Recent sanctions against Russia, Queensland Alumina Limited’s clash with Russian aluminium producer, Rusal, in the Federal Court of Australia, and seizures of Russian oligarch’s assets such as superyachts and luxury villas, are likely to further encourage wealthy parties with Russian assets to mask their sources and attempt to shift them to ‘safe’ foreign jurisdictions.
Players routing money or other assets via or to an ultimate destination in Australia will confront our tough anti-money laundering and counter-terrorism financing legislation ( AML ) and some of the most effective enforcement agencies in the world.
But the complex and secretive webs used by active players are also potential traps for innocent actors because enforcement agencies can take civil, and criminal action, even where a party is unaware that the funds, assets and/or transaction/s passing through their network emanate from unlawful sources.
To understand how sanction laws can affect even innocent actors involved in shifting money, and other assets between jurisdictions, it is first necessary to understand the basic AML framework in Australia.
Trade-based money laundering
The global value of international trade was nearly 28 trillion USD in 2021. 1
Modern technology and electronic banking enable instantaneous daily transfers of billions of dollars in trade funds around the world. The global logistics network allows assets such as luxury cars, artwork and gems, to vanish using complex shipping routes and safe-haven port transfers.
For example, despite UN sanctions against North Korea, its dictator, Kim Jong-un enjoys a fleet of sanctioned luxury vehicles including multi-million dollar Maybach S600 Pullman Guards, which he has acquired using several of the 90 or so countries currently known to facilitate trade-based money laundering. 2
In this environment, trade-based money laundering and asset transfers have become even more attractive to criminal entities and, considering sanctions against Russia, are more likely to interest parties with Russian assets who may previously have traded lawfully but whose wealth is now at risk of being frozen or confiscated.
What does trade-based money laundering look like?
Trade-based money laundering can take many forms – the only limit is imagination.
Transactional red flags to be aware of include:
- the transaction is inconsistent with the usual business of the entities involved, such as a car dealer exporting clothing, or a precious gems dealer importing seafood;
- entities engaging in overly complex transactions involving numerous third-party intermediaries with incongruent lines of business;
- entities engaging in transactions and using modes of dealing (for example changing shipping routes) that are inconsistent with standard business practices;
- entities making unconventional use of, or using overly complex, financial products, e.g. use of letters of credit for unusually long or frequently extended periods without any apparent reason, or intermingling of different types of trade finance products for different segments of trade transactions;
- entities displaying unreasonably low profit margins in trade transactions, e.g. importing wholesale commodities above retail value, or reselling commodities below purchase price;
- entities purchasing commodities which exceed its financial resources, e.g. the transactions are financed through sudden influxes of cash deposits or third-party transfers to an entity’s accounts; or
- newly formed or recently re-activated entities engaging in high-volume and high-value trade activities, e.g. an unknown entity suddenly appears and engages in trade activities in sectors with high barriers to market entry. 3
Corporate structures raising red flags include:
- the corporate structure of the entity appears unusually complex and illogical, such as the ultimate ownership by a shell company registered in a high-risk and/or low transparency jurisdiction;
- the entity is registered at a ‘mass registration’ address, e.g. high-density residential buildings, post-box addresses, commercial buildings or industrial complexes, especially when there is no reference to a specific unit;
- the business activity of the entity does not appear to be appropriate for the stated address, e.g. a trade entity appears to use residential properties, without having a commercial or industrial space, with no reasonable explanation;
- the entity lacks an online presence, or the online presence suggests business activity inconsistent with the stated line of business, such as the website of a trade entity contains mainly boilerplate material taken from other websites or the website indicates a lack of knowledge regarding the particular product or industry in which the entity is trading;
- the entity displays a notable lack of typical business activities, e.g. it lacks regular payroll transactions in line with the number of stated employees, or transactions relating to operating costs, tax remittances;
- owners or senior managers of an entity appear to be nominees acting to conceal the true beneficial owners, e.g. they lack experience in business management or lack knowledge of transaction details, or they manage multiple unrelated companies;
- the entity, or its owners or senior managers, appear in negative news, e.g. past money laundering schemes, fraud, tax evasion, other criminal activities, or ongoing or past investigations or convictions;
- the entity name appears to be a copy of the name of a well-known bona fide corporation or is very similar to it, potentially in an effort to artificially appear to be connected to it; or
- the entity is non-compliant with regular business obligations, such as submission of BAS and income tax returns.
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Special series: AML and counter-terrorism financing laws
This article is part of our content series, 'The money laundering deck: AML and counter-terrorism financing laws'. The series uses Russia as a case study to provide an analogy for how businesses can be impacted by AML and counter-terrorism financing laws while operating in Australia. Read the related articles in the series here:
- Trade-based money laundering: Russian sanctions (this page)
- Anti-money laundering agencies and enforcement
- Autonomous Sanctions Act 2011: Breaches and implications
- Register of Foreign Ownership of Australian Assets - Australian Register
- Anti-money laundering and sanctions law: Case studies
1. https://unctad.org/system/files/official-document/ditcinf2021d4_en.pdf
2. https://www.nytimes.com/2019/07/16/world/asia/north-korea-luxury-goods-sanctions.html
3. https://www.fatf-gafi.org/media/fatf/content/images/Trade-Based-Money-Laundering-Risk-Indicators.pdf