Money Laundering

Money Laundering Workshop Held for Nigerian Judges & Prosecutors

Money Laundering Workshop


Judges & Prosecutors in Nigeria


8 to 12 May 2017

 Chris Douglas, APM

Between 8 to 12 May 2017, a 5 day workshop was delivered to Nigerian Judges and Prosecutors in Nigeria.  The workshop was organised by the UNODC Lagos and funded by the European Union.  And delivered by Chris Douglas, consultant to the UNODC.

During the 5 day Workshop the following subjects were delivered by Malkara Consulting:

Subject Description

1.               Asset Freezing, Forfeiture and Related Issues. The freezing and forfeiture of assets can involve complex issues particularly in relation to property ownership.  A range of entities can claim an interest in property that is subject to restraint and potential forfeiture.  For example, the rights of a lending institution or other third party that holds security over the property will need to be recognised and dealt with.  Unregistered lenders or creditors and family members, particularly those living in and/or using frozen property create particular problems when it comes to forfeiture.  Undiscovered family trusts further complicate forfeiture issues.  This unit will explore those issues with participants being afforded an opportunity through group discussion to identify solutions guided by the course coordinator. 

2.               Business & Property Concealment Techniques.  In this unit participants will gain an understanding of various techniques used to conceal illegal funds in a business or real property or how criminals conceal their ownership of a business or property to prevent discovery and seizure. Particular emphasis will be placed upon the study of how real estate and businesses or front companies (using cash swaps, co-mingling technique) are used to conceal and move money including using legal and fake loans.

3.               International Standards in Asset Tracing & Financial Investigations.  This unit briefly examines relevant international financial investigation standards; particularly standards prescribed by the Financial Action Task Force and the European Commission (Directorate-General Justice, Freedom and Security) as prescribed in the European Financial Investigation Manual.  Particular emphasis will be placed on ensuring participants understand key concepts for example, the difference between money laundering and proceeds of crime investigations, the meaning of effective control and the distinction between ownership and registration.

4.               International Cooperation in Funds Tracing. International inquiries pose legal and operational difficulties.  This unit will explain the informal and formal law enforcement cooperation schemes that exist to enable funds to be traced offshore.  Political, legal and logistical issues will also be canvassed to ensure that investigators have a realistic expectation of what can be achieved in the pursuit of the proceeds of crime and money laundering cases.  The unit will conclude with a discussion amongst participants on any potential issues involved in obtaining and presenting foreign evidence in a Nigerian court.

5.               International Funds Concealment.  This unit explains the basic techniques used by criminals to hide funds offshore.  Concepts of bank secrecy, secrecy jurisdictions and the services they offer including corporate structures (international business corporations, trusts and foundations) and their use in asset protection schemes will be explained.  A key aspect that participants should learn from this unit is an understanding of the key differences between where a company is formed, where it is sold, where it is ultimately managed and the assets it holds.

6.               International Responses to Money Laundering. In this unit, major responses to combat money laundering will be introduced including an overview of the role and function of the Financial Action Task Force, regional anti-money laundering bodies, the Egmont Group of Financial Intelligence Units and international conventions designed to combat money laundering, transnational crime and corruption.

7.               Introduction to Money Laundering. This unit is a foundation unit for money laundering.  The meaning of money laundering is explained and participants are introduced to the money laundering cycle and the type of predicate crimes that are often linked to money laundering.  The unit will also briefing explain the international organisations involved in combating money laundering.

8.               Investigating Money Laundering.  This subject canvasses the various covert and overt techniques and tools used to investigate money laundering, taking into consideration the investigative tools available in Nigeria.  The importance of circumstantial evidence will highlighted and the types of evidence that have been used to secure convictions for money laundering.  A group discussion on the use of circumstantial evidence in Nigerian money laundering cases will follow.

9.               Money Laundering & Financial Institutions. Financial institutions are defined and explained in this unit together with the common techniques used to move funds through them.  The unit will canvas structuring and smurfing techniques, threshold transactions and various financial instruments namely telegraphic transfers, bank drafts, debit and credit cards and loan arrangements to launder money.  The use of formal money remitters, including mobile phone remittance systems, to launder illegal money will also be highlighted.

10.           Moving Value Using Commodities. The unit will explain that not all illegal money is moved using currency.  Brief examples will be provided on how illegal funds are moved or concealed in valuable assets or commodities. The operation of trade based laundering schemes will be demonstrated and discussed.

11.           Nominees and Beneficial Owners. This subject explains the meaning of a nominee and beneficial owner and outlines how they are used in money laundering schemes and asset protection/concealment schemes frequently encountered in proceeds of crime and money laundering investigations.

12.           Prosecuting Money Laundering. During this session, the training coordinator will facilitate discussion amongst participants on issues relating to the prosecution of money laundering in Nigeria including legislation, the Courts understanding of money laundering, standard of prosecution briefs of evidence, and any areas for improvement in processes and the law.

13.           Quality Assurance Review.  A quality assurance review will be conducted during the course to assess the acquisition of knowledge by participants.  Part 1 will involve an assessment of knowledge currently held by participants.  While Part 2 will assess the increase in knowledge gained by participants during the workshop.

In the photo Chris Douglas (Consultant to the UNODC and owner of Malkara Consulting) meets with Justice Olayinka Faji (centre) a Judge of the Federal High Court of Nigeria and Mr Joseph Sunday (right), Director Prosecutions and Legal Services, National Drug Law Enforcement Agency of Nigeria.

Don't Become a Victim of Cuckoo Smurfing


Recent actions by the Australian Federal Police involving the pursuit of victims of Cuckoo Smurfing[1], should send shivers down the spines of all Australian exporters; international migrants intending to come to Australia and foreign based families sending money to Australia to pay for their children’s education or cost of living.  Large exporters of services for example, education providers and migration agents are particularly vulnerable. 

Cuckoo Smurfing

Cuckoo Smurfing is not a legal term. It is a money laundering technique used by organised crime to pay for the importation of narcotics or to move the proceeds of crime offshore.  It involves criminals intercepting lawful international payments into Australia and substituting that money with the proceeds of crime.  And while this paper relates to Australia, Cuckoo Smurfing is a global problem.

The term Cuckoo Smurfing refers in part to the Cuckoo bird which lays its eggs in the nest of other bird species.  Those birds then raise the cuckoo bird chicks as their own (refers to the European Cuckoo bird as the Australian Cuckoo bird does not raise its young that way).  And smurfing is a reference to a group of criminals who move from bank to bank conducting transactions usually under threshold reporting levels[2].  In relation to money laundering, it involves criminals, without the knowledge or consent of an account holder, depositing money from crime in their account.  While legal or clean money, the customer was expecting to receive, usually from offshore, is hijacked and given to offshore based crime groups.

Other Descriptions

The Cuckoo Smurfing description is not particularly helpful.  It could be more usefully described as the “Matching Technique” or the “Lateral Transfer Technique”.  Matching would refer to the fact that the money deposited into an account in Australia by criminals, matches exactly the amount of money given offshore by a customer to a money remitter. Not a dollar more or a dollar less.  Australian based criminals ensure that no customer is left short changed as it would cause the customer to contact their bank and/or the person who sent the money.  That might generate a suspicion somewhere, which criminals seek to avoid.

While lateral transfer would refer to an offshore based customer wanting to send money to Australia giving money to the money remitter who gives it to crime group.  And a similar sum of money is deposited into the account nominated by the offshore party in Australia. One transfer occurs offshore and the other is transferred on shore.

Cuckoo Smurfing Process

AUSTRAC reports that Cuckoo Smurfing involves 4 simple steps.  But AUSTRAC is not an investigation agency and does not investigate money laundering.  The technique is more complex than that and involves:

1.     A customer living overseas wanting to send money to Australia, provides funds to a money remitter in a foreign country for transfer to an Australian bank account.  The money remitter may or may not be authorised or approved to operate in the jurisdiction it operates from.  The money could be sent by the customer as payment for goods or services bought from an Australian exporter, or income being sent home to family, or to themselves or as a gift for family and friends. The bank account receiving the money therefore, may not be in the name of the remitting customer.

2.     Without the knowledge of the remitting customer, the money remitter has been corrupted by organised crime.  He/she has been engaged to launder money for crime syndicates situated offshore from Australia.  To this end, the foreign remitter sends to a money laundering syndicate operating in Australia; remittance information provided by the customer; including the amount of money to be sent, the IBAN and account number and the name of the account the money is to be paid into.  The remitting customer does not consent to his/her information being used in this manner.

3.     The money laundering syndicate operating in Australia then collects bulk cash from criminal syndicates in Australia.  The money is either the proceeds of crime or funds to be used to pay for the importation of narcotics or both.

4.     The money laundering syndicate then divides the bulk money up into separate packets of cash.  These packets or bundles correspond exactly to the amount of money that has to be deposited into the Australian account nominated by the customer.  If the customer, sent $7,000 to Australia, then $7,000 would be selected from the bulk funds collected from the crime group and deposited into the account.

5.     If a number of customers located offshore each sent money to Australia under $10,000, then the money would be deposited into their account as per their instructions.  From an intelligence perspective, multiple customers each nominating an account to receive money would appear that the crime group is structuring the deposits.  But this is not correct.  Structuring is not a legal term, but a process to launder money by engaging in a transaction with a reporting entity (in this case a bank) under the reporting threshold. 

6.     However, if a customer sends funds equal to or greater than the reporting threshold via an offshore money remitter, then the money laundering syndicate has available to it two options to deposit the crime money into the nominated account/s. The group can either structure the funds into the account or deposit the total amount.  For example, if the offshore customer sends $16,000 to Australia to pay for university fees for their child or as a payment related to their immigration process, then the crime group could deposit the entire amount in cash or break up the amount and make each deposit under $10,000.

7.     For the Australian based money laundering syndicate, both approaches involve risk.  Structuring the deposits poses the greatest risk, as that action amounts to an offence against Section 142 of the Anti-Money Laundering & Counter-Terrorism Financing Act 2006.  It is on the basis that the funds have been structured and are therefore an instrument of crime, that the AFP has taken action to restrain the funds held in the account of people innocent of any crime (the receiver of the funds sent by the offshore based customer).

8.     Deposit of the cash by the money laundering group on or over the threshold amount (as per the overseas customer’s instructions) poses the least risk.  While it would be reported as a Threshold Transaction to AUSTRAC, it is unlikely to be singled out and selected for further analysis by the financial intelligence unit or a law enforcement agency.  The transaction would probably be drowned out in the “white noise” of other significant cash transactions being made that day either at a particular bank or in a busy business area (Cuckoo Smurfing money laundering syndicates prefer operating in the larger cities of Sydney and Melbourne for that reason).

9.     Once the money has been deposited, the money laundering syndicate notifies the offshore money remitter that the transaction has been undertaken.  The money remitter then pools each sum of money given to it by legitimate customers and later passes those funds in bulk to an organised crime group.  The money is either to be used to pay for the importation of narcotics into Australia or is to be laundered by the crime group that wanted to shift illegal funds offshore.   

 Money Mule Schemes

Cuckoo Smurfing is not to be confused with a money mule scheme, where account holders are recruited on line to receive into their accounts money which is not theirs to receive.  And who get paid a commission for their involvement.  Which they deduct from the funds they have received and forward the balance onto another account as instructed by the crime group who recruited them.

Cuckoo smurfing victims expect to receive the money sent to them.  It is payment for goods, services, or for other lawful purposes.  The money is not derived from crime.  It is sent by people who owe them money or who are giving or sending them money to be applied for a lawful purpose.  It is not stolen from people by way of a scam or fraud as is the case in money mule schemes.  Victims of Cuckoo Smurfing do not in any way benefit from the money laundering scheme and do not consent for their information or their accounts to be used in the process.

“Victims of Cuckoo Smurfing do not in any way benefit from the money laundering scheme and do not consent for their information or their accounts to be used in the process”

 Who Incurs the Risk?

With Cuckoo Smurfing, Australian based drug groups outsource their money laundering risk to professional money laundering syndicates.  By doing so, they reduce the risk to their operations should law enforcement decide to “follow the money”.  The crime money they dispose of, is concealed in the accounts of innocent people.  While they have access to or if paying for a drug shipment, have available to them, clean money which will be applied offshore. 

The Chinese say “If you put your ladder against the wrong wall, every step you take is in the wrong direction”.  The banks receiving the deposits, incur little if any risk.  If a bank forms a suspicion about a cuckoo smurfing deposit and raises a Suspicious Matter Report in relation to it, the bank will report their customer, usually not anyone involved in making the deposit!!  Once received by AUSTRAC and by a law enforcement agency, unless they know about the scheme, it will cause them to chase the wrong people.  As the AFP is currently now doing.  It is going after the victims of crime, instead of the real criminals.  The AFP has placed its ladder against the wrong wall.  And it is going in the wrong direction. 

“If you put your ladder against the wrong wall, every step you take is in the wrong direction”

 Who is At Risk from AFP Operations

Since the AFP commenced applying the civil forfeiture provisions of the Proceeds of Crime Act 2002 to the deposited funds that have been structured, then any and all funds of that nature are at risk of being restrained and subsequently forfeited.  The AFP claims that the funds are an instrument of crime.  Which is defined as any money or property used or intended to be used in the commission of an offence. The offence nominated by the AFP is structuring or more precisely, conducting a transaction with the sole or dominant purpose of avoiding a Threshold Report being made, a contravention of Section 142 of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006.

Potential victims of AFP action include, if they are not already:

·       Mum’s and Dad’s sending money to their children in Australia for education and cost of living expenses.

·       People seeking to immigrate to Australia who send money to Australia to pay for fees, to buy a house etc

·       Foreign investors sending money to Australia to invest in Australian property, shares, or industry

·       Australian exporters who are paid by customers who purchased their goods or services.

How to Reduce the Risk of Becoming a Victim

Money that is targeted and intercepted by cuckoo Smurfing money laundering syndicates is linked to offshore money remitters.  Any person seeking to send money to Australia should engage a bank to send the money or a large international money remittance service.  While the charges are higher and the currency conversion rate (the spread between buying and selling) is not as attractive as on offer by smaller remitters, using a bank or large remittance service, eliminates the risk of misuse of any money by criminals.

Similarly, an Australian entity expecting funds from overseas, should insist that the offshore entity use a bank to remit the money or if they are an exporter, use a trade finance arrangement (e.g. a letter of credit). 

 What to do if you are a Victim

If you are expecting funds to be sent to you from overseas, they will be received into your account as a credit entry.  It will be recorded as an electronic transfer.  As in any international or domestic transfer between entities, no money actually moves.  Only value.  The easiest way to determine if your account or business account has become a target of Cuckoo Smurfing money laundering syndicates is to check the deposit made into the account.  If the credit entry was generated by a cash deposit either as a lump sum or several lump sums made in close proximity to each other in time and place, then it is highly likely your account has been compromised. 

Prior to the AFP changing strategy and pursuing the funds deposited into Australian bank accounts by Cuckoo Smurfing money laundering syndicates, holders of those accounts and the owners of the money, had nothing to fear.  The AFP pursued those behind the money laundering.  Advising the police, or AUSTRAC on what was happening was an appropriate response.  The AFP could be trusted.

But now, customers whose accounts have been compromised are advised NOT to contact the AFP or AUSTRAC.  When it comes to Cuckoo Smurfing, the AFP can no longer be trusted to act in the public interest and uphold and protect the rights of victims.  And victims are advised not to discuss the issue with their bank.  The bank if it suspects cuckoo smurfing will report the activity to AUSTRAC who will report it to the AFP.  The bank will not and have not protected its customers from Cuckoo Smurfing activity.

“When it comes to Cuckoo Smurfing, the AFP can no longer be trusted to act in the public interest and uphold and protect the rights of victims”

Any person who is suspected of being a Cuckoo Smurfing victim is advised to first seek LEGAL advice before doing anything.   Not only is the person a victim of cuckoo smurfing but also a victim involving the theft and misuse of their personal financial information. Dealing in identification information to commit an offence[3] and dishonestly obtaining or dealing in personal financial information,[4] are indictable offences under Commonwealth criminal law. 

Malkara Consulting can provide guidance on lawyers who have experience in handling Cuckoo Smurfing matters involving proceeds of crime action.  Malkara Consulting can also provide advice to any lawyer or law firm who has a client concerned that they have been a victim of Cuckoo Smurfing.

[1] See Commissioner of the Australian Federal Police v Kalimuthu [No 3] [2017] WASC 108. [on-line]. Available (2017, April 22).

[2] A US derived term which refers to the fictional small blue humanoids with a gnome like appearance that live in mushroom shaped houses.  The Chinese refer to them as ants and in other jurisdictions as money mules.

[3] Section 372.1 Criminal Code Act (Cth).

[4] Section 480.4 Criminal Code Act (Cth).