The advice to ‘follow the money’ to uncover the trail of beneficiaries in any illicit scheme is a strategy that has been proven to work for law enforcement and investigative authorities.
Of course, roadblocks to its success occur when those doing the investigating also happen to be beneficiaries of the scheme.
In principle it’s a strategy probably better explained and extended by using a quote from the award winning drama series The Wire. In the show, Detective Lester Freamon quietly explains to his colleagues “You follow drugs, you get drug addicts and drug dealers. But you start to follow the money, and you don't know where the f*** it's gonna take you."
Freamon’s scripted words appear quite prophetic with the breaking news that Australia’s biggest bank has been accused of serious and systemic breaches of anti-money laundering laws that could leave it exposed to massive civil penalties if the allegations are proven.
Its still early days with the CBA rejecting the Australian Transactions Reports & Analysis Centre (AUSTRAC) allegations that around 53,700 financial transactions that were required to be reported to it as being from potential money laundering sources had failed to be reported. The alleged breaches involved the use of CBA Intelligent Deposit Machines (IDMs) between 2012 and 2015. This can attract fines of up to $18 million per breach, meaning a total potential fine of around $960 billion.
It will now become extremely hard for the Australian government to continue to balk at setting up a Royal Commission into the banking sector. The re-establishment of the ABCC was premised on the continued corrupt nature of the broader, large scale construction industry. A reasonable person would have to think that the parallels are all too obvious for the financial sector to argue that it should be allowed to continue to sail on without a much greater scrutiny of its business culture and practice.
The irony is that banking and buildings have synergies in this latest financial scandal. Maybe a thorough investigation would even provide postcodes and addresses for the mighty rivers of money that flow from the ‘black’ economy and into our gravity defying property prices and ‘can’t lose’ development sector. Many residential developments of different scales and types around our capital cities would likely be found to operate as very convenient ‘washing machines’ to launder cash reserves of dubious origins.
Money laundering occurs when money is channeled from illegal assets or activities into legal assets such as trust funds or by investing or buying property to "clean" the money. A few weeks ago, the ABC ran a story directly linked to this matter. In the report it was stated that “Australia's hot property market is an attractive haven for criminals, with estimates that billions of dollars of dirty money is being laundered through residential property.”
The story then went on to explain that “Australia's anti-money laundering law does not cover real estate agents, lawyers and accountants, despite promises when the law was enacted in 2006 that the legislation would be widened.”
In the article, the ANZ bank head of financial crime, Guy Boyd said the lack of regulation made Australia a highly attractive target for money launderers.
"I think Australian real estate is obviously an attractive destination for capital, both legitimate and illegitimate," he said.
Federal Justice Minister Michael Keenan chose to defend Australia's anti-money laundering regime by claiming that "We do have very robust arrangements in Australia, including for property, but we are looking at how we can improve those arrangements."
I suggest the Minister now has several billion very good reasons to improve those arrangements.
In a report released over two years ago, the Australian financial crimes regulator, AUSTRAC, made very clear that the laundering of illicit funds via real estate was "an established money laundering method in Australia." At the time, it claimed there was around $1 billion in suspicious transactions from Chinese investors into the Australian property market in 2015-16. The report identified that Australia's housing market had been targeted by money launderers from countries including Papua New Guinea, Malaysia and China.
The latest reporting by ABC’s Peter Ryan highlighted that up to $8.9 billion was deposited through CBA's network of IDMs before the bank conducted any money laundering risk assessment of those funds. The IDM network and system appears to have effectively facilitated the transition of ‘dirty’ cash reserves of unknown origins into reputable account holdings which can then be disguised by transferring or drawing down for legitimate investment purposes.
IDMs can accept up to 200 notes per deposit, or up to $20,000 per cash transaction, with no limit to the number of transactions made per day.
"Suspected money laundering was conducted through CommBank accounts by way of cash deposits, many through IDMs, followed immediately by international and domestic transfers," AUSTRAC alleged.
CBA stands accused of failing to have reported cash transactions of $10,000 or more made through intelligent deposit machines to AUSTRAC in time for assessment as is required by anti-money laundering laws. The transactions in question had a total value of around $624.7 million.
As with any ‘discovery’ of this type, the likelihood is that this remains just the tip of the iceberg.
Are we really that oblivious as to why the median house price in Sydney has climbed and will continue to climb north of $1 million and why rent on an average apartment is closer to $1,000 per week than $500? And all at a time of record low wages growth. Forget the nonsense from vested industry groups such as the real estate and development lobbyists and their government nodding donkeys about prices being driven relentlessly upward by ‘supply’ constraints so the solution is to build more supply. Forget about the Reserve Bank trying to quell the amount of investor loans. And the banking sector simply has no reputational credibility as has been repeatedly shown on many occasions. They are merely businesses seeking to do more business than they did in the previous fiscal year and to do more business than their competitors.
Our property markets appear so skewed to the impacts of large scale money laundering that it cannot be ignored anymore. If you are a millennial or a young family who despairs of their chances of ever owning a home, then you need to get active and start asking some serious questions of our federal government. Forget about the state governments and their ersatz offers to first home buyers. They have become so hooked on their rivers of gold that flow into their treasuries from stamp duties on property transactions they are tacitly involved as one of the main beneficiaries. It won’t happen but we can dream that the terms of reference for any Royal Commission would be to follow the money.
If this happens, the Australian building construction and property industry sector best be prepared for the consequences to be found within the title of another award winning drama series: House of Cards.