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     overview

This note considers money laundering, including the tracking of assets (within and across borders) and recovery action.

The note covers -

• this overview - definitions, key issues and primers
• global - key global and regional agreements and agencies
• Australia - regulation of money laundering in Australia
• regimes - money laundering regimes overseas, including international initiatives
• tracking - controversies and mechanisms regarding tracking funds transfers and assets
• recovery - principle and practice in recovering the proceeds of crime or funds used in terrorism
• war - a perspective from corporate and government asset cloaking and uncloaking in times of war.

The note supplements discussion elsewhere on this site regarding bank secrecy, security, privacy, governance, digital currencies, capital, 100 Points identification regimes and confiscation of publishing royalties under 'proceeds of crime' legislation.

     concepts

What is money laundering? One image, perhaps dominant through crime novels and film noir, involves gangsters seeking to evade prosecution by law enforcement agencies and accordingly forced to lug garbage bags stuffed with cash to venues such as restaurants and laundries that can be used to disguise illicit cash as legitimate commercial revenue.

Another, more recent image involves upmarket bankers using electronic networks to send millions of dollars cascading across borders and hundreds of corporate accounts so that loot from a drug baron or a terrorist is indistinguishable from standard transactions and thus immune from action or even detection by the authorities. We are recurrently asked whether alternative payment schemes such as e-Gold, discussed elsewhere on this site, will enable laundering by criminals or wearers of alfoil beanies.

As the following paragraphs indicate, the scope of 'money laundering' - along with the focus of attention by government agencies, academics and financial institutions - has changed over time.

Attention initially centred on 'dirty money': unlawfully obtained through offences such as drug trafficking, gambling, prostitution and extortion. Money laundering has come to include efforts to evade identification of illicit use of 'clean money', for example terrorists spending money donated to charities and autocrats transferring state revenue to dictator-friendly regimes such as Liechtenstein.

This note accordingly encompasses regulation of individuals and institutions directly or indirectly engaging in transactions that -

• disguise the origins of the proceeds of crime, typically serious crimes
• conceal such proceeds, including their receipt, transfer and disposal
• disguise and/or conceal access to and use of resources by terrorists

It also notes the cloaking, uncloaking and seizure of enemy assets during times of war.

Money laundering is not restricted to cash transactions. It may for example involve real estate, art works, financial securities and other assets. It may include padding payments in international or domestic business dealings.

It is not restricted to one-off deals by members of organised crime groups or those engaged in a crusade against the West. It is clear that some government agencies on occasion have sought (and arguably needed) to disguise the disbursement or receipt of funds, for example in sanctions-busting and in funding covert activity.

It may involve a number of intermediaries, including major financial institutions, accounting groups and law firms.

It may involve 'washing' dirty money by physically transferring cash offshore, mingling it with revenue in a legitimate business operation or even depositing small amounts of cash in each of a large number of bank accounts (sometimes referred to as smurfing). It may instead be wholly digital, with electronic transfers through entities within a particular jurisdiction or across borders.

Unsurprisingly, it has provoked responses from a range of government agencies and industry bodies at the national and international levels. Those agencies include taxation, organised crime specialists, privacy watchdogs and finance sector regulators.

Responses include reporting regimes of increasing comprehensiveness - or merely visibility - such as that under Australia's Financial Transaction Reports Act 1988 (discussed here). They include surveillance of international money flows through cooption of choke points such as SWIFT, a focus of US debate in June 2006. They also include measures to freeze and seize assets, moving from tracking to recovery or denial.

Globalisation means that conceptualisation and regulation of money laundering involves a patchwork of regional, national and international legislation and codes of practice. It also involves substantial exchange of information across borders.

Critics of some measures, such as RT Naylor, have argued that particular responses are predicated on myths (for example questioning claims about 'organised crime' or links between terrorism, drug trafficking and intellectual property abuses). Others have highlighted potential erosion of civil liberties or merely the ineffectiveness of specific initiatives.

     primers

Key literature on laundering, tracking and criminal finance is surprisingly readable, in contrast to much writing about areas such as globalisation and telecommunication regulation.

Works of particular value include Money Laundering: A New International Law Enforcement Model (Cambridge: Cambridge Uni Press 2000) by Guy Stessens, Dirty Money: The Evolution of Money Laundering Counter-Measures (Strasbourg: Council of Europe Press 2005) by William Gilmore, Laundering & Tracing (Oxford: Clarendon Press 1995) by Peter Birks, Confidentiality in Offshore Financial Law (Oxford: Oxford Uni Press 2002) by Rose-Marie Belle Antoine, The Scale and Impacts of Money Laundering (Cheltenham: Elgar 2007) by Brigitte Unger, Countering the Financing of Terrorism (London: Routledge 2008) edited by Thomas Biersteker & Sue Eckert and Responding to Money Laundering: International Perspectives (Amsterdam: Harwood Academic 1997) edited by Ernesto Savona.

Discussions of economics, threats and responses feature in The Economics of Organized Crime (Cambridge: Cambridge Uni Press 1997) by Gianluca Fiorentini & Sam Peltman, Money Laundering and Financial Intermediaries (Boston: Kluwer Law 2001) by Sandeep Savla, Critical Reflections on Transnational Organized Crime, Money Laundering, & Corruption (Toronto: Uni of Toronto Press 2003) by Margaret Beare, the revisionist Wages of Crime: Black Markets, Illegal Finance, & the Underworld Economy (Ithaca: Cornell Uni Press 2002) by RT Naylor and Criminal Prosperity: Drug Trafficking, Money Laundering & Financial Crises After The Cold War (London: RoutledgeCurzon 2003) by Guilhem Fabre.

Other works are highlighted in the following pages of this note, for example Graycar & Grabosky's 1996 study of risks and countermeasures in Australia.

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