Understanding the basics of money laundering

When people hear the phrase money laundering, their minds often jump to TV dramas, suitcases full of cash, or old-school laundromats. The reality, however, is often far less obvious and far more sophisticated. Each year, around $60 billion[1] is laundered through Australia’s financial system, and it’s estimated that globally up to $4 trillion is laundered every year.

These funds usually stem from serious crimes like drug trafficking, corruption, human exploitation, bribery, and fraud. That’s why governments worldwide, including Australia, are tightening laws to stop criminal networks from concealing their profits. Recent changes to the Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) Act now bring more sectors, including real estate, under regulatory obligations.

What Is Money Laundering?

At its core, money laundering is the process of taking illegally-earned money and disguising it so it appears legitimate. Criminals need to do this so they can spend or invest their profits without raising red flags.

Simply depositing $1 million in cash into a bank account would attract immediate scrutiny. Instead, money launderers use a range of financial products, assets, and transactions to create layers of complexity. This can be as straightforward as running funds through a fake business or as intricate as using offshore shell companies and cross-border transfers.

The Three Stages of Laundering

Money laundering typically follows three stages, though methods vary:

1. Placement: the “dirty” money enters the financial system. This could be done by purchasing assets such as property, or by converting cash through currency exchanges.
2. Layering: the funds are moved repeatedly through multiple transactions, often across borders, to obscure their source. Transfers between shell companies, international wire transfers, and fake invoices are common tactics here. The aim is to make the money trail as difficult as possible to follow.
3. Integration: finally, the laundered money re-enters the economy looking clean. At this point, criminals can spend or invest it freely, appearing to have legitimate wealth.

Why Real Estate Professionals Are Targeted

Money launderers rarely act alone. They often exploit professionals such as lawyers, accountants, and real estate agents to move money around.

Real estate in particular is attractive because it allows large sums of money to change hands in a way that appears normal. Property purchases can hide illicit funds, while agents and firms often have the authority and systems in place to facilitate these transactions. The credibility that comes with professional qualifications can also provide a cover of legitimacy, making detection harder.

Australia’s AML/CTF Framework

To combat these risks, Australia’s AML/CTF Act 2006 sets out obligations for industries vulnerable to misuse, including banking, casinos, legal practices, and now real estate.

The Act is risk-based, meaning businesses must assess where they are most exposed to money laundering and put controls in place to minimise those risks. For clients, this often translates to identity verification and, in some cases, providing evidence of the source of funds.

Oversight and enforcement sits with AUSTRAC (Australian Transaction Reports and Analysis Centre), which monitors compliance and investigates suspicious activity.

The Role of Businesses in the Fight Against Laundering

Real estate professionals and other service providers are on the front line of disrupting money laundering. By understanding what it is, how it works, and what your responsibilities are under the AML/CTF framework, you play a key role in preventing criminals from enjoying the profits of exploitation and corruption.

Meeting AML obligations isn’t just about compliance. It’s about protecting your business, your reputation, and ultimately helping to combat crimes such as drug trafficking, bribery, and human trafficking.

Key takeaway for real estate leaders: Awareness is the first step. Understanding how money laundering works and where your business might be exposed empowers you to meet your obligations and protect your industry from being used as a vehicle for criminal activity.

Take a deeper dive

Learn how anti-money laundering laws will impact the real estate sector. Download the free guide here.

References

[1] https://www.homeaffairs.gov.au/about-us/our-portfolios/criminal-justice/anti-money-laundering-and-counter-terrorism-financing#:~:text=The%20Australian%20Institute%20of%20Criminology%20(AIC)%20estimates