Karen Dearne | June 19, 2007
MONEY launderers are hiding up to $US1 trillion ($1.18 trillion) a year in the world's financial systems, says David Leppan, director of British-based risk intelligence provider World-Check.
That's why more businesses are being drawn into compliance with tough new anti-money-laundering and suspicious transaction reporting laws, including the Know Your Customer rules introduced this month.
"Can you imagine someone stealing the military budget of the US and hiding it," Mr Leppan said. "Switzerland's GDP is about $US360 million.
"Can you imagine stealing a small country's entire budget three times, and then being able to hide it?
"Even though legislation is being imposed and industries are being encouraged to do more, the reality is that vast amounts of money are laundered every year.
"This is not a small problem and the money is not just going through the cash exchange shops in the back streets of Sydney.
"This has to be going through major institutions. We're talking about major investments in property, buying hotels, restaurants, any cash businesses."
Mr Leppan and World-Check financial crime consultant Kenneth Rijock - a reformed money-launderer who spent three years in jail - were in Sydney last week to attend a financial markets conference and meet local customers.
Australian banks and businesses are now obliged to perform KYC due diligence, but Mr Rijock said the driving force for compliance was largely reputation.
"We live in a world where people have to worry about the US designating your bank as one of primary money-laundering concern," he said. "They can shut you down.
"You discover that you were moving money for so-and-so from Thailand, who turned out to be a major opium trafficker, and you can no longer use your correspondent bank in New York.
"You've been shut out of the US markets, all your customers are going to the competition and your officers are being sued by the shareholders."
In addition to closing down US branch operations and imposing huge fines, the story will be all over the Wall Street Journal and Financial Times for weeks, he said. "Reputational damage is the nightmare that compliance officers have to live with."
World-Check operates a database containing intelligence on 600,000 individuals, companies, charities and shell banks identified as being associated with criminal activity or terrorism.
More than 2000 institutions and government agencies in 140 countries use World-Check for KYC compliance. Its researchers constantly update the database using information derived from a wide array of public sources and international watchlists.
Mr Leppan said the operation was "not Big Brother, we're interested in terrorists, senior crime figures, Mafia and fraudsters".
"We're interested in the big fish. Our role is not to nose around in people's garbage bins," he said. "Our role is to simply pull together what is already publicly available.
"However, I'd argue that once you've incorporated so many pieces of open-source data, there comes a point where it changes its very nature. It does take on intelligence if you gather enough pieces of the puzzle."
Mr Rijock said money launderers always looked at targets of opportunity.
"That means if the banks are too highly regulated they go to the non-bank financial institutions and if those are regulated they go to the public corporations, then the private companies and then the ma and pa businesses," he said.
"So every business that handles cash has to be at least somewhat regulated, otherwise the laundrymen just go to the place where they can get in the door."
The former Vietnam veteran was a career laundryman, based in Miami, during the 1980s for 10 years.
He generally smuggled bulk cash to Caribbean tax havens, and avoided detection until several of his clients were arrested and provided evidence against him.
On his release, Mr Rijock was approached by law enforcement agencies, including the FBI, to teach them the tricks of his trade.
After September 11, 2001, and the introduction of the US Patriot Act, KYC became a critical issue.
"What started out as a strictly law enforcement issue is now a global issue involving every type of business that handles any kind of wealth," he said.
"It's only going to get worse, because we live in an economy that's accelerating so quickly that from one week to the next you can have a totally new laundering industry."