Financial Crime

Financial crime is a broad term covering crimes involving money, financial systems, or economic activity. It includes money laundering, fraud, corruption, tax evasion, embezzlement, and terrorism financing.

Financial crime costs Australia billions annually. It funds organized crime, undermines economic integrity, and harms innocent victims. Fighting it requires coordinated efforts from law enforcement, regulators, and businesses.

That's where AML/CTF compliance comes in. By implementing customer due diligence, transaction monitoring, and suspicious matter reporting, businesses become the first line of defense against financial crime.

What Is Financial Crime?

Financial crime encompasses any illegal act involving financial systems or economic transactions. The goal is usually financial gain, but motivations vary.

Major categories of financial crime:

1. Money Laundering

Disguising illegally obtained funds as legitimate. Criminals use complex transactions to obscure the source of money from drug trafficking, fraud, corruption, and other crimes.

Example: Drug cartel launders proceeds through shell companies, real estate purchases, and offshore accounts until the money appears legitimate.

2. Fraud

Intentional deception for financial gain. Types include:

• Investment fraud: Ponzi schemes, fraudulent securities, fake investment opportunities
• Identity fraud: Using stolen identities to open accounts, obtain credit, or conduct transactions
• Corporate fraud: False financial statements, insider trading, accounting fraud
• Payment fraud: Credit card fraud, check fraud, wire fraud
• Cybercrime: Hacking, phishing, ransomware

Example: Scammer impersonates a bank, tricks victims into revealing account details, transfers their money overseas.

3. Corruption and Bribery

Offering, giving, receiving, or soliciting something of value to influence decisions or actions.

• Government corruption: Officials accepting bribes for contracts, permits, favorable regulations
• Corporate corruption: Bribing officials to win business, avoid regulations, or secure advantages
• Foreign corruption: Bribing foreign officials (illegal under most countries' laws, including Australia's)

Example: Construction company bribes government official to win infrastructure contract. Official approves inflated contract. Company and official share illicit proceeds.

4. Tax Evasion

Illegally avoiding taxes through false reporting, hiding income, or offshore accounts.

• Unreported income from cash businesses
• Offshore tax havens
• False deductions and expenses
• Fake invoices and receipts

Example: Business owner operates two sets of books. One shows real revenue (kept hidden). Other shows lower revenue (reported to tax authority). Owner evades taxes on the difference.

5. Terrorism Financing

Providing funds or financial support to terrorist organizations or activities. Unlike money laundering (which hides illegal origins), terrorism financing can involve legitimate funds used for illegal purposes.

• Direct funding of terrorist operations
• Donations to front organizations
• Misuse of charities
• Self-funded terrorism (individuals using personal funds)

Example: Individual radicalizes online, uses savings or loan to fund a planned attack. Funds are legitimate in origin but purpose is terrorism.

6. Embezzlement

Theft or misappropriation of funds by someone entrusted with them.

• Employees stealing from employers
• Trustees misusing trust funds
• Financial advisors stealing client money
• Executives siphoning company funds

Example: Accountant with signing authority transfers company funds to personal accounts over months, hiding the theft with false accounting entries.

7. Cybercrime

Crimes involving computers, networks, or digital systems. Financial cybercrimes include:

• Ransomware: Encrypting victim data, demanding payment for release
• Business Email Compromise: Impersonating executives to authorize fraudulent transfers
• Phishing: Fake emails/websites to steal credentials
• Cryptojacking: Hijacking computing power to mine cryptocurrency

Example: Criminals hack into company email, impersonate CEO, email finance team requesting urgent wire transfer to "supplier." Finance team complies. Money disappears.

8. Human Trafficking and Smuggling

Exploiting people for forced labor, sexual exploitation, or illegal migration. Financial crimes include:

• Payment for smuggling services
• Laundering profits from exploitation
• Debt bondage (forcing victims to repay inflated "transport costs")

Example: Trafficking network smuggles people across borders, forces them into labor, launders profits through legitimate businesses.

9. Drug Trafficking

Manufacturing, distributing, and selling illegal drugs. The financial crimes involve:

• Laundering drug sale proceeds
• Using cash businesses to hide revenue
• Funding drug operations through financial systems

Example: Drug cartel generates millions in cash from sales. They use money remitters, casinos, and shell companies to launder proceeds into legitimate-looking investments.

The Scale of Financial Crime

Globally: Financial crime costs an estimated $1.6-2.1 trillion annually (UNODC estimate). That's 2-5% of global GDP.

In Australia: Estimates vary, but financial crime costs Australian economy billions annually in direct losses plus enforcement costs, regulatory costs, and economic distortion.

Notable Australian cases:

• Commonwealth Bank: $700 million penalty for AML breaches
• Westpac: $1.3 billion penalty for failing to report transactions, including child exploitation risks
• Crown Resorts: $450 million penalty for AML failures allowing money laundering

These penalties demonstrate the scale of financial crime and the consequences of failing to prevent it.

Why Financial Crime Matters

It Funds Serious Crime

Financial crime isn't victimless. Money laundered through financial systems funds drug trafficking, human trafficking, terrorism, and organized crime. Disrupting financial crime disrupts these activities.

It Harms Victims

Fraud victims lose savings. Identity theft ruins credit. Investment scams destroy retirement funds. Corruption denies fair competition. The human cost is massive.

It Undermines Economic Integrity

Financial crime distorts markets. Corrupt officials award contracts to highest bidder (in bribes, not merit). Criminals with laundered funds outbid legitimate businesses for property. Tax evasion shifts burden to honest taxpayers.

It Erodes Trust in Financial Systems

When banks, lawyers, accountants, and real estate agents facilitate financial crime (even unknowingly), public trust erodes. Strong AML systems rebuild that trust.

Detecting Financial Crime: AML/CTF Measures

Businesses detect financial crime through:

Customer Due Diligence (CDD)

• Verify customer identity
• Understand their business and source of wealth
• Assess ML/TF risk
• Screen for PEPs and sanctions
• Identify beneficial owners

CDD catches identity fraud, fake companies, and suspicious customers at the door.

Transaction Monitoring

• Monitor for unusual transaction patterns
• Detect structuring (breaking large amounts into smaller transactions)
• Flag rapid movement of funds (layering)
• Identify transactions inconsistent with customer profile

Transaction monitoring catches money laundering and fraud in progress.

Suspicious Matter Reports (SMRs)

• Report suspicious activity to AUSTRAC
• Provide financial intelligence for investigations
• Enable law enforcement to detect and prosecute financial crime

SMRs are how businesses communicate suspicions to authorities.

Source of Funds Verification

• Verify where money came from
• Request documentation proving legitimate origins
• Escalate when explanations don't make sense

Source of funds verification exposes unexplained wealth and laundered proceeds.

Enhanced Due Diligence (ECDD)

• Apply extra scrutiny to high-risk customers
• Require senior management approval
• Conduct more frequent reviews
• Monitor more closely

ECDD manages higher-risk relationships without refusing legitimate customers.

Law Enforcement and Financial Crime

Fighting financial crime requires coordination between multiple agencies:

AUSTRAC: Financial intelligence unit. Collects SMRs, TTRs, and other reports. Analyzes financial data. Provides intelligence to law enforcement.

Australian Federal Police (AFP): Investigates serious financial crimes including money laundering, terrorism financing, cybercrime, and transnational crime.

State/Territory Police: Investigate financial crimes within their jurisdictions.

ASIC: Regulates financial services and investigates corporate fraud, market manipulation, and misleading conduct.

ATO: Investigates tax evasion and related financial crimes.

ACCC: Investigates consumer fraud and anti-competitive behavior.

ACIC: Australian Criminal Intelligence Commission. Coordinates national responses to organized crime.

These agencies share intelligence and collaborate on investigations. Businesses contribute through SMRs and responding to information requests.

Financial Crime and Tranche 2

From July 2026, lawyers, accountants, and real estate agents join the fight against financial crime. Why?

Because criminals use these professions to facilitate financial crime:

Lawyers: Misuse trust accounts for layering. Facilitate suspicious real estate transactions. Establish complex structures to hide beneficial ownership.

Accountants: Create shell companies for money laundering. Provide legitimacy to fraudulent schemes. Help hide assets and income from authorities.

Real estate agents: Facilitate property purchases with laundered funds. Enable criminals to convert cash into assets.

Most professionals aren't complicit. But they're targeted by criminals because their services can facilitate financial crime. Tranche 2 obligations help them identify and disrupt it.

Penalties for Facilitating Financial Crime

Failing to detect or report financial crime has consequences:

AML/CTF breaches: Up to $22.2 million per breach for corporations, $4.44 million for individuals.

Criminal prosecution: Knowingly facilitating financial crime can result in money laundering charges (up to 25 years imprisonment depending on amount).

Professional consequences: Loss of license, reputational damage, civil liability to victims.

Compliance isn't just regulatory box-ticking. It's criminal liability avoidance.

The Bottom Line

Financial crime encompasses money laundering, fraud, corruption, tax evasion, terrorism financing, embezzlement, cybercrime, and more. It costs billions annually and funds serious criminal activity.

Businesses fight financial crime through AML/CTF compliance: customer due diligence, transaction monitoring, suspicious matter reporting, source of funds verification, and enhanced due diligence.

From July 2026, Tranche 2 entities (lawyers, accountants, real estate agents) join this effort. Because financial crime prevention requires everyone in the financial system—not just banks—to identify and disrupt criminal activity.

Your compliance measures aren't bureaucracy. They're crime prevention. And they work.