By Nathan Lynch: Michael West Media.

Gaping loopholes, earnest advisers and an international reputation for stability have made Australia a place of choice for illicit funds. Despite a crackdown on the foreign ownership of established houses, there are still many ways for crooks to score a piece of the action, no matter which government is in power, writes Nathan Lynch in an extract from his book The Lucky Laundry – how the Aussie economy got hooked on the world’s dirtiest cash.

The Lucky Country. The envy of the world. Pure air, pristine beaches and even relatively clean politicians. A place where the world’s hopeless and oppressed can come to make a fresh start. A land of democracy, good governance, bountiful resources and plentiful opportunity. A nation where hard work and a spirit of enterprise will guarantee a roof over your head, a backyard if you want it, top-tier health care and a solid education for your children.

‘What is this mythical paradise?’ you might ask. It’s Australia, once upon a time. This was the land Down Under in 1964. A post-war wonderland under the predictable but steady leadership of Prime Minister Robert Menzies. It was also the nation characterised in Donald Horne’s epoch-defining book, The Lucky Country.

Of course, the ‘lucky country’ moniker was at best a backhanded compliment. According to Horne, Australia was ‘a lucky country run mainly by second rate people who share its luck. It lives on other people’s ideas, and, although its ordinary people are adaptable, most of its leaders (in all fields) so lack curiosity about the events that surround them that they are often taken by surprise.’

Ouch. Well, if the Akubra fits …

Fast-forward half a century from Horne’s day and modern Australia is a very different place. The dream of the quarter-acre block, of the double-brick cottage with a lawn for the kids and a Hills Hoist, is now so alien as to be a parody. The ideal of a home in which to raise a family has been overtaken by mortgages delivered by an army of ‘brokers’ from the deregulated, globalised banking sector.

Average household debt, measured against gross domestic product (GDP), has reached an historic 123 per cent. Australian households have been lured into one of the greatest debt traps the world has ever seen. Most of this borrowing has not funded enterprise. It has been borrowed to buy homes at prices that spiral ever-upwards.

Modern Australians borrow from the rest of the world to buy each other’s homes, abetted by a banking sector that clips the ticket on every dollar borrowed when they rack up the interest bill each month.

A foot on the ladder

Aussies have been good to the national housing market, investing more than $9 trillion into residential real estate. The housing market, in turn, has been very good to Aussies. In the 50 years since Horne was surveying the social landscape, housing prices have multiplied more than 85 times. In 1970, the median house price in Sydney was $18,700. Half a century later it’s $1.6 million.

For those with a ‘foot on the ladder’, the family home has become many things in addition to a place to live and raise a family. Property is the great Australian path to prosperity. It’s an asset class, a form of security, an ATM redraw facility, and something to show off at barbecues. It’s the pride and joy of every Australian – and with so much wealth tied up in bricks and mortar, housing policy can also swing elections.

These days, Australia is the land of the lucky – provided you’re not unlucky enough to be chasing your first home. Despite those difficulties, every weekend, young Australian families bid at property auctions against anonymous bidders and buyers’ advocates. These families bid valiantly with a combination of their hard-earned savings, government grants, the proceeds of judicious investments, and sometimes even gifts and inheritances from parents.

The vast majority of this money is leveraged up by the world’s most profitable banks. Aussie families use this credit to buy into their simple dream: home ownership, financial security and self-determination. But look past the picket fences and there is a different type of resident, a more shadowy purchaser. These owners are often listed on property titles as companies, which are in turn the trustees of offshore vehicles in secrecy jurisdictions like Samoa or the Cook Islands.

To a financial crime investigator, these complex financial structures are mere ghosts. Who are these new neighbours who have popped up all over Australia, as they have in Canada and London, with the metaphorical lights off and blinds drawn? And what of those anonymous buyers? Who are the people hiding behind dark sunglasses, and behind even more opaque foreign trusts, standing discreetly at the back of property auctions?

Who do those professional buyers’ agents in property deals truly represent?

In many cases, no one in Australia knows. Because no one is really required to know. Everyone in the transaction chain (except the bankers) is allowed to turn a blind eye. They can park their suspicion behind a thick wall of customer privacy, professional discretion and self-interest.

This is one reason why Australia is so attractive to investors who seek secrecy, discretion and security. It’s also a primary reason that we have become one of the world’s most attractive destinations for money launderers. Forgiving laws, gaping loopholes, earnest advisers and a squeaky-clean international reputation have made Australia a place of choice for illicit funds.

Despite a federal crackdown on the foreign ownership of established houses, there are still many ways for crooks to score a piece of the action. Foreign criminals and government kleptocrats can go to town on new builds. They can jump into commercial property, farmland, dairies. In one case, the AFP seized a 3000-acre property near Tasmania’s stunning Musselroe Bay that was linked to a $23 million investment fraud in China.

With the right advice, buyers can easily conceal their ownership. Real estate agents will happily turn a blind eye to a foreign ‘cash purchaser’ who is ready to sign a contract; those unconditional cash deals mean the agent’s commission goes straight in the bank. Ka-ching.

In some cases, agents have even provided fraudulent bank letters to assist a foreign buyer to move their funds through a local proxy buyer. Australia has become so accommodating to kleptocrats, in fact, that countless local families have been forced into the rental market to make room for them.

Who are they renting from? Even that’s unclear in some cases – such as the student accommodation building named Dudley International House in Caulfield East in Victoria, which was used to launder $4.75 million in kickbacks to Malaysian officials. Or the Sydney apartment blocks, Tasmanian dairy farms and a Hilton Hotel whose foreign owners only came to light when they were exposed in the Pandora Papers leaks in October 2021.

If Donald Horne were alive today, he might say the modern Australian ‘lacks curiosity’ about the source of this flood of unexplained wealth. He might say Australians are ‘implausibly in denial’ about the influx of foreign money, which is so critical to powering the country’s post-banking-deregulation economic miracle. He might suggest the professional facilitators are also blind to the good fortune that allows undisclosed buyers to make cash offers on multimillion-dollar waterfront palaces, after a weekend’s gambling at one of Australia’s equally accommodating casino complexes.

In our comparable regional neighbours – Singapore, Indonesia, Malaysia, New Zealand, Hong Kong – questions must be asked of any prospective wealthy property purchasers. Not here. Unfortunately, this means that many trusting modern Australians – in a world that has grown deeply suspicious of cash offers on real estate – are too often ‘taken by surprise’.

Illicit money v the people

It’s abundantly clear that not all of the money that props up the world’s most buoyant property market is the savings of hardworking Aussies. A significant slice of that $9 trillion is the proceeds of criminal wealth. This is money tainted by the stench of foreign corruption, tax evasion, drug deals, environmental crimes and human trafficking.

The sheer gravity of the world’s ‘black economy’, worth around $US2 trillion each year, ensures an incessant flow of illicit money. Australia’s high levels of public trust, and the facade of our ‘clean’ economy, makes it an ideal place to park the proceeds of human trafficking, illicit drug production or bribery.

On August 3, 2017, the country awoke to news that the nation’s proudest financial institution, the Commonwealth Bank, had become a wash-house for international crime syndicates. The system was so efficient that the criminals didn’t even need to speak to a teller. Technology handled the cash deposits for them. Drug syndicates, Middle Eastern terrorists and other major crime groups had managed to move billions of dollars – to this day, no one knows the exact amount – through the same bank that was giving primary-school kids their first Dollarmite account.

Australians were shocked. Police surveillance footage showed money mules sitting on milk crates on the footpath outside a suburban Commonwealth Bank branch, stuffing the ATM with bricks of green and gold banknotes from a dishevelled backpack.

A year later the rot spread to Westpac. The nation’s oldest bank was caught moving funds for the country’s worst sex offenders, facilitating unspeakable crimes against children in the Philippines.

Westpac had also been running a cross-border financial sluice gate that allowed multinational clients to book Australian revenue in low-tax countries such as Singapore. The money slipped through the fingers of the Australian Taxation Office (ATO) and landed in the hands of more forgiving offshore tax collectors.

Who knows what happened to it then? It certainly didn’t pay for Australian roads, schools and hospitals. As with the Commonwealth Bank, Westpac’s poor compliance controls and bad bookkeeping meant the ATO would never be able to shine a light on this corporate tax evasion. The bank records had never existed to begin with.

Systemic law-breaking: CBA, Westpac, then Crown and Star

After that, the dominoes fell. First it was Crown Casino in Melbourne and Perth, then The Star in Sydney – the country’s two largest casino groups. All were embroiled in scandals involving junket operators, criminal money, proceeds of corruption, bikie gangs and Asian triads. Australians were less surprised to see grainy footage of ‘high rollers’ at Crown Casino unbundling millions of dollars, in neatly bound bricks, from another Aussie icon: the supermarket cooler bag.

One prolific gambler moved $100 million in a single week through the pokies at The Star. Even the country’s sporting clubs were implicated in systemic money laundering, after authorities discovered that criminals were washing vast sums of money through the nation’s beloved pokies. Management had looked away, feigning ignorance, as tax evasion and criminal cash kept the nation’s community sporting clubs afloat. At least the listed casino chains weren’t having all the fun.

In this instance, however, Horne was wrong. Australia’s 25 million honest citizens weren’t just surprised, they were shocked and appalled. They weren’t complacent – they were bloody furious. How could a country that detested political corruption become the ‘safety deposit box’ for corrupt politicians from across Asia, the Pacific Islands, Africa and Europe?

How could Asian triads and Mexican drug cartels swap synthetic drugs – near-worthless chemicals – for some of the country’s finest freehold real estate? Australia was losing its precious farms and waterfront development sites to criminal gangs, in return for fleeting chemical highs.

How could one of the world’s richest countries, a bastion of financial integrity, find itself in a position where its politicians would lie to the world for 15 years about impending law reform that would close these loopholes? Was all this pretence intended to uphold the system that had turned Australian housing into one of the world’s criminal Ponzi schemes, or did some of Australia’s leaders so lack curiosity about the events that surrounded them that they were unaware of the risks of the global criminal economy?

More to the point: how could Australians be certain they weren’t paying more for their family homes because they were going head-to-head at auction with a drug dealer or a foreign kleptocrat? Could Aussies still believe in the fairness that had been the foundation of the nation’s social contract for more than 200 years?

The truth is, they couldn’t.

And they still can’t to this day. Since 2006, those ‘Tranche 2’ federal money-laundering law reforms have been hand-balled from one incoming prime minister to the next. The Ponzi scheme that is Australian property has outlasted six of them.

At best, Australia’s leaders ‘so lack curiosity’ about the events that surround them that they’re unaware of the risks of the global criminal economy. At worst, Australia’s leaders have a horse in the race and are knowingly complicit in this global scam. Welcome to the deep, dark world of the modern criminal economy.

This is an edited extract from Nathan Lynch’s book The Lucky Laundry, published by HarperCollins, June 2022.

Nathan Lynch is a writer and international speaker who has spent two decades investigating the hidden world of dark money that fuels organised crime, corruption and violent extremism around the globe. He is certified by the US Department of Justice’s elite CCIPS Cybercrime Laboratory and is a program expert with the Financial Services Volunteer Corps, which provides support to developing countries to help them combat the scourges of money laundering and other serious financial crimes. Nathan has trained police, government officials and bankers across Asia and the Middle East on the techniques the world’s criminals use to conceal and clean their dirty money.