 2008 Contents Contents Introduction 3 Report methodology 4 Emerging threats 5 Designated service case index 6 Money laundering methodologies 7 Suspect transaction reports 11 Feedback process 12 Case studies Banking (ADIs) - Bullion 14 Banking (ADIs) - Gambling - Motor vehicles - Securities and derivatives 16 Banking (ADIs) 18 Banking (ADIs) - Money transfer (remittance) 31 Banking (ADIs) - Money transfer (remittance) - Motor vehicles 36 Banking (ADIs) - Money transfer (remittance) - Real estate 38 Banking (ADIs) - Motor vehicles - Real estate 39 Banking (ADIs) - Professional services 40 Banking (ADIs) - Securities and derivatives 42 Banking (ADIs) - Money transfer (remittance) 44 Banking (ADIs) - Money transfer (remittance) - Professional services 46 Banking (ADIs) - Motor vehicles - Real estate 48 Banking (ADIs) - Professional services 50 Banking (ADIs) - Securities and derivatives 51 Bullion 52 Bullion - Money transfer (remittance) 53 Foreign exchange - Gambling 54 Foreign exchange - Motor vehicles 55 Gambling 56 Gambling - Non-bank financial services 58 Money transfer (remittance) 59 Money transfer (remittance) - Stored value cards 61 Money transfer (remittance) - Motor vehicles - Real estate 62 Money transfer (remittance) - Travel products 64 Professional services - Real estate 65 Professional services 66 Stored value cards 68 Appendices Appendix A: of potential ML/TF activity 69 Appendix B: Further information on ML/TF typologies 72 Subject index 74 Abbreviations 76 2 AUSTRAC typologies and case studies report 2008

AUSTRAC Typologies and Case Studies Report 2008 Introduction Introduction The Australian community is not immune from new and emerging threats to its security from domestic and transnational organised crime syndicates and terrorist groups. Just as communities and businesses globalise and embrace new technologies, so too do crime syndicates. They now operate across state and international boundaries, forming strategic partnerships between previously unrelated groups. The financial system, both regulated and unregulated, has increasingly become the vehicle for moving illicit profits around the world. Complex business structures interwoven within global trade can provide a veil under which criminal groups may operate. In Australia, creating an environment that is hostile to money laundering and terrorism financing (ML/TF) requires the continued cooperation of government bodies and industries to ensure the effectiveness of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act). The AML/CTF Act was implemented to support an environment which exposes the activities of criminal and terrorism groups and supports the law enforcement investigations that dismantle them. The Act provides a legislative foundation for AUSTRAC to work with Australia s financial and gambling sectors to generate financial information and build an AML/CTF program to prevent the misuse of Australia s financial system. Financial transaction reports (FTRs) produced by reporting entities help us understand how ML/TF occurs and follow the illicit money trail. In turn, we can use this information to develop resources on typologies and case studies. This collaborative cycle of information sharing between reporting entities, AUSTRAC, and partner agencies is critical in protecting Australia s financial systems. AUSTRAC s purpose is to protect the integrity of Australia s financial system and contribute to the administration of justice through our expertise in countering money laundering and the financing of terrorism. AUSTRAC typologies and case studies report 2008 3

AUSTRAC Typologies and Case Studies Report 2008 Report methodology Report methodology The information contained in this report was generated from the following research material: sanitised cases from AUSTRAC s partner agencies existing AUSTRAC strategic and typology research publicly available open source information. This report identifies some key methods that have been used in Australia to conceal the origins of illicit funds or, in the case of terrorism financing, conceal the purpose for which those funds were intended. These methods are illustrated through the use of case studies and diagrams. This report is limited to case study examples that are approved for external use. Each case study within this report has been presented in a way that highlights the common elements involved in the ML/TF process. These are: the crime or civil proceeding involved (not the actual charges) customer the type of customer/s involved in perpetrating the offence (this can be an individual, business or foreign entity) industry the industry through which transactions were conducted in some cases multiple industries were involved. Although the cases within this report have been grouped by industry, cases can also be located by referring to the designated service case index on page 6, or the subject index on page 74 channel the means by which the offenders completed or attempted to complete transactions (predominantly either in person, via electronic means or through an intermediary/third person) the location (domestic or international) in which the transactions were facilitated 1 designated service the type of designated service, or other financial product, that was used in the offence indicators the red flag activity which would indicate the possibility of ML/TF activity. An extensive list of indicators used in this report can be found in Appendix A. 1 For the purposes of this report, designated services listed in the tables in section 6 of the AML/CTF Act have been grouped into 20 categories containing similar activities. A designated service case index appears on page 6 of this report. 4 AUSTRAC typologies and case studies report 2008

AUSTRAC Typologies and Case Studies Report 2008 Emerging threats Emerging threats The case studies provided in this report reveal the evolving nature of ML/TF and related criminal conduct. Transnational crime Many crime syndicates now operate across international borders, posing a direct threat to Australia. The case studies in this report show how Australia, no longer sheltered by its geographical remoteness, is being targeted by crime syndicates from many parts of the world, and how the criminal profits made in Australia are then moved overseas. Technological advances Sophisticated criminals are exploiting technology, especially the increased availability of internet-based financial products. The New South Wales Police recently uncovered a scam in which email and SMS were used to elicit between AUD5,000 and AUD8,000 each from the victims. This represents a new variation on phishing scams which attempt to obtain personal information or the payment of money. 2 The Australian Institute of Criminology has released a paper entitled Future directions in technology-enabled crime: 2007 09, which discusses the effect of technology on globalisation, emerging economies, digital and social networking, and the changing nature of funds transfer systems. The paper details how technology is creating new opportunities for illegal activities, especially fraud, identity crime, computer vandalism, theft of information, online distribution of objectionable material, organised crime and terrorism. 3 AUSTRAC and its enforcement and regulatory partners must be vigilant to the changing environment and technological advances which can be used to circumvent existing legislation and regulation. Organised crime internet A significant trend emerging among Australian organised crime groups is money laundering through internetbased financial products. Online products do not require face-to-face interaction and can deliver rapid and multiple funds transfers across national boundaries. Internet payments, mobile payments and digital precious metals, such as e-gold, are of particular concern. 4 Organised crime legitimate business structures Another trend emerging in Europe has been the increased exploitation of legitimate companies to launder money or to support criminal activities. These findings suggest that organised criminal groups are becoming more proficient at influencing legitimate business. Transport and import/export businesses are often targeted. The nature of these businesses often requires major operational activities to be subcontracted. This decentralisation of control creates vulnerabilities that organised crime groups can exploit. There is also the potential for organised crime group members to occupy specific roles within the transport chain to facilitate their activities. 5 2 Danks, K 2008, Email death threat scam, The Sunday Telegraph, 6 July 2008. 3 Choo, KWR, Smith, RG & McCusker, R 2007. Future directions in technology-enabled crime: 2007 09, Australian Institute of Criminology, Canberra, retrieved 8 July 2008, from <http://www.aic.gov.au/publications/rpp/78/rpp78.pdf> 4 Parliamentary Joint Committee on the Australian Crime Commission, 2007, Inquiry into the future impact of serious and organised crime on Australian society. 5 EUROPOL, 2007, EU Organised Crime Threat Assessment. AUSTRAC typologies and case studies report 2008 5

AUSTRAC Typologies and Case Studies Report 2008 Designated service case index Designated service case index The following table provides a reference to the case studies outlined in this report that involve designated services under the AML/CTF Act. AUSTRAC has grouped similar services for ease of use and analysis. Some designated services have limited or no case examples because they were not previously classified as reportable transactions under the Financial Transaction Reports Act 1988 (FTR Act), or because the case studies are pending approval for external use. Designated service category AML/CTF Act section 6 item number/s Case study number Accounts 1, 2, 3 1, 2, 3, 4, 7, 8, 9, 10, 11, 12, 16, 17, 18, 19, 20, 21, 24, 25, 26, 27 Money on deposit 4, 5 9, 14, 26 Loan services 6, 7, 48, 49 1, 3, 13 Debt instruments 8, 9, 17, 34, 36 Leasing service 10, 11, 12, 13 Accounts chequebook facility 14, 15 6, 12 Trust accounts chequebook facility 16 Accounts debit card facility Trust accounts debit card facility 18, 18A, 19, 19A 20, 20A Payment orders and stored value cards 21, 22, 23, 24, 27, 28 37, 42 Electronic funds transfer 29, 30 4, 5, 13, 15, 16, 20, 22, 23, 24, 27, 28, 31, 33, 41 Designated remittance arrangement 31, 32 13, 14, 15, 16, 17, 18, 23, 24, 25, 30, 35, 36, 37, 38, 39 Deals in securities markets 33, 35 2, 21, 22, 28 Insurance and superannuation services 37, 38, 39, 40, 41, 42, 43, 43A, 43B, 44, 45 Custodial or depository service 46, 47 25 Foreign exchange services 25, 26, 50 25, 30, 31, 32 Cash carrying and payroll services 51, 52, 53 Australian financial services licence 54 20 Bullion trading Table 2 (1, 2) 1, 29, 30 Gambling services Table 3 (1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14) 34 2, 33, 34 6 AUSTRAC typologies and case studies report 2008

AUSTRAC Typologies and Case Studies Report 2008 Money laundering methodologies Money laundering methodologies This section details some of the common methods of money laundering in use in Australia. These methods are illustrated further in the case studies of this report. Cash The use of cash remains prominent in the money laundering process. The profits made from criminal activities are often returned to the criminals in the form of cash, which then needs to be re-introduced to the mainstream financial system to appear legitimate. Methods of money laundering include: structuring of transactions; that is, breaking down large quantities of cash into amounts which will fall under the Australian financial system s $10,000 cash transaction reporting threshold. Structuring can be achieved through: regular deposits of cash into accounts in amounts that fall below the reporting threshold regular use of cash to purchase instruments such as bank cheques and bank drafts, or to load onto credit or stored value cards in amounts below the reporting threshold using multiple branches or agencies, often within a short timeframe, to avoid detection establishing accounts at multiple institutions using third parties to make deposits into a single account or multiple accounts depositing cash during busy periods, holiday shutdowns and closing times to avoid raising suspicion exchanging smaller denomination notes into larger denomination notes purchasing and/or exchanging Australian currency into foreign currencies to obtain large denominations such as the 500 euro note or the United States $100 bill exchanging or making deposits of foreign currency at Australian financial institutions purchasing other commodities such as gold and precious stones which can be quickly converted back into cash, often at a profit making cash payments for either the purchase or lease of assets such as motor vehicles, or using cash to purchase cheques for the same purpose regularly depositing cash into established loans or investments of particular interest are services which offer less scrutiny of a customer s income such as no-doc and low-doc loans which do not require significant evidence of customer identification. Betting accounts Betting accounts offer an alternative to accounts held with mainstream financial institutions and in many instances can be used as de facto savings and deposit accounts. The frequent movements of funds through such accounts for non-gaming purposes should raise suspicion and may be indicative of money laundering or revenue evasion. Cuckoo smurfing Cuckoo smurfing has been identified as another emerging form of money laundering and has recently received coverage in the Australian media. Australia s AML/CTF professionals need to become familiar with this organised, transnational and highly coordinated process so that they may then incorporate this information into AML/CTF programs and staff training. AUSTRAC typologies and case studies report 2008 7

AUSTRAC Typologies and Case Studies Report 2008 Money laundering methodologies The term cuckoo smurfing originated in Europe because of similarities between this typology and the activities of the cuckoo bird. Cuckoo birds lay their eggs in the nests of other species of birds which then unwittingly take care of the eggs believing them to be their own. In a similar manner, the perpetrators of this money laundering typology seek to transfer wealth through the bank accounts of innocent third parties. There are four key steps in this process: Step 1 A legitimate customer deposits funds with an alternative remitter in a foreign country for transfer into another customer s Australian bank account. This is a legitimate activity and is often a cheaper and faster alternative to using a mainstream bank. Step 2 Unbeknown to the customer, the alternative remitter is part of a wider criminal syndicate involved in laundering illicit funds. This criminal remitter, while remaining in the foreign country, provides details of the transfers, including the amount of funds, to a criminal based in Australia. This includes the account details of the intended recipient in Australia. Step 3 The Australian criminal deposits illicit cash profits from Australian crime syndicates into the bank account of the customer awaiting the overseas transfer. The cash is usually deposited in small amounts to avoid detection under transaction threshold reporting requirements. After an account balance check, the customer believes that the overseas transfer has been completed as legitimately arranged. Step 4 The Australian criminal travels overseas and accesses the legitimate money that was initially deposited with the alternative remitter. The illicit funds have now been successfully laundered the criminal owes nothing but a commission to the money launderer for their work. It is important to recognise the high level of sophistication and organisation required to successfully operate a cuckoo smurfing syndicate. The essential actors in a typical scenario are: an innocent customer seeking to transfer funds from overseas into Australia. This innocent customer could be either: an Australian customer overseas seeking to transfer funds into their own account in Australia, or an innocent customer overseas seeking to transfer funds to another customer located in Australia a criminal alternative remitter located overseas a complicit, Australian-based criminal seeking to transfer funds overseas an organiser or coordinator in Australia associates of this organiser or coordinator who make third party deposits into the Australian customer s account. Bank staff in particular should be alert to third parties making structured, or otherwise unusual, cash deposits into third party accounts. The essential weakness being exploited by cuckoo smurfing is the lack of identification required of persons depositing funds into third party accounts. 8 AUSTRAC typologies and case studies report 2008

AUSTRAC Typologies and Case Studies Report 2008 Money laundering methodologies Cuckoo smurfing in action Domestic electronic transfers The ability to pool funds in accounts has been made much easier with internet banking. Although financial institutions have established internet banking thresholds, customers still have the capacity to transfer large amounts over a relatively short space of time. s may deposit cash funds into an account and then undertake rapid domestic transfers to separate accounts. This type of activity can be indicative of any number of criminal activities and should be viewed as a possible indicator of illicit activity, particularly if the activity is inconsistent with information about the customer, their business or previous account history. False and fraudulent identification Identity fraud is a significant issue for law enforcement in Australia. Through the use of false names and fraudulent identity documentation, bogus accounts, debit and credit facilities, loans, equity and assets can be obtained. These legitimate financial products can be exploited for money laundering and fraudulent participation in tax schemes where money appears to be borrowed legitimately against established equity. AUSTRAC typologies and case studies report 2008 9

AUSTRAC Typologies and Case Studies Report 2008 Money laundering methodologies Gatekeepers A gatekeeper is a person with specific knowledge about services or structures which can be misused for money laundering. These people are not necessarily directly involved in money laundering but they may wittingly or unwittingly assist third parties to distance their criminal activity from their illicit profits. Gatekeepers are commonly accountants, legal practitioners, notaries, and other similar professionals. Reporting entities should be alert to the roles certain professionals can play in money laundering. Wire transfers International funds transfers, or wire transfers, are often used by criminals to rapidly transfer funds across international boundaries. Multiple wire transfers, each bearing different transfer details, are often sent to disguise their true nature. This method also creates a convoluted audit trail which hampers investigations of both private sector AML/CTF staff and law enforcement. Criminals may also set up illegitimate businesses or corporations to send wire transfers. This not only conceals the true identity of the criminal, but the transfers can be hidden among the complexities of established international trade and financial market activities. By having a good knowledge of customers and businesses, and by monitoring unusual spikes in activity, reporting entities can detect suspicious activity and report it to AUSTRAC as appropriate. Other resources There are several other key sources of information about ML/TF methodologies and typologies. The Financial Action Task Force (FATF) website, and particularly its Publications link to Methods and Trends, details the history of research undertaken by global experts on money laundering (see Appendix B of this report for a detailed list of FATF research topics). Of interest is the report entitled FATF Terrorist Financing Typologies Report. Similarly, the Asia/Pacific Group on Money Laundering (APG) produces information on typologies relevant to our region, and the Egmont Group of Financial Intelligence Units provides a library of sanitised case studies on its website. Public records of court proceedings in criminal cases provide another source of information. Before passing sentence in a criminal case, judges will read onto the public record a statement outlining the crime and the reasons for the sentence. This will often include a summary of the investigation and the evidence that was presented to the court during the case. In ML/TF cases, such evidence can reveal the methods used by the criminals. Judges remarks are publicly available from the websites of every court in Australia. The search functions of these websites are not specifically designed for ML/TF research, so it may be necessary to use a specific law enforcement agency or crime committed as search criteria. An example website is: <http://caselaw.lawlink. nsw.gov.au>. Internet searches on topics such as money laundering or terrorism financing, or specific crime types, can provide additional information. 10 AUSTRAC typologies and case studies report 2008

AUSTRAC Typologies and Case Studies Report 2008 Suspect transaction reports Suspect transaction reports Many law enforcement investigations into ML/TF in Australia are initiated or supported by the FTRs submitted by Australian businesses and individuals. Several of the case studies within this report were prompted after suspect transaction reports (SUSTRs) were provided to AUSTRAC by diligent reporting entities. These SUSTRs provided important financial data which supported the arrest and conviction of criminals, and the seizure of their criminally funded assets. Although every effort has been made to capture emerging money laundering threats under the AML/CTF Act, it is inevitable that new products and services will be introduced that are vulnerable to exploitation for ML/TF. It is important that reporting entities, AUSTRAC, and its partner agencies continue to work together to identify new and modified criminal behaviour. Quality SUSTRs and, from 12 December 2008, suspicious matter reports (SMRs) submitted by reporting entities are essential for protecting Australia from the effects of ML/TF. Suspect transaction reports provided by industry are extremely valuable pieces of financial intelligence. Investigating and prosecuting complex criminal matters requires discretion on the part of law enforcement agencies, and this may limit the extent to which we are able to directly acknowledge those who submit these reports, in a timely manner. We can, however, assure those people submitting reports that their efforts often lead to significant law enforcement outcomes and prevent criminals from profiting from their activities. Almost without exception, in the investigation of any major criminal matter reported in the media, the investigation will have benefited from access to AUSTRAC s database of financial transaction information. Neil J Jensen PSM Chief Executive Officer, AUSTRAC AUSTRAC typologies and case studies report 2008 11

AUSTRAC Typologies and Case Studies Report 2008 Feedback process Feedback process Under the FTR Act and AML/CTF Act, one of AUSTRAC s primary functions is to collect and analyse FTRs, and disseminate financial intelligence to partner agencies for use in their investigations and operations. To ensure this process continues, it is essential that our partner agencies provide feedback on the usefulness of FTRs and other intelligence products. Of greatest benefit is feedback related to investigations or operations identifying how illicit funds were used to support terrorism groups. It is also important that AUSTRAC receives feedback on investigations where money laundering was committed but not detected in a FTR. This can help us identify ML/TF methods that could be used by criminals to circumvent the AML/CTF legislation. This information will allow AUSTRAC to refine its resources for reporting entities. Feedback we receive from our partner agencies principally assists AUSTRAC in: assessing AUSTRAC s effectiveness in achieving the objectives of the FTR Act and AML/CTF Act assessing and analysing the value of AUSTRAC information developing typologies which improve ML/TF monitoring systems and other intelligence products providing reports, resources and educational materials to reporting entities providing partner agencies with information about ML/TF methods being used within Australia and internationally providing presentations and case studies that support the global effort to combat ML/TF. Australia makes important contributions to the ML/TF typologies exercises of the FATF, the Egmont Group of Financial Intelligence Units and the APG. All information provided to AUSTRAC is handled with the appropriate levels of sensitivity and security. The diagram opposite illustrates the important collaborative process between government and industry to combat ML/TF in Australia. 12 AUSTRAC typologies and case studies report 2008

AUSTRAC Typologies and Case Studies Report 2008 Feedback process AUSTRAC feedback cycle AUSTRAC typologies and case studies report 2008 13

AUSTRAC Typologies and Case Studies Report 2008 Case studies Banking (ADIs) - Bullion Case studies Case 1 Fraudsters cashed in with false identification documents A law enforcement agency launched an investigation into two persons after they were caught in possession of numerous counterfeit driver s licences and several charts detailing multiple identities. The charts related to false loans and other fraudulent activities. The suspects were also in possession of keys to 30 post office boxes scattered around Australia. The suspects were identified by law enforcement officers as Indian nationals in Australia on student visas who were also licensed taxi cab drivers. Further investigations indicated the suspects were part of a syndicate that recruited people from India to undertake loan fraud within Australia. The syndicate paid for recruits to relocate to Australia as students, and once in Australia the students found work in the taxi and hire car industry. It is alleged that by working for these companies the recruits were able to steal personal details from victims to lodge fraudulent claims for loans from financial institutions. The offenders opened credit card accounts with numerous banks and had the cards and personal identification numbers delivered to post office boxes. The syndicate employed full-time couriers who travelled interstate to collect the mail from the post office boxes. The offenders collected the cards, depleted the accounts, and forwarded the money to other syndicate members for the purchase of gold bullion and for living expenses. The cards were depleted of all funds, usually between AUD10,000 and AUD15,000, or were used directly to purchase bullion. The couriers kept only approximately AUD200 for themselves, with the remaining funds returned to the main organisers. It is alleged that the bullion and cash were repatriated to overseas entities. Designated service Fraud Individual Banking (ADIs) Bullion Physical Mail International India Bullion trading Accounts Loan services Available credit being maximised in short space of time without repayment Cash purchases of bullion Newly opened accounts have credit cards and other details mailed to post office boxes No repayment or attempted repayment on credit Use of false identification 14 AUSTRAC typologies and case studies report 2008

AUSTRAC Typologies and Case Studies Report 2008 Case studies Banking (ADIs) - Bullion POI person/s of interest AUSTRAC typologies and case studies report 2008 15

AUSTRAC Typologies and Case Studies Report 2008 Case studies Banking (ADIs) - Gambling - Motor vehicles - Securities and derivatives Case 2 Crime network laundered money through bank accounts, shares and luxury vehicles AUSTRAC referred a financial intelligence assessment and a SUSTR on to a law enforcement agency, which led to an investigation into the alleged money laundering activities of a criminal syndicate linked to suspected drug trafficking. The alleged activity involved the movement of several million dollars through bank accounts, a shares portfolio and the purchase of luxury motor vehicles. AUSTRAC was alerted to the fact that an individual was banking large amounts of cash on a daily basis, totalling anywhere between AUD20,000 and AUD60,000 per week, for months. In the information AUSTRAC referred to the law enforcement agency, a syndicate member was initially identified by AUSTRAC as a result of approximately AUD300,000 in his account which had been sourced from two casino cheques. Further analysis of AUSTRAC information revealed that the suspect had made over AUD2 million in cash deposits into bank accounts that he operated. As the investigation gathered momentum, search warrants were executed on properties linked to the syndicate members. Numerous property tracking documents relating to syndicate assets and unexplained wealth were seized by law enforcement officers. Investigators located a bank account with a balance of approximately AUD800,000 and a 2006 Mercedes sedan that had been purchased for AUD300,000. Both the bank account balance and the vehicle were suspected of being derived from proceeds of crime. Law enforcement officers interviewed a syndicate member about these assets and he could offer no explanation as to how he had obtained the level of funds described while earning only a mid-level salary. 16 AUSTRAC typologies and case studies report 2008

AUSTRAC Typologies and Case Studies Report 2008 Case studies Banking (ADIs) - Gambling - Motor vehicles - Securities and derivatives The execution of another search warrant on a property linked to the initial syndicate member revealed over AUD1.2 million in cash, and small amounts of methylamphetamine ( ice ). In addition, law enforcement officers seized numerous luxury items and home entertainment equipment believed to be the proceeds of criminal offences. Another residence was searched and found to be empty. It was noted, however, that the rent on this property had been paid months in advance. This same person of interest had also bought shares and motor vehicles in a direct relative s name, and AUD300,000 was discovered in an account belonging to the same relative. It was ascertained that this particular relative was earning approximately AUD40,000 a year. The resulting law enforcement investigation into the activities of the syndicate members has led to a total of approximately AUD3.9 million being recovered or restrained. Designated service Money laundering Drug trafficking Individual Banking (ADIs) Gambling Motor vehicles Securities and derivatives Physical Agent/third party Domestic Accounts Deals in securities markets Gambling Assets purchased in family member s name Cash purchase of high-value assets (motor vehicles) Financial activity inconsistent with established customer profile Large cash deposits into bank accounts on a regular basis Rent for property paid well in advance Use of third party accounts AUSTRAC typologies and case studies report 2008 17

AUSTRAC Typologies and Case Studies Report 2008 Case studies Banking (ADIs) Case 3 False identification used in bank fraud An individual involved in large-scale bank fraud created a range of false identification documents to open bank accounts and apply for personal loans and credit cards. The individual deposited the money received from the loans into a bank account. The bank statement received for the account was then used at another bank as proof of financial means to apply for further loans. The offender initially opened savings accounts and credit cards with the loan funds, which were then deposited to another account after approval. Once the money was in the account, either the offender or one of two associates withdrew the funds as bank cheques (on the justification of buying a car or similar) made out to other false identities with false accounts and then deposited the cheque/s into these accounts. Funds were also withdrawn as cash via ATMs or bank branches. The offender repeated this process using multiple false identities, fraudulently generating over AUD1 million in funds. Designated service Fraud Individual Banking (ADIs) Physical (face-to-face) Domestic Accounts Loan services An individual or business client has multiple bank accounts with several institutions, but with no economic rationale for having them is known to be operating multiple accounts Multiple bank cheques purchased by different individuals but payable to a common beneficiary Payments by large third party cheques endorsed in favour of the customer Use of false identification documentation 18 AUSTRAC typologies and case studies report 2008

AUSTRAC Typologies and Case Studies Report 2008 Case studies Banking (ADIs) POI person/s of interest AUSTRAC typologies and case studies report 2008 19

AUSTRAC Typologies and Case Studies Report 2008 Case studies Banking (ADIs) Case 4 Large wire transfers sent to support terrorist activities Law enforcement officers commenced an investigation into alleged fundraising and procurement activities by Australian-based persons on behalf of an identified terrorist organisation. Officers examined the activities of the organisation in accordance with Australia s obligations under United Nations Security Council Resolution 1373 (2001). Investigations established that Australian-based individuals were sending a number of large international funds transfers to businesses in another country. These businesses were believed to be front organisations used to control funds for the terrorist organisation. The overseas individuals were subsequently sending multiple wire transfers to South-East Asia. A law enforcement investigation established that the majority of the funds originated from cash raised under the guise of charitable activities. The funds were transferred via direct debit into a central account. Third parties also rolled funds from another account into this central account, to be repaid later. The suspects in Australia funded their activities via cash cheques and credit cards which were linked to the central account. Legitimate businesses, such as grocers, restaurants and hospitality venues were also used for fundraising activities. The funds were distributed by various techniques, including person-to-person, bank account deposits, asset purchases (e.g. real estate), and funds transfers from a main bank account into individuals accounts for alleged expenses relating to the administration of the charitable organisation. The suspects used wire transfers to transfer the money to international bank accounts, and bank transfers to transfer to accounts held within Australia. The individuals frequently conducted these transactions via internet banking 20 AUSTRAC typologies and case studies report 2008

AUSTRAC Typologies and Case Studies Report 2008 Case studies Banking (ADIs) AUSTRAC information identified numerous structured wire transfers of values just under AUD10,000 each. One individual transferred in excess of AUD300,000 in this manner. A central account was not used for the wire transfers, instead the wire transfers were organised through several different banks. The majority of the transactions were in the suspects own names, but third parties were used to create the main bank account. Third parties were also used to send wire transfers and conduct purchases using funds withdrawn from the central account. As a result of the investigation, Australian authorities arrested several individuals who have been charged with being members of a terrorist organisation, providing support or resources to a terrorist organisation, and making funds available to a terrorist organisation. Designated service Terrorism financing Money laundering Individual Business Banking (ADIs) Physical Electronic (internet) Agent/third party International South-East Asia Accounts Electronic funds transfer International wire transfers to countries known to be high risk terrorism financing jurisdictions Multiple cash cheques Structured wire transfers Third parties sending wire transfers Third parties used to create bank accounts AUSTRAC typologies and case studies report 2008 21

AUSTRAC Typologies and Case Studies Report 2008 Case studies Banking (ADIs) Case 5 Students laundered money to receive tax concessions Two Chinese students suspected of laundering millions of dollars became the targets of a law enforcement investigation. On entering Australia one of the students was found to be carrying AUD30,000 in undeclared currency. He was charged under section 53 of the AML/CTF Act (failure to declare currency in excess of AUD10,000) and later pleaded guilty to this offence. Further inquiries revealed that the students and their company had received significant incoming funds transfers from Hong Kong. Almost immediately these transactions were followed by similar amounts being sent out of Australia to China. Approximately AUD5.2 million in funds transfers were sent from Hong Kong to the students in Australia. The students subsequently transferred an estimated AUD5.6 million to a company in China. It is possible that the funds being sent from Hong Kong to Australia and then to China actually originated in China. The funds were possibly being used to falsely receive tax concessions from the Chinese government by claiming that the funds were from foreign investors. The investigations established that the pair owned a number of valuable properties despite the fact that one of them was an unemployed student. Both appeared to have unexplained wealth and assets. The two students have been charged with money laundering under section 400.3 of the Criminal Code Act 1995. Designated service Cash couriering Money laundering Individual Banking (ADIs) Electronic International Hong Kong, China Electronic funds transfer Activity inconsistent with customer profile Company accounts used only to transfer money without other corresponding commercial activity Incoming wire transfer with corresponding wire transfer appears to be a u-turn transaction Unusually large transfer of money from an individual to a company 22 AUSTRAC typologies and case studies report 2008

AUSTRAC Typologies and Case Studies Report 2008 Case studies Banking (ADIs) AUSTRAC typologies and case studies report 2008 23

AUSTRAC Typologies and Case Studies Report 2008 Case studies Banking (ADIs) Case 6 Asian crime syndicate laundered money with cheques AUSTRAC disseminated a SUSTR to a law enforcement agency, which triggered an investigation into an Asian crime syndicate s money laundering activities. The SUSTR detailed a distinct pattern of regular weekly deposits of cheques to the value of approximately AUD100,000. These deposits were followed a few days later by withdrawals of amounts below the AUD10,000 reporting threshold. A company linked to this syndicate was also found to be funnelling funds through numerous business accounts before withdrawing the cash in structured amounts. The cash was then dispersed between syndicate members. It is believed that this activity was undertaken for tax avoidance purposes and that approximately AUD6.5 million was laundered through the scheme. The resulting investigation led to a number of individuals being arrested and charged with money laundering. Designated service Money laundering Individual Business Banking (ADIs) Physical (face-to-face) Domestic Accounts chequebook facility Cash withdrawals from company accounts Regular deposits followed by structured cash withdrawals 24 AUSTRAC typologies and case studies report 2008

AUSTRAC Typologies and Case Studies Report 2008 Case studies Banking (ADIs) Case 7 Criminal structured deposits with waxy notes A SUSTR was lodged with AUSTRAC by a bank employee indicating that an individual had deposited cash into his account using bank notes that felt washed and waxy. The individual had attended the bank branch and deposited AUD7,000 cash in AUD50 denominations, and one week later had deposited the same amount. Law enforcement officers suspected that, three years previously, the individual had been involved in the theft of approximately AUD6.3 million from an ATM. The money had been illegally obtained from the ATM over a period of four months through the use of a stolen credit card. Law enforcement officers alleged that the individual had buried the stolen cash, and was now digging up the money and making structured deposits into his accounts in an attempt to legitimise the stolen funds. The individual was arrested and charged with money laundering and law enforcement was able to recover AUD4.5 million. Designated service Money laundering Theft Individual Banking (ADIs) Physical Domestic Accounts Cash notes are second hand, in poor condition or otherwise tainted Structuring of transactions AUSTRAC typologies and case studies report 2008 25

AUSTRAC Typologies and Case Studies Report 2008 Case studies Banking (ADIs) Case 8 Drug network undertook structured transactions A SUSTR lodged with AUSTRAC by an officer at an authorised deposit-taking institution triggered an investigation into the supply of heroin. The SUSTR detailed the daily occurrence of cash withdrawals of AUD4,500 by an individual. These withdrawals continued over a three-week period and totalled AUD60,000. As a result of this report, law enforcement was able to connect the individual to a known drug dealer. The resulting investigation led to the identification of a heroin supplier, and a law enforcement operation that led to the arrest of the offender and several associates, including the drug dealer. Designated service Drug trafficking Individual Banking (ADIs) Physical (face-to-face) Domestic Accounts Daily cash withdrawals Structured withdrawals clustered over a period of time 26 AUSTRAC typologies and case studies report 2008

AUSTRAC Typologies and Case Studies Report 2008 Case studies Banking (ADIs) Case 9 Student arrested carrying $88,000 cash A Chinese national student was stopped while entering Australia on a flight originating in China. Law enforcement officers found that the student was carrying approximately USD75,000 (equivalent to about AUD88,000) of undeclared currency. The student had previously come to the notice of AUSTRAC due to suspicions about a large cash deposit which was possibly also linked to undeclared currency coming into Australia. The student was charged under section 53 of the AML/CTF Act with one count of failing to report movement of more than AUD10,000 in Australian currency into Australia. Designated service Failure to declare cash Individual Banking (ADIs) Physical (face-to-face) International China Accounts Money on deposit This case study also details the couriering of cash Large cash deposit AUSTRAC typologies and case studies report 2008 27

AUSTRAC Typologies and Case Studies Report 2008 Case studies Banking (ADIs) Case 10 Skimming devices used to siphon money from accounts Members of a Canadian crime syndicate travelled to Australia to place skimming devices on ATMs around a major city. The skimming devices were used to copy card details from victims when using the ATMs, allowing the perpetrators to later siphon money from client accounts. A member of the public discovered one of the devices and immediately alerted police. It was discovered that the syndicate had conducted similar activities in other Australian states. Further inquiries revealed that the offenders responsible had started opening bank accounts within two days of their arrival in Australia and had opened a total of 10 accounts with their original passports. These bank accounts had not subsequently been used. AUSTRAC data revealed regular amounts of money being sent from Canada to the syndicate in Australia. These amounts closely correlated with hotel costs and were presumably for expenses. The offenders were linked to other groups in New Zealand and around Australia and arrests have followed in both Australia and New Zealand. Designated service Credit card skimming Individual Banking (ADIs) Electronic International Canada, New Zealand Accounts Accounts are open but remain dormant Activity is inconsistent with customer profile Bank accounts are opened shortly after a customer s arrival in Australia Regular transfer of money 28 AUSTRAC typologies and case studies report 2008

AUSTRAC Typologies and Case Studies Report 2008 Case studies Banking (ADIs) Case 11 Syndicate laundered money through bank accounts A syndicate involved in alleged money laundering activities was the focus of a major law enforcement investigation. To launder the funds a member of the syndicate was depositing cash into their own bank account, and on the same day transferring funds to bank accounts belonging to another member of the syndicate. Over 11 months, one syndicate member had a total of AUD264,000 deposited into their bank accounts. The individual also withdrew AUD122,000 from the same accounts at several different branches around a single metropolitan area. Over the same period another member of the syndicate withdrew approximately AUD380,000 in cash. On several occasions when money was withdrawn the same amount was deposited into accounts belonging to other members of the syndicate. The money was withdrawn in amounts usually greater than AUD10,000. As this member of the syndicate was a highly valued customer of the financial institution he was provided preferential treatment and his activity was not deemed suspicious. This member of the syndicate also received an international transfer of AUD1.7 million from the Islands. Law enforcement officials established that this individual had received over AUD6.2 million into his account from the Islands since 1995. AUSTRAC information was an important element of this investigation. AUSTRAC received multiple SUSTRs concerning these regular large cash deposits. The SUSTRs also detailed the individuals refusals to complete appropriate reporting forms. Designated service Money laundering Individual Banking (ADIs) Physical International Islands Accounts Immediate transfer of funds following cash deposits Large cash deposits into accounts (including by highly valued/trusted clients) Multiple withdrawals from branches in the same geographical location Refusal to complete required documentation Wire transfers involving an offshore tax haven 6 1 6 The Australian Tax Office maintains a list of jurisdictions it currently considers to be tax havens. This list is available on the Tax Office website at www.ato.gov.au, and continues to be reviewed and updated as circumstances change. AUSTRAC typologies and case studies report 2008 29

AUSTRAC Typologies and Case Studies Report 2008 Case studies Banking (ADIs) Case 12 Tax evaded through exporting goods A SUSTR was crucial to an investigation into a taxpayer claiming fraudulent Goods and Services Tax (GST) refunds. The taxpayer claimed that he purchased mobile telephones domestically and exported them to Hong Kong. Investigators identified that the export activity had increased significantly over time and as a result both tax credits claimed on the costs of exported goods and Business Activity Statement (BAS) refunds claimed increased. BAS statements were prepared and lodged by the taxpayer s tax agent, with reference being made to credit and debit transactions shown on bank statements. The credit transactions consisted mainly of cash deposits and incoming wire transfers which were all claimed as income received from the supply of exported goods. The debit transactions were claimed as payments for goods acquired and subsequently exported. The payments were made by cheque and internet banking transactions. When the bank statements were examined an unusual pattern was identified. Deposits and some cheque debit transactions appeared to be grouped and structured such that several deposits of similar value were made on the same day. Corresponding cheque withdrawals of similar value were also made on the same day. Investigators found that the client moved cash and cheques around company bank accounts to create transactions that gave the appearance of export trade and to support claims made via BAS. In creating these transactions, the client had also masked the withdrawal of funds from the account. Approximately AUD600,000 in tax and penalties was raised as a result of the investigation into the company s activities. Designated service Fraud Business Individual Banking (ADIs) Physical (face-to-face) Domestic Accounts Accounts cheque book facility Activity inconsistent with business profile False invoicing Financial activity occurring in unusual clusters Large cash deposits into company accounts Movement of funds between bank accounts without commercial rationale 30 AUSTRAC typologies and case studies report 2008

AUSTRAC Typologies and Case Studies Report 2008 Case studies Banking (ADIs) - Money transfer (remittance) Case 13 Funds obtained through an investment scam An individual owned a trucking company and also promoted a related investment scheme. The investment scheme offered a AUD36,000 investment opportunity which provided a 49 per cent share in a truck over a five-year contract period. The AUD36,000 investment was framed as a loan to purchase one of the new AUD47,000 trucks that the individual was assembling in China. It was proposed that these vehicles would form part of a commercial transport fleet. Investors were told they would receive monthly repayments, varying from AUD1,200 to AUD2,000 per month, and a AUD30,000 final payment at the end of the contract. This was promoted as an approximate return of AUD180,000 against the initial investment. Law enforcement inquiries revealed the individual attracted 120 investors to the scheme, with a number of investors purchasing several trucks. The individual secured a total of AUD9.5 million from investors. Although the individual claimed to have purchased 296 vehicles, less than 30 trucks were actually owned by the individual s company. The individual fled Australia only to be arrested on fraud charges in another country. When released on bail overseas the individual returned to Australia and was subsequently arrested by law enforcement officers. Investigations revealed that the offender had spent the proceeds of the scam to support a lavish lifestyle. The offender had made several large outgoing wire transfers totalling approximately AUD500,000, as well as numerous smaller transfers conducted through a money remitter in amounts of less than AUD2,000 per transaction. Designated service Fraud Individual Banking (ADIs) Money transfer (remittance) Electronic Domestic Designated remittance arrangement Electronic funds transfer Loan services Financial activity inconsistent with the customer profile Large unexplained variances in transactional activity AUSTRAC typologies and case studies report 2008 31

AUSTRAC Typologies and Case Studies Report 2008 Case studies Banking (ADIs) - Money transfer (remittance) Case 14 Growth hormone smuggling syndicate smashed A law enforcement investigation targeting smugglers of steroids, growth hormones and other illegal performance-enhancing drugs identified a number of suspects involved in importation and distribution, operating throughout Australia. The traffickers within Australia were found to be sending funds overseas totalling several hundred thousand dollars to purchase the illicit substances. Additionally, they were found to be receiving several thousand dollars each week in revenue from the sale of the illicit substances. The traffickers used internet chat rooms and forums for networking and to order the drugs online, and used legitimately issued identities, obtained in false names, to open multiple post office boxes to receive the drugs. They also used internet-based payment facilities and money remittance services in Australia to arrange the payments for the drugs, with the majority of payments under AUD1,000. The overseas suppliers were aware of the prohibition on importing these drugs into Australia and intentionally provided false descriptions of the goods to circumvent these controls. The traffickers enlisted friends and spouses to make payments on their behalf and chose different branches from which to make payments. They also regularly changed names and purposely misspelled names and addresses. The full addresses of the overseas beneficiaries were never reported, only the region. The resulting law enforcement operation led to the execution of over 140 warrants across Australia. Designated service Drug importation Individual Banking (ADIs) Money transfer (remittance) Electronic (internet) Mail International Designated remittance arrangement Money on deposit Multiple low-value wire transfers Transactions conducted in various geographical locations Use of internet-based payment facilities Use of multiple post office boxes Third parties sending wire transfers 32 AUSTRAC typologies and case studies report 2008

AUSTRAC Typologies and Case Studies Report 2008 Case studies Banking (ADIs) - Money transfer (remittance) AUSTRAC typologies and case studies report 2008 33

AUSTRAC Typologies and Case Studies Report 2008 Case studies Banking (ADIs) - Money transfer (remittance) Case 15 Money remitter used for attempted people smuggling An investigation was conducted into an individual who had previously been convicted of charges relating to encouraging acts of indecency overseas (involving children). The individual s passport had been cancelled upon his release from prison because of the possibility of him attempting to travel to a high risk child-sex-tourism country. The investigation revealed that, since his release from prison, the individual had been in contact with a young person in South-East Asia with the intention of transporting the young person to Australia. Wire transfers were identified which were sent by the offender in Australia to the potential victim overseas through both a money remitter and a bank. These transfers were in small amounts below AUD200 and were conducted regularly over a 15-month period. The individual was arrested and sentenced to six years imprisonment. Designated service People smuggling Individual Banking (ADIs) Money transfer (remittance) Electronic International South-East Asia Designated remittance arrangement Electronic funds transfer Multiple low-value wire transfers 34 AUSTRAC typologies and case studies report 2008

AUSTRAC Typologies and Case Studies Report 2008 Case studies Banking (ADIs) - Money transfer (remittance) Case 16 Profits made from the sale of stolen copper wiring This investigation involved the theft of copper wiring from various railway lines and suburban stations. The suspect owned a scrap metal business that had historically shipped large amounts of scrap metal and cable to buyers in Asia. It was alleged the suspect purchased copper wire stolen from suburban railways in Australia and shipped the wire to Asia for significant profit. AUSTRAC received financial transaction information which indicated unusual business activity by the individual in question. This report triggered further financial analysis of the activities of other individuals, as well as related business activities which identified quite dramatic changes in financial activity, such as an increase in the frequency and size of incoming wire transfers. This increased activity included a 700 per cent increase in funds received over the period of one year. There were also increases in cash deposits and withdrawals by the suspect. The funds in question were transferred to Australia principally through mainstream banks, but a remittance agent in Asia was also used to send funds to personal accounts in Australia which were linked to the suspect. Designated service Theft Individual Banking (ADIs) Money transfer (remittance) Electronic International Asia Accounts Designated remittance arrangement Electronic funds transfer Increase in cash deposits and withdrawals Regular wire transfers Significant change to an established financial pattern Wire transfers into personal accounts appear to be from company activity AUSTRAC typologies and case studies report 2008 35

AUSTRAC Typologies and Case Studies Report 2008 Case studies Banking (ADIs) - Money transfer (remittance) - Motor vehicles Case 17 Student couriered counterfeit bank drafts A student attempted to courier envelopes to five associates in the United Kingdom (UK). The envelopes contained what were believed to be counterfeit completed and signed bank drafts drawn on an overseas bank. The envelopes were seized and a search conducted on the student s address, where a false passport and further counterfeit bank drafts were discovered. The student confirmed the false passport had been used to undertake transactions with a money remitter. Investigators believe the student purchased motor vehicles in the UK over the internet. The bank drafts were sent to the vehicle owners for more than the amount agreed and they were then contacted and asked to refund the overpayment to a bank account in the UK. The owners of the vehicles did so prior to the draft being identified as counterfeit, and so were defrauded of the alleged overpayment amount. Over four years the student sent in excess of 170 IFTIs totalling approximately AUD182,000 in an attempt to launder the proceeds of the fraudulent activities. A large majority of these transfers were sent to Nigeria. AUSTRAC identified that the outbound transfers sent to Nigeria were followed within one to seven days by inbound transfers from United States-based individuals. The transactions ranged between AUD50 and AUD17,000. Analysis of the IFTIs identified that over 82 per cent linked to the student and the student s associates had a value of less than AUD1,500. The student was arrested and charged. Designated service Fraud Individual Banking (ADIs) Money transfer (remittance) Motor vehicles Electronic International United Kingdom, Nigeria, United States Accounts Designated remittance arrangement Financial activity inconsistent with the customer profile International wire transfers to countries not associated with the established customer profile Multiple low-value wire transfers Purchase of high-value assets (motor vehicles) 36 AUSTRAC typologies and case studies report 2008

AUSTRAC Typologies and Case Studies Report 2008 Case studies Banking (ADIs) - Money transfer (remittance) - Motor vehicles POI person/s of interest AUSTRAC typologies and case studies report 2008 37

AUSTRAC Typologies and Case Studies Report 2008 Case studies Banking (ADIs) - Money transfer (remittance) - Real estate Case 18 Wire transfers used in welfare fraud A SUSTR received and analysed by AUSTRAC prompted an investigation into an individual and the individual s partner, who were in receipt of welfare benefits. The pair had been receiving benefits for several years and during this time had not declared income from any source. AUSTRAC financial reporting revealed that the pair had sent 23 wire transfers in excess of AUD100,000 to the United States (US) over a 14-month period. These outgoing wire transfers were made exclusively through designated remittance service agents to entities residing in the US. A smaller number of incoming wire transfers were received from the US and Canada. Additionally, two previously unknown bank accounts were identified through the SUSTR. Several other detailed SUSTRs indicated that the male individual was probably involved in the housing construction industry. Investigations into the activities of the pair indicated they were generating substantial incomes from undeclared sources, including business websites and real estate. Designated service Fraud Individual Banking (ADIs) Money transfer (remittance) Real estate Electronic International US, Canada Designated remittance arrangement Accounts Activity inconsistent with customer profile Transferring funds into third party accounts Use of multiple accounts 38 AUSTRAC typologies and case studies report 2008

AUSTRAC Typologies and Case Studies Report 2008 Case studies Banking (ADIs) - Motor vehicles - Real estate Case 19 Children s accounts used to launder money The individuals involved in this example opened bank accounts in the names of their infant grandchildren. These accounts were then used to move in excess of AUD201,000 in cash deposits. These funds were used to purchase luxury motor vehicles and property for the individuals in question. When law enforcement officers investigated the case further, they uncovered a money laundering operation and large-scale cocaine importation. The resulting law enforcement investigation has led to the confiscation of approximately AUD16 million in cash and a further AUD4 million in other assets. Designated service Money laundering Drug importation Individual Banking (ADIs) Motor vehicles Real estate Physical (face-to-face) Domestic Accounts Children s account used to facilitate the purchase of high-value assets (motor vehicles, property) Large cash deposits into accounts Operation of account inconsistent with its intended purpose AUSTRAC typologies and case studies report 2008 39

AUSTRAC Typologies and Case Studies Report 2008 Case studies Banking (ADIs) - Professional services Case 20 Accountant misused power to conduct fraud An accountant employed by an educational institution and another company was alleged to have defrauded these two organisations of approximately AUD292,000. The accountant s method was to redirect company payments for legitimate invoices to his personal account. When a payment reminder for the invoice was received he organised payment to the creditor. The accountant wrote an invoice for double payment and claimed one payment himself. The accountant also created false invoices/payments to himself from the company. A credit union lodged a SUSTR with AUSTRAC detailing the accountant s suspicious conduct involving high-value cash and cheque deposits and withdrawals. The basis of the suspicion was that none of the transactions were over AUD10,000 and the transactional activity did not correspond with the profile of the customer. AUSTRAC information also detailed the accountant s use of wire transfers to Afghanistan and Egypt. These transactions were between amounts of AUD4,000 and AUD11,000 and were all conducted through the same bank branch within several days of each other. The accountant was arrested and ultimately charged with multiple counts of fraud. Designated service Fraud Individual Banking (ADIs) Professional services Physical International Afghanistan, Egypt Accounts Australian financial services licence Electronic funds transfer Activity is inconsistent with customer profile False invoicing Structured deposits clustered over a period of time Structured withdrawals clustered over a period of time Transactions occurring in a cluster made by the same person International wire transfers to countries known to be high risk terrorism financing jurisdictions 40 AUSTRAC typologies and case studies report 2008

AUSTRAC Typologies and Case Studies Report 2008 Case studies Banking (ADIs) - Professional services POI person/s of interest AUSTRAC typologies and case studies report 2008 41

AUSTRAC Typologies and Case Studies Report 2008 Case studies Banking (ADIs) - Securities and derivatives Case 21 Stock market fraud An investigation into an individual trading through a contract for difference (CFD) account, via a brokerage firm, resulted in proceeds of crime restraining orders being placed on the individual s assets. A CFD product is a form of derivative in which an agreement is made to exchange the difference in value of a particular share (or other financial instrument) between the time at which a contract is opened and the time at which it is closed. The product allows a trader to buy and sell in any market, to profit from rising and falling prices and to establish a deposit or margin to gain exposure to markets without tying up capital. Any profits/dividends from the CFD derivative are domestically transferred/debited to the individual s conventional bank account. In relation to this investigation the profits were debited to a major Australian bank. The subject of the investigation used false identification documents, including a false citizenship certificate and driver s licence, to open the trading account. The registration was conducted via the internet. The individual became the subject of a SUSTR submitted to AUSTRAC which detailed activity involving the structuring of cash deposits into an account. The SUSTR also highlighted that over an eight-day period approximately AUD390,000 was deposited into the account in structured amounts, and in some instances deposits were made on the same day at branches in New South Wales and South Australia. The investigation identified that the account had traded and increased in value to AUD762,000, which was subsequently restrained through proceeds of crime restraining orders. AUSTRAC information assisted in firstly identifying the matter and then commencing proceeds of crime action. Designated service Structuring Fraud Individual Banking (ADIs) Securities and derivatives Electronic Domestic Deals in securities markets Accounts Abuse of internet registration systems Multiple same day transactions Structuring of cash deposits Use of false identification documentation 42 AUSTRAC typologies and case studies report 2008

AUSTRAC Typologies and Case Studies Report 2008 Case studies Banking (ADIs) - Securities and derivatives Case 22 Company used tax haven country to evade tax An Australian resident company that was receiving funds from a known offshore tax haven was the subject of an audit. The director/shareholder of the company was also connected to another company established in a tax haven. This tax haven company had purchased shares in a United Kingdom company and then sold them for a substantial capital gain. Some of the profits were repatriated to Australia via the use of false invoices issued by the Australian resident company and the funds entered the country through large wire transfers, all in an attempt to avoid paying tax. As a result of the audit, the director/shareholder was assessed on income earned from worldwide sources and agreed, as part of the settlement, to cease his involvement in the tax haven-based company and repatriate all funds held in overseas jurisdictions. As a result approximately AUD1.4 million in tax and penalties were raised. Designated service Tax fraud Business Individual Banking (ADIs) Securities and derivatives Electronic International United Kingdom Deals in securities markets Electronic funds transfer Client s affairs involve company incorporated in an offshore jurisdiction Wire transfers involving an offshore tax haven 7 1 7 The Australian Tax Office maintains a list of jurisdictions it currently considers to be tax havens. This list is available on the Tax Office website at www.ato.gov.au, and continues to be reviewed and updated as circumstances change. AUSTRAC typologies and case studies report 2008 43

AUSTRAC Typologies and Case Studies Report 2008 Case studies Banking (ADIs) - Money transfer (remittance) Case 23 Russian bride scam A law enforcement agency investigated a scam affecting Australian customers who were choosing Russian brides from images posted on dating websites and contacting them via email. The resulting email conversation usually entailed the Russian brides asking for an up-front payment for a plane ticket to Australia so they could meet face-to-face, or alleging they were suffering a bad financial situation, life crisis or similar and requesting financial assistance. The amounts of money requested varied from AUD200 to AUD30,000. Once the facilitators of the scam received as much money as possible from the customers, they cut off all contact with the Australian victims and removed the images from the website. AUSTRAC data revealed substantial amounts of money being remitted overseas, mostly to Bulgaria, Ukraine, Romania, Russia and Hungary. The overseas beneficiaries of the funds were linked to the perpetrators of the scam, who were based in Queensland. The network used internet-based payment systems to process credit card transactions and allow the network to receive funds from subscribers. These transactions were conducted by making a payment to the company which then forwarded the funds to a nominated beneficiary customer, usually the scam operator. Designated service Fraud Individual Banking (ADIs) Money transfer (remittance) Electronic (internet) International Bulgaria, Ukraine, Romania, Russia, Hungary Designated remittance arrangement Electronic funds transfer Company using a remittance service to transfer funds Large, high volume transactions are made through a remitter Use of credit card internet transactions Use of internet-based payment facilities 44 AUSTRAC typologies and case studies report 2008

AUSTRAC Typologies and Case Studies Report 2008 Case studies Banking (ADIs) - Money transfer (remittance) Case 24 Wire transfers structured to import ice A courier who was used to import drugs into Australia was arrested by law enforcement officers, sparking a wider law enforcement investigation. The investigation established that a member of a crime syndicate in Australia was sending wire transfers to the drug courier overseas. These wire transfers were made through a money remitter and three different banks, and were alleged to have been directly related to the purchase of drugs. The wire transfers were all in amounts just below AUD10,000. The banks used were all in the same suburb and the ordering customers were relatives of the main individual involved in the drug importation. The transactions were sent to an account in Malaysia belonging to the same individual. Further wire transfers were sent by the syndicate members in amounts less than AUD1,000. To date, the resulting law enforcement investigation has led to one person being convicted of importing methylamphetamine ( ice ) and sentenced to six-and-a-half years imprisonment. Designated service Drug importation Individual Banking (ADIs) Money transfer (remittance) Electronic International Malaysia Accounts Designated remittance arrangement Electronic funds transfer Structured wire transfers Money sent from multiple remitters in the same geographical location Third parties sending wire transfers AUSTRAC typologies and case studies report 2008 45

AUSTRAC Typologies and Case Studies Report 2008 Case studies Banking (ADIs) - Money transfer (remittance) - Professional services Case 25 Accountant assisted in drug importation and money laundering Law enforcement launched an investigation into allegations that a Colombian-based syndicate was involved in the regular importation of commercial quantities of cocaine into Australia. The proceeds of the sale of the drugs were allegedly repatriated back to the United States (US) and laundered through the black market peso exchange. Inquiries conducted within the US and Australia indicated that the offenders had purchased a debt owed to the Colombian-based syndicate in exchange for cash received in Australia. It is suspected that the offenders made payments to a member of the syndicate in Colombia, before travelling to Australia to receive the cash. Investigations established that the syndicate enlisted the services of an accountant/financial advisor to assist with the laundering process. Money was laundered via a foreign exchange company which remitted funds to various bank accounts overseas. Once the foreign exchange company and the syndicate had agreed on the rate to exchange Australian dollars into United States dollars, a member of the syndicate deposited cash into accounts held by the foreign exchange company at various inner-city banks. The syndicate had arranged for the foreign exchange company to remit these funds to overseas bank accounts as soon as they were deposited. The syndicate had also opened a safe deposit box at a bank, where they stored approximately AUD800,000 in cash. As a result of the law enforcement operation, three members of the syndicate were arrested in Australia in possession of approximately AUD2.6 million in cash. The three were charged with money laundering under section 400.3 of the Criminal Code Act 1995. One of the members has now been convicted of this offence. Designated service Drug importation Money laundering Individual Banking (ADIs) Money transfer (remittance) Professional services Physical Electronic International US, Colombia Custodial or depository service Foreign exchange services Accounts Designated remittance arrangement Multiple deposits made in the same geographical location Use of gatekeepers (accountant) Use of safety deposit boxes Multiple wire transfers involving a high risk drug country 46 AUSTRAC typologies and case studies report 2008

AUSTRAC Typologies and Case Studies Report 2008 Case studies Banking (ADIs) - Money transfer (remittance) - Professional services AUSTRAC typologies and case studies report 2008 47

AUSTRAC Typologies and Case Studies Report 2008 Case studies Banking (ADIs) - Motor vehicles - Real estate Case 26 High-value assets purchased to conceal illicit drug profits Approximately 60 bank deposits of amounts less than AUD10,000 were deposited into an individual s account within a four-month period, totalling AUD550,000. Money was also deposited at a credit union. Following this series of structured deposits into the accounts, the individual in question purchased three real estate properties with bank cheques, and a high-value motor vehicle with AUD66,900 cash. It is not known how the significant amount of cash required to pay for the car was delivered to the motor vehicle dealer, but it was withdrawn from a bank account and paid to the dealer in two instalments. A law enforcement investigation commenced and the suspect was eventually charged with supplying prohibited drugs and money laundering offences, and approximately AUD1.5 million worth of assets have been restrained. Designated service Drug trafficking Money laundering Individual Banking (ADIs) Motor vehicles Real estate Physical Domestic Accounts Money on deposit Cash purchases of high-value assets (motor vehicle, real estate) Structured deposits clustered over a period of time Use of bank cheques 48 AUSTRAC typologies and case studies report 2008

AUSTRAC Typologies and Case Studies Report 2008 Case studies Banking (ADIs) - Motor vehicles - Real estate POI person/s of interest AUSTRAC typologies and case studies report 2008 49

AUSTRAC Typologies and Case Studies Report 2008 Case studies Banking (ADIs) - Professional services Case 27 Accountant used tax haven country in offshore scheme An Australian accountant became the subject of an audit after it was identified that a number of entities situated in a tax haven country had been transferring money to an account linked to the accountant. Auditors discovered that the accountant had enlisted high net worth clients to participate in an offshore scheme. The scheme involved the creation of false invoices for overseas expenses which were purportedly incurred in setting up an offshore business. These invoices were then used to support claims for tax deductions and losses claimed in tax returns. The accountant received a fee for the scheme and the money sent overseas was returned to the clients as fictitious loans. As a result approximately AUD895,000 in tax and penalties were raised. Designated service Tax evasion Business Individual Banking (ADIs) Professional services Electronic International Accounts Electronic funds transfer False invoicing Wire transfers involving an offshore tax haven 8 1 8 The Australian Tax Office maintains a list of jurisdictions it currently considers to be tax havens. This list is available on the Tax Office website at www.ato.gov.au, and continues to be reviewed and updated as circumstances change. 50 AUSTRAC typologies and case studies report 2008

AUSTRAC Typologies and Case Studies Report 2008 Case studies Banking (ADIs) - Securities and derivatives Case 28 Company director misused family trust An Australian publicly listed company and one of its directors came to the notice of auditors during a taxation audit of another taxpayer. Information identified a very large IFTI relating to the sale of shares in the Australian company by a British Virgin Islands (BVI) company. The BVI company had subsequently transferred large sums of money back to a family trust in Australia. Further financial analysis identified an additional large wire transfer from another BVI entity to purchase shares in a private company controlled by the taxpayer. The trust and the individuals involved had not lodged tax returns for a number of years. As a result approximately AUD2.8 million in tax and penalties were raised. Designated service Tax evasion Business Individual Banking (ADIs) Securities and derivatives Electronic International British Virgin Islands Deals in securities markets Electronic funds transfer Trust accounts Wire transfers involving an offshore tax haven 9 1 9 The Australian Tax Office maintains a list of jurisdictions it currently considers to be tax havens. This list is available on the Tax Office website at www.ato.gov.au, and continues to be reviewed and updated as circumstances change. AUSTRAC typologies and case studies report 2008 51

AUSTRAC Typologies and Case Studies Report 2008 Case studies Bullion Case 29 Bullion purchased with cash An investigation into money laundering and structuring offences was initiated by a SUSTR received by AUSTRAC and subsequently forwarded to a law enforcement agency. The primary suspect of the investigation was engaged in the purchase of approximately AUD180,000 worth of silver, using cash in amounts under AUD10,000. The individual had also employed five other people to purchase silver in structured amounts on his behalf. Designated service Money laundering Structuring Individual Bullion Physical Agent/third party Domestic Bullion trading Cash purchases of bullion Structuring of transactions Use of third parties to conduct transactions 52 AUSTRAC typologies and case studies report 2008

AUSTRAC Typologies and Case Studies Report 2008 Case studies Bullion - Money transfer (remittance) Case 30 Funds remitted overseas to launder the proceeds of crime Information was received by a law enforcement agency indicating that between AUD50 million and AUD60 million was laundered by a money exchange business in Sydney. A joint taskforce investigation commenced examining the activities of the operators and directors of this business. The money exchange business was operating an underground banking system which received a large number of orders from associates in South-East Asia via telephone, facsimile, SMS and email. Typically, these orders instructed the money exchange business to deposit money into an Australian bank account. The orders included the bank account number, an account holder s name, a banking branch or financial institution, an amount of Australian currency to be deposited and an exchange rate. If the requested deposit exceeded AUD10,000 it was made as two or more structured deposits to avoid the significant cash transaction reporting threshold. At least one source of the cash for these deposits came from a person who was arrested and charged in relation to the seizure of over 27 kilograms of ecstasy. The investigation revealed that other sources of cash for the money exchange business included owners and operators of a number of wholesale and retail jewellery businesses. When questioned about these transactions, the business owners and operators provided evasive and untruthful answers about their dealings with the money exchange business. In addition to the jewellery operations in Australia, another business operating in South-East Asia used the remitted funds to purchase precious stones. Designated service Money laundering Individual Business Bullion Money transfer (remittance) Electronic International South-East Asia Foreign exchange services Bullion trading Designated remittance arrangement Cash purchase of high-value assets (jewellery) Foreign exchange involved in the provision of services, inconsistently with usual business activity Structured deposits AUSTRAC typologies and case studies report 2008 53

AUSTRAC Typologies and Case Studies Report 2008 Case studies Foreign exchange - Gambling Case 31 Company directors purchased cash through foreign exchange dealers An investigation was held into a company allegedly diverting its duty-free exports (mainly cigarettes) to the domestic market. The company was trying to legitimise this activity by creating fictitious sales to ships crews. Inquiries established that the invoices made out to the crews had been forged. Therefore, excise duty and (GST) had not been paid. The goods had actually been sold in Australia and the profits had not been declared. AUSTRAC information revealed that the directors of the company were continually purchasing significant amounts (approximately AUD3 million) of foreign currency. This was mainly in United States dollars (USD) purchased from foreign exchange dealers across a variety of suburban bank branches. There were multiple SUSTRs submitted to AUSTRAC concerning this activity, detailing either that the purchasers had refused to sign a significant cash transaction report (SCTR) form in relation to the transaction, or that the value of the USD bought was below the reporting threshold of AUD10,000. One of the individuals concerned, a director of the company, had an extensive gambling history and had transferred substantial funds to Asia. The resulting investigation into the company led to the issuing of tax and penalties in excess of AUD2.5 million. Designated service Excise evasion Business Foreign exchange Gambling Physical Domestic Electronic funds transfer Foreign exchange services Client has a known or suspected gambling history Company begins transferring funds offshore, inconsistently with its established business pattern Large foreign exchange transactions paid for in cash Refusal to complete required documentation Transactions across multiple foreign exchange outlets in the same geographical location United States dollars purchased in multiple structured amounts 54 AUSTRAC typologies and case studies report 2008

AUSTRAC Typologies and Case Studies Report 2008 Case studies Foreign exchange - Motor vehicles Case 32 High denomination notes used for drug importation AUSTRAC provided law enforcement officers with information which was used to identify persons, their aliases and their associates involved in large-scale drug importation and distribution. AUSTRAC assisted in identifying money laundering methods used by the offenders The offenders purchased euro notes in amounts of EUR500 from a money exchange. It is believed these notes were purchased because they were less bulky when being carried out of Australia by the offenders. In excess of AUD2 million has been identified as being purchased with a view to being carried out of the country over two years by the offenders. The euros were destined for countries in South-East Asia. The offenders also laundered their illicit funds by purchasing luxury motor vehicles. Financial information identified that a number of persons were purchasing high-value bank cheques for cash, with the cheques payable to the owner of the car dealership. It was ascertained that one offender had been involved in substantial money laundering totalling AUD19 million between 2005 and 2007. Inquiries further revealed that the principals of the car dealership company were involved in money laundering through the exchange of cash for cheques on payment of a commission. A number of favoured clients paid for luxury cars in cash. Details of vehicle ownership were also concealed to avoid paying luxury vehicle tax. Designated service Drug importation Money laundering Individual Foreign exchange Motor vehicles Physical (face-to-face) International South-East Asia Foreign exchange services This case study also details the couriering of cash Cash purchase of bank cheques Cash purchase of high-value assets (motor vehicles) Cash purchases of high denomination euro notes AUSTRAC typologies and case studies report 2008 55

AUSTRAC Typologies and Case Studies Report 2008 Case studies Gambling Case 33 Online betting used for money laundering An online money laundering syndicate actively sought customers by approaching criminal networks and offering to launder their money. The syndicate involved a number of individuals who used a licensed betting company as a front to accept racing, sporting and entertainment bets by telephone and internet. The betting company s website contained a stepby-step guide to mobile betting, which explained that a link to a mobile betting application could be sent to the customer s mobile phone by submitting their phone number to the website. The members transferred their funds via charge cards, credit cards and mobile phone payments to a related company, which was based in the Pacific islands to avoid detection by AUSTRAC. The related company then used wire transfers to transfer the funds back to the betting company back in Australia. AUSTRAC analysis identified four individuals who made multiple funds transfers from various countries, as well as significant cash deposits and withdrawals in an attempt to launder illicit funds. One of the offenders involved in the syndicate sent over AUD337,000 overseas and received international funds transfer instructions (IFTIs) totalling over AUD66,000. Designated service Money laundering Business Gambling Electronic (internet) International Pacific islands Gambling services Electronic funds transfer Related company is based in offshore jurisdiction Transfer of funds between related companies for non-operational reasons Use of a front company 56 AUSTRAC typologies and case studies report 2008

AUSTRAC Typologies and Case Studies Report 2008 Case studies Gambling AUSTRAC typologies and case studies report 2008 57

AUSTRAC Typologies and Case Studies Report 2008 Case studies Gambling - Non-bank financial services Case 34 Superannuation fund misused for criminal activity An individual established a self managed superannuation fund. As trustee, he withdrew money from the fund on the pretext of using it for investment purposes. The money, however, was used to support his gambling habit. The individual in question had intended to repay the borrowed funds with a portion of the winnings, but failed to do so. This example illustrates the potential for superannuation funds to be used for fraudulent purposes or as a pool of funds for further criminal activity. Designated service Superannuation fraud Business Gambling Non-bank financial services Individual Domestic Gambling services Insurance and superannuation services Funds withdrawn from superannuation fund for activities not consistent with established commercial activity 58 AUSTRAC typologies and case studies report 2008

AUSTRAC Typologies and Case Studies Report 2008 Case studies Money transfer (remittance) Case 35 Multiple wire transfers used for drug importation Law enforcement officers investigated a criminal syndicate allegedly involved in the importation of narcotics. Inquiries revealed that the syndicate was sending numerous wire transfers to entities located in a South American country. The activity involved multiple transfers in amounts under AUD10,000 sent by a small group of individuals to another small group of beneficiaries based in South America. Numerous transfers were conducted on the same day by the same person, via various inner-city money remittance outlets. Investigators identified approximately AUD75,000 that was sent in amounts under AUD10,000. Based on the financial activity and the location of the beneficiaries, it was suspected that the funds transfers were drug related. A joint law enforcement agency investigation resulted in the seizure of a quantity of drugs, drug processing equipment and a large sum of cash. As a result of the investigation, numerous syndicate members were arrested. Designated service Drug importation Individual Money transfer (remittance) Electronic International South America Designated remittance arrangement Money sent from multiple remitters by the same person in the same geographical location Multiple wire transfers involving a high risk drug country Structuring wire transfers Transactions occurring in a cluster made by the same person AUSTRAC typologies and case studies report 2008 59

AUSTRAC Typologies and Case Studies Report 2008 Case studies Money transfer (remittance) Case 36 Steroids purchased with low-value wire transfers A law enforcement agency intercepted vials of steroids being imported into Australia. As investigations progressed it was established that a suspect had purchased the product from abroad and paid for it via small international transfers. The purchase was facilitated through the use of multiple outgoing international funds transfers in amounts of approximately AUD230 directed to Serbia and Montenegro. The transactions were undertaken via money remittance outlets. The offender was arrested and convicted; however, no jail sentence was imposed. Designated service Drug importation Individual Money transfer (remittance) Electronic International Serbia, Montenegro Designated remittance arrangement Multiple low-value wire transfers Use of multiple remittance service providers 60 AUSTRAC typologies and case studies report 2008

AUSTRAC Typologies and Case Studies Report 2008 Case studies Money transfer (remittance) - Stored value cards Case 37 Stored value cards used for money laundering A group of persons were identified purchasing United States dollar stored value cards from a money remitter in Australia with initial cash payments of between AUD8,000 to AUD9,700. Over the following weeks they returned with further cash to top up the credit on the cards, up to the limit of AUD25,000. The regularity of the activity through the same location raised suspicion with the money remitter, and the remitter submitted SUSTRs to AUSTRAC detailing the suspicious activities. Designated service Money laundering Individual Money transfer (remittance) Stored value cards Physical (face-to-face) Domestic Payment orders and stored value cards Designated remittance arrangement Cash payments used to top up cards Large amounts of funds placed on stored value cards Purchase of stored value cards in cash amounts just under reporting threshold Regular loading of value onto stored value cards in the same location within a short timeframe and/or in structured amounts AUSTRAC typologies and case studies report 2008 61

AUSTRAC Typologies and Case Studies Report 2008 Case studies Money transfer (remittance) - Motor vehicles - Real estate Case 38 Crime syndicate used money remitter to import drugs A criminal syndicate s financial activity came to the attention of AUSTRAC after the syndicate members were found to have sent wire transfers to Eastern Europe and the United States in structured amounts under AUD10,000. These transactions were initially conducted through a money remitter in 2005. The transactions were conducted within a short time period, generally in similar amounts, and the total of the transfers amounted to approximately AUD80,000. Although the composition of the remitter group sometimes changed, there were always sufficiently similar transaction elements to enable law enforcement to keep abreast of the activity. In 2006 the size of the transactions being sent to Eastern Europe increased substantially with monthly amounts ranging from AUD200,000 to AUD550,000, comprised of multiple transactions each day conducted by a number of ordering customers. The transactions were generally conducted in amounts equivalent to USD10,000, at different locations in adjacent suburbs. Law enforcement officers in Australia intercepted an importation of cocaine from the United States, allegedly imported by an Eastern European crime syndicate. The joint law enforcement operation resulted in the arrest of two individuals in relation to conspiracy to import cocaine. The proceeds generated from previous drug importations were suspected to have been integrated back into the financial system through the purchase of significant assets including motor vehicles, residential properties and property developments. Designated service Drug importation Individual Money transfer (remittance) Motor vehicles Real estate Electronic International United States, Eastern Europe Designated remittance arrangement International transfers occur in clusters through remitters Structured wire transfers Transactions across multiple reporting entities in adjacent geographical locations 62 AUSTRAC typologies and case studies report 2008

AUSTRAC Typologies and Case Studies Report 2008 Case studies Money transfer (remittance) - Motor vehicles - Real estate AUSTRAC typologies and case studies report 2008 63

AUSTRAC Typologies and Case Studies Report 2008 Case studies Money transfer (remittance) - Travel products Case 39 Non-compliant remittance dealer laundered money for drug trafficking Investigators identified that a remittance dealer, non-compliant with its obligations under the FTR Act and AML/CTF Act, was laundering proceeds for a drug trafficker. The remittance dealer was accepting large cash deposits in excess of the AUD10,000 reporting threshold and exchanging the cash for American Express traveller s cheques in amounts over AUD10,000. The traveller s cheques were initially issued without being signed. Carbon copies of the sales receipts for the traveller s cheques were completed using false names and non-existent addresses. Documents obtained from subsequent search warrants revealed that the remittance dealer had received several large cash deposits. These deposits had been broken down into smaller amounts when recorded on the company s paperwork in an effort to avoid the requirement to submit a SCTR to AUSTRAC. Inquiries revealed that the drug trafficker entered into an arrangement with the director of the remittance service to deposit large sums of cash in a manner designed to avoid detection. Prosecutions were launched against the remittance dealer under section 31 of the FTR Act. The remittance dealer was subsequently convicted and ordered to pay fines of AUD90,000 for structuring offences and a further AUD10,000 for failing to report to AUSTRAC, while the director of the remittance dealership was sentenced to 14 months in prison. Designated service Money laundering Structuring Business Money transfer (remittance) Travel products Physical (face-to-face) Domestic Designated remittance arrangement Large cash purchases of traveller s cheques Regular large cash deposits 64 AUSTRAC typologies and case studies report 2008

AUSTRAC Typologies and Case Studies Report 2008 Case studies Professional services - Real estate Case 40 Real estate purchased in false name A law enforcement agency investigated a matter involving a drug offender growing a large crop of cannabis on a property. When the individual was arrested for this offence, it was established that the person had purchased the block of land under a false name. Under the provisions of chapter 3 of the Criminal Proceeds Confiscation Act 2002, if the offender had effective control of the land and used that land to produce dangerous drugs, the property was liable for forfeiture. Initial inquiries revealed the property was registered as being owned by a different person. Further inquiries made with another government department revealed the registered owner of the land had the same first names as the offender, but a different surname. The registered land owner s recorded date of birth was also very similar to that of the offender, with the year and month identical, but the day slightly different. It was alleged the offender had purchased the property under a false name, as no identification was required by the real estate agent to sign the contract. It is further suspected the offender took the contract to a solicitor for conveyancing and had the solicitor sign the transfer documents on the offender s behalf. The sale was executed in 2002, but the final payment not made until 2004. The final payment was made via a solicitor. This payment method was written into the contract. Designated service Fraud Drugs Individual Professional services Real estate Agent/third party Domestic This case study does not feature a specific designated service under the AML/CTF Act; however, it has been included to highlight the importance of customer identification, particularly in relation to real estate Unusual payment arrangement included in the terms of contract Use of false name Use of gatekeepers (solicitor) AUSTRAC typologies and case studies report 2008 65

AUSTRAC Typologies and Case Studies Report 2008 Case studies Professional services Case 41 Tax agent defrauded the Commonwealth A tax agent was under investigation as he was believed to have defrauded the Commonwealth over a number of years. The agent was found to have submitted nearly 200 income tax assessments for legitimate clients, resulting in refunds of almost AUD2.5 million. However, many of the assessments included false information submitted without the knowledge or consent of the legitimate clients. Approximately 50 unsuspecting clients were involved in the fraud, which resulted in the Commonwealth paying over AUD800,000 in fraudulent claims. The tax agent had been completing income tax returns for clients, who were then informed of their expected return. What the clients did not realise was that the agent was fraudulently claiming large deductions as part of their returns. The returns were lodged, and the tax refunds made to the agent s trust account. The agent then remitted the legitimate component of the refund to the clients while retaining the fraudulently obtained component. The tax agent was arrested and charged and proceeds of crime orders issued for over AUD1.5 million. Designated service Fraud Individual Professional services Electronic Individual Domestic Trust account Electronic funds transfer Transactions that do not fit the customer profile 66 AUSTRAC typologies and case studies report 2008

AUSTRAC Typologies and Case Studies Report 2008 Case studies Professional services AUSTRAC typologies and case studies report 2008 67

AUSTRAC Typologies and Case Studies Report 2008 Case studies Stored value cards Case 42 False identification used to conduct money laundering An investigation identified an individual as the holder of 12 legitimately issued driver s licences under fictional identities, as well as one licence issued under his real identity. In addition, the individual was identified as being in possession of numerous false identity documents and foreign passports. When the individual was detained by law enforcement officers he was found to be carrying approximately AUD140,000 in cash generated by criminal activities and 46 stored value cards. A search warrant at a storage unit rented in his name located further stored value cards and gift cards. It was alleged the money was being taken to India for the purposes of money laundering. It appears that the individual purchased these cards, which are available over the counter at post offices and service stations in values of AUD50 and AUD100. Markings on some of the cards indicated they were valued at AUD500, which suggested that they were purchased online. Designated service Money laundering Individual Stored value cards Physical (face-to-face) International India Payment orders and stored value cards Cash purchases of stored value cards and gift cards Purchase of multiple stored value cards Use of false identification documentation Use of internet to purchase stored value cards 68 AUSTRAC typologies and case studies report 2008

AUSTRAC Typologies and Case Studies Report 2008 Appendix A Appendix A of potential money laundering/ terrorism financing activity There are numerous indicators which can act as red flags for reporting entities to identify potential ML/TF activity. Although indicators alone are not proof of illicit activity, their existence should encourage further monitoring and examination. In many cases there may be multiple indicators and this should raise a reporting entity s suspicion of potential criminal activity, and influence their response to the situation. AML/CTF officers should include these ML/TF indicators in staff training, and encourage their staff to use these indicators when describing suspicious behaviours for inclusion in suspect transaction or suspicious matter reports. Money launderers and terrorism financiers will continuously look for new techniques to obscure the origins of illicit funds to give the appearance of legitimacy to their activities. AML/CTF officers should continually review their products, services and individual customers to ensure their internal AML/CTF systems and training remain effective. The list below features indicators which appear within the case studies of this report, and should be treated as a non-exhaustive guide. abuse of internet registration systems accounts are open but remain dormant activity is inconsistent with business profile an individual or business client has multiple bank accounts with several institutions, but with no economic rationale for having them assets purchased in a family member s name available credit is maximised in a short space of time with no repayments bank accounts are opened shortly after a customer s arrival in Australia cash notes are second hand, in poor condition or otherwise tainted cash payments used to top up cards cash purchase of bank cheques cash purchase of high-value assets (jewellery, motor vehicles, real estate) cash purchases of bullion cash purchases of high denomination euro notes cash purchases of stored value cards and gift cards cash withdrawals from company accounts children s accounts used to facilitate the purchase of high-value assets client s affairs involve a company incorporated in an offshore jurisdiction client has a known or suspected gambling history company accounts used only to transfer money and do not have corresponding commercial activity company begins transferring funds offshore, inconsistently with its established business pattern company using a remittance service to transfer funds customer is known to be operating multiple accounts daily cash withdrawals false invoicing financial activity inconsistent with the customer profile financial activity occurring in unusual clusters foreign exchange involved in the provision of services, inconsistently with usual business activity funds withdrawn from a superannuation fund for activities not consistent with established commercial activity AUSTRAC typologies and case studies report 2008 69

AUSTRAC Typologies and Case Studies Report 2008 Appendix A immediate transfer of funds following cash deposits incoming wire transfer with a corresponding outgoing wire transfer appears to be a u-turn transaction increase in cash deposits and withdrawals international transfers occur in clusters through remitters international transfers to countries not associated with the established customer profile international wire transfers to countries known to be high risk terrorism financing jurisdictions large amounts of funds placed on stored value cards large cash deposits into accounts large cash deposits into bank accounts on a regular basis large cash deposits into company accounts large cash purchases of traveller s cheques large foreign exchange transactions paid for in cash large, high volume transactions are made through a remitter large unexplained variances in transactional activity money sent from multiple remitters by the same person in the same geographical location movement of funds between bank accounts without commercial rationale multiple bank cheques purchased by different individuals but payable to a common beneficiary multiple cash cheques multiple deposits made in the same geographical location multiple low-value wire transfers multiple wire transfers involving a high risk drug country multiple withdrawals from branches in the same geographical location newly opened accounts have credit cards and other details mailed to post office boxes no repayment or attempted repayment on credit operation of account is inconsistent with its intended purpose payments by large third party cheques endorsed in favour of the customer purchase of stored value cards in cash amounts just under the reporting threshold refusal to complete required documentation regular deposits followed by structured cash withdrawals regular loading of value onto stored value cards in the same location within a short timeframe and/or in structured amounts related company is based in an offshore jurisdiction rent for property is paid well in advance multiple same day transactions significant change to an established financial pattern structured deposits clustered over a period of time 70 AUSTRAC typologies and case studies report 2008

AUSTRAC Typologies and Case Studies Report 2008 Appendix A structured wire transfers structured withdrawals clustered over a period of time third parties sending wire transfers third parties used to create bank accounts transactions across multiple foreign exchange outlets in the same geographical location transactions across multiple reporting entities in adjacent geographical locations transactions conducted in various geographical locations transactions occurring in a cluster made by the same person transactions that do not fit the customer profile transfer of funds between related companies for non-operational reasons transfer of funds into third party accounts unusual payment arrangement included in the terms of contract unusually large transfer of money from an individual to a company United States dollars purchased in multiple structured amounts use of a front company use of bank cheques use of false identification documentation use of false name use of gatekeepers use of internet-based payment facilities use of internet to purchase stored value cards use of multiple accounts use of multiple post office boxes use of multiple remittance service providers use of third party accounts use of credit card internet transactions wire transfers into personal accounts appear to be from company activity 10 wire transfers involving an offshore tax haven 10 The Australian Tax Office maintains a list of jurisdictions it currently considers to be tax havens. This list is available on the Tax Office website at www.ato.gov.au, and continues to be reviewed and updated as circumstances change. AUSTRAC typologies and case studies report 2008 71

AUSTRAC Typologies and Case Studies Report 2008 Appendix B Further information Appendix B Further information on money laundering/ terrorism financing typologies International AML/CTF organisations Financial Action Task Force (FATF) www.fatf-gafi.org Asia/Pacific Group on Money Laundering (APG) www.apgml.org EGMONT Group of Financial Intelligence Units www.egmontgroup.org AUSTRAC links AUSTRAC www.austrac.gov.au AUSTRAC educational resources www.austrac.gov.au/education.html FATF typologies work Each year the FATF holds its global typologies exercise, which includes active participation by the APG and other regional anti-money laundering bodies. From this exercise the FATF publishes an annual typologies report, which includes selected case studies, and considers priority topics in detail. Although the FATF has conducted typologies exercises since its beginning, reports have only been made public since 1996. Details of public FATF reports are listed below, all of which can be accessed via the FATF website. FATF typology reports 2008 Major topics include: money laundering & terrorist financing vulnerabilities of commercial websites and internet payment systems money laundering & terrorist financing risk assessment strategies FATF terrorist financing typologies report. FATF typology reports 2007 Major topics include: money laundering and terrorist financing through the real estate sector laundering the proceeds of Value Added Tax carousel fraud report. FATF typologies report 2006 Major topics include: trade based money laundering report on new payment methods the misuse of corporate vehicles including trust and company service providers. FATF typologies report 2005 Major topics include: alternative remittance systems money laundering vulnerabilities in the insurance sector proceeds from trafficking in human beings and illegal immigration. FATF typologies report 2004 Major topics include: wire transfers and terrorist financing non-profit organisations and links to terrorist financing the vulnerabilities of the insurance sector to money laundering politically exposed persons the role of gatekeepers or non-financial professions in money laundering. FATF typologies report 2003 Major topics include: terrorist financing money laundering through the securities sector the gold and diamond markets insurance and money laundering credit and debit cards and money laundering. FATF typologies report 2002 Major topics include: terrorist financing correspondent banking corruption and private banking bearer securities and other negotiable instruments coordinated money laundering among organised crime groups introduction of euro banknotes suspicious transaction reporting and money laundering cases. 72 AUSTRAC typologies and case studies report 2008

AUSTRAC Typologies and Case Studies Report 2008 Appendix B Further information FATF typologies report 2001 Major topics include: online banking and internet casinos trusts, other non-corporate vehicles and money laundering lawyers/notaries, accountants and other professionals the role of cash versus other payment methods in money laundering schemes terrorist related money laundering. FATF typologies report 2000 Major topics include: online banking distinguishing legitimate banking from money laundering services offered through the internet alternate remittance systems a worldwide view of their role in money laundering company formation agents and their services trade related activities and money laundering. FATF typologies report 1997 Major topics include: attempts to estimate the size of the money laundering problem principal sources of illegal proceeds laundered main money laundering methods detected in the banking, non-bank financial institution and nonfinancial business sectors electronic funds transfers and their vulnerability to money laundering new money laundering counter-measures (legislative, regulatory, etc.) key money laundering trends in non-fatf members. FATF typologies report 1996 Major topics include: money laundering trends involving the insurance and securities industries. FATF typologies report 1999 Major topics include: the single European currency and large denomination banknotes offshore financial centres of non-cooperative countries or territories the role of a foreign legal entity in money laundering new payment technologies potential use of the gold market in money laundering operations. FATF typologies report 1998 Major topics include: new payment technologies present status and potential vulnerabilities to money laundering money remittance businesses and activities (both formal and informal) other observed trends (insurance, money exchange, cross-border movements, the gold market) money laundering and non-financial professions (lawyers, notaries, accountants, company formation agents, real estate agents, sellers of high-value items). AUSTRAC typologies and case studies report 2008 73

AUSTRAC Typologies and Case Studies Report 2008 Subject index Subject index Case study Accountant 20, 25, 27 ATM 3, 7, 10 Bank accounts 2, 3, 4, 10, 11, 12, 17, 18, 19, 21, 25, 26, 30 Bank cheques 3, 26, 32 Banking (ADIs) 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25, 26, 27, 28 Cash deposits 2, 7, 9, 11, 12, 16, 19, 20, 21, 25, 26, 33, 39 Cash withdrawals 3, 6, 8, 11, 12, 16, 20, 33 Charities 4 Cheques 3, 4, 6, 12, 20, 26, 32, 39 Cocaine 19, 25, 38 Company director 22, 28, 30, 31, 39 Credit cards 1, 3, 4, 7, 10, 23, 33 Drugs 2, 8, 14, 19, 24, 25, 26, 32, 35, 36, 38, 39, 40 Ecstasy 30 False identification 1, 3, 14, 21, 40, 42 Foreign exchange 25, 30, 31, 32 Gambling 2, 31, 33, 34 IFTI 17, 28, 34 Internet-based systems 4, 12, 14, 17, 21, 23, 33, 42 Jewellery/precious stones/ bullion 1, 29, 30 Loans 1, 3, 13, 27 Methylamphetamine (ice) 2, 24 74 AUSTRAC typologies and case studies report 2008

AUSTRAC Typologies and Case Studies Report 2008 Subject index Case study Money exchange 30, 32 Money transfer (remittance) 13, 14, 15, 16, 17, 18, 23, 24, 25, 30, 35, 36, 37, 38, 39 Motor vehicles 2, 13, 17, 19, 26, 32, 38 People smuggling 15 Post office boxes 1, 14 Professional services 20, 25, 27, 40, 41 Real estate 4, 18, 19, 26, 38, 40 Safe deposit boxes 25 SCTR 31, 39 Securities and derivatives 2, 21, 22, 28 Shares 2, 22, 28 Solicitor 40 Stored value cards 37, 42 Structuring 4, 6, 7, 8, 20, 21, 24, 26, 29, 30, 35, 38, 39 Student 1, 5, 9, 17 Superannuation 34 SUSTR 2, 6, 7, 8, 11, 12, 18, 20, 21, 29, 31, 37 Tax agent 12, 40 Tax haven 11, 22, 27, 28 Third parties 2, 3, 4, 14, 18, 24, 29, 40 Traveller s cheques 39 Wire transfers 4, 5, 11, 12, 13, 14, 15, 16, 17, 18, 20, 22, 24, 27, 28, 35, 36, 38 AUSTRAC typologies and case studies report 2008 75

AUSTRAC Typologies and Case Studies Report 2008 Abbreviations Abbreviations ADIs authorised deposit-taking institutions AML/CTF Act Anti-Money Laundering and Counter-Terrorism Financing Act 2006 APG ATM AUD AUSTRAC BAS CFD FATF FTR Asia/Pacific Group on Money Laundering automatic teller machine Australian dollars Australian Transaction Reports and Analysis Centre business activity statement contract for difference the Financial Action Task Force financial transaction report FTR Act Financial Transaction Reports Act 1988 GST IFTI ML/TF POI SCTR SMR SUSTR USD Goods and Services Tax international funds transfer instruction money laundering/terrorism financing person/persons of interest significant cash transaction report suspicious matter report suspect transaction report United States dollars Your feedback is valued AUSTRAC is open to suggestions to help us improve our support to both industry and our partner agencies. If you have any suggestions for improvements to the AUSTRAC Typologies and Case Studies Report 2008, comments related to this topic, or ideas for future topics, please send an email to TYPOLOGIES_&_FEEDBACK@austrac.gov.au 76 AUSTRAC typologies and case studies report 2008

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