Sal Gunawardena July 24, 2020

Beyond ‘dirty money’: How does money laundering affect us all? How does money laundering affect your business?

The closest connection most of us have to money laundering is reading about a high-profile case in the papers. Given that its impact is not obvious in everyday life, it’s hard to see at first what the impact of money laundering is on the wider community. It does, however, have a devastating effect on all of us. As money laundering becomes more and more entrenched in business, the impact on our society and our economy is significant.

Money laundering is the process that criminal entities undertake to make ‘dirty’ money look clean. For these groups, it is the simplest and safest process to spend illicitly gained funds in an open market.

Given the nature of the crime, placing a monetary cost on money laundering in Australia is difficult. Research conducted by The Australian Institute of Criminology estimates that serious and organised crime costs Australia up to $47.4 billion per year. This includes $31.5 billion as the direct and consequential cost of serious organised criminal activity, and $15.9 billion spent on prevention and response to these activities.[1]

460degrees - Beyond ‘dirty money’: How does money laundering affect us all? How does money laundering affect your business?

From a monetary perspective this is significant. But this cost does not reflect the major social and economic implications that money laundering has on the Australian and global community.

Increase in Deaths, Violence, and Broken Homes

Money derived from criminal activity is associated with crimes that are detrimental to society. Drugs are one of the major sources of wealth for criminal entities in Australia. While criminal groups enjoy their luxuries from the sale of drugs, the most vulnerable within the community struggle to break free from addiction, violence, and family breakdowns. Vulnerable Australians become addicted to illicit substances, which in turn ruins families, places pressures on hospital and social services systems, and increases fatalities. This is the hidden truth from criminal and money laundering activity – and why awareness of the implications effect of money laundering is critical. Organisations must become vigilant in the fight to protect our financial systems from this behaviour.

Money laundering bypasses tax revenue

The act of money laundering takes a significant amount of funds out of the economy. It does so by creating a number of complex transactions which involve entities that on paper, appear to be legitimate. This impacts you – the individuals and organisations that are doing the right thing – as the tax revenue burden falls on your shoulders. The increased pressure on legitimate businesses and individuals in turn impacts access to wealth and impacts the services (such as social services, infrastructure etc) that the federal and state governments can provide, given the reduction in tax revenue.

The other impact to tax revenue is that extra funding is usually taken from tax revenue collected from legitimate individuals and businesses to tackle the issue of organised crime. This diversion of funds results in less social services and jobs to the community.

Organised crime ‘fronts’ affect your market share

A common method to divert attention from the law is using legitimate businesses as front companies. Creating front companies to commit money laundering has a direct impact on those individuals and businesses who are doing the right thing in a particular sector. Most front companies are not profitable and are not worried about making profits. As such, these front companies offer lower prices, which undercut within industries and result in legitimate businesses finding it difficult to compete. By doing so, organised crime has the opportunity to increase its market share when businesses that cannot compete are forced to sell. This in turn allows more money to be laundered using legitimate businesses.

Organised crime has a global impact

Money laundering in Australia also has an impact on global markets, especially those countries which are vulnerable to exploitation, and those that are rife with corruption and struggling economies. It is easier for organised criminals to operate in these countries, as they can easily gain  access to  the tools required to hide and use their illicit funds.

Organised criminal entities pay bribes and provide other luxuries to corrupt government officials, who in turn provide them with the infrastructure to assist them with laundering illicitly earned funds. Turning a blind eye to company registrations, taxes and bank accounts for personal benefit is very common. While the criminals and government officials fill their pockets, the innocent people of these countries become poorer and the gap between the rich and poor increases. These people go without the services that would help them with their daily living, and the economy within the country takes a further hit.

Society as a whole is affected by money laundering. It is therefore critical that organisations and individuals stand up and help prevent money laundering from occurring. If you as an individual want to report a Commonwealth crime, please contact the Australian Federal Police or CrimeStoppers.

Or if the matter is related to your business and you are seeking guidance on improving or detecting financial crimes within your business, please contact a 460degrees expert.

By standing up, you are creating a movement to keep our financial system free from criminal abuse and can set an important example to your peers and competitors that society matters.


[1] Smith, R., Australian Institute of Criminology, Statistical Report 09, Estimating the cost of serious and organised crime in Australia in 2016–17, p.1

Other articles you may find interesting...