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Drugs and dirty money

Nick McKenzie
September 27, 2008

THE VIETNAM Airlines manager gripped his suitcase handle tightly as he strode through Melbourne Airport. He knew there would be trouble if any customs officials took an interest in its contents. With his airport access pass and polite smile, he strode briskly past the X-ray and pat-down stations.

Less than half a day later, his bag was unzipped in an office in Vietnam and its contents unloaded. Inside were bundles of crisp, clean notes — money made from the sale of ecstasy, ice and heroin on Australia's streets and in its nightclubs.

Watching the Vietnam Airlines manager as he moved through the airport was Australia's most powerful and secretive policing agency. For the Australian Crime Commission, the manager was a tiny cog in an international enterprise that rivals some of the world's biggest multinational businesses.

Since 2005, the ACC has uncovered intelligence linking Australian-based Asian organised-crime syndicates to a drug-trafficking network that stretches across Asia, Europe and North America and whose power base lies in Hong Kong and Macau. Drugs worth $1.5 billion have been seized and suspects charged with moving more than $100 million in drug funds overseas.

But the figures are just the tip of the iceberg. "These guys make Tony Mokbel look third-tier," says one source. The airline manager's bag is just one of many stuffed with drug money and spirited out of Australia under the gaze of the ACC. Some of the bags were carried by other Vietnam Airlines employees, including at least two senior pilots. Other cash amounts moved via money remitters in cramped offices in the Vietnamese enclaves of Footscray in Melbourne and Cabramatta in Sydney.

Over the past three years, dozens of alleged dirty-money handlers have received a knock on the door from investigators working with the ACC's Operation Gordian Taskforce, or the broader anti-money-laundering project born out of Gordian. More than 70 suspects have been charged with money laundering and drug offences. The scale of these operations is without precedent, although many of the seizures remain confidential or claimed by other police agencies.

Despite its successes, the ACC's operations sit at a crucial juncture. Many critical questions, such as exactly how much money is involved and the identity of the big bosses reaping the profits, are unanswered. What is known, though, should sound a major alarm to the Federal Government and the nation's police chiefs about the failure of traditional policing methods to interdict drug importations and about the pill popping habits of tens of thousands of Australians.

One former senior Victorian detective, who spent the past decade investigating organised crime, recently told The Age that the availability of and demand for party drugs in Australia was simply staggering. "It's a snowstorm out there."

What the Australian Crime Commission has found suggests that the amount of drug money leaving Australia, and the corresponding amount of drug trafficking, is grossly understated in public estimates.

"It surprised us, when we looked at the Gordian Taskforce, how much money was being generated by a fairly discreet group of criminals," says the commission's chief executive, Alastair Milroy.

Milroy says the commission's latest analysis suggests that between $4 billion and $12 billion in drug money is marching out of Australia annually. The figure is 10 to 30 times the public estimate provided by AUSTRAC, Australia's anti-money-laundering agency.

"Certainly we think that current estimates of the size of money leaving Australia might be conservative. But that is the purpose of what we are doing. We want to find out, by working with AUSTRAC, exactly how much more money is going offshore," he says.

The ACC is now attempting to paint the fullest picture to date of the impact of organised crime in Australia and the extraordinary challenges that need to be faced. In short, it is trying to measure the criminal economy. As glib and vague as the task might sound, the early intelligence suggests a need for Australian policing agencies to revise down claims about the impact of big drug busts in Australia. For instance, the commission found that just six weeks after swooping on those identified as the major dirty-money movers, the amount of drug cash sent offshore rose to even greater levels than before.

According to criminologist and associate professor John Walker, whose work informed the Federal Government's latest money laundering report, the commission's estimates should prompt a rethink about the policing of drug crime. "If the ACC is right, then Australia would have the most profitable market for illicit drugs on the planet," he says.

So, is there an ecstasy epidemic in Australia? Are traditional policing methods failing? And where are the billions of dollars in drug money going?

BORN to an impoverished family in war-ravaged Vietnam, Van Dang Tran knew what it was like to go without. As a young man, Tran trained as a fighter pilot in the Vietnamese Air Force. Further training as a commercial pilot in Sydney had led to one of the top jobs with Vietnam Airlines, flying its VIP clients to and from the country's major airports. When then foreign minister Alexander Downer flew to Vietnam in the late 1990s, Tran was in the cockpit.

But Tran's connections extended outside the airline industry. In June 2006, a secret phone tap picked up his voice on a phone call to one of the managers of the Long Thanh Money Transfer Company in Footscray. The manager asked Tran how many "green tops" he could carry. Tran replied he would take as much cash as his bag could hold.

When customs searched his suitcase a day later, they found 14 packages containing just over half a million dollars. The ACC later alleged in court (Tran pleaded guilty) that Tran had helped move $6.5 million out of Australia for Long Thanh's Melbourne and Sydney offices.

Long Thanh's managers are facing charges of moving an alleged $93 million out of Australia using couriers, wire transfers and good faith agreements, in which money remitters in Vietnam will pay the local recipient of a money transfer on the promise from the Melbourne remitter to square the debt later.

"It is very lucrative. Two little shops, one in Melbourne and one in Sydney and they allegedly moved $93 million in the space of a little over 12 months," says Milroy.

"That $93 million is only a snapshot of the criminal economy, a snapshot of the amount of money that has been generated by drug trafficking."

Police agencies usually crow about a problem they have shut down rather than one they are trying to come to grips with. But Milroy says that even the ACC is "surprised" at what its investigations have revealed about the amount of money leaving the country.

"The estimates at the moment range between $4 billion and $12 billion a year. We are not saying at the moment which end of the scale is right or wrong, but what we are saying is it is significant," he says.

"We are not economists and we are looking at money flows within a huge, trillion-plus economy. What is the impact of potentially billions of dollars going offshore in terms of lost jobs, lost infrastructure, lost projects, lost revenue? I don't know. It is a big economy, so maybe it is minuscule. But it is an interesting question," says Milroy.

The data already churning through the ACC's databases are producing interesting results. By using specially designed tracking and intelligence programs to monitor money leaving Australia via the regulated sector, the commission has begun separating money transfers into high-risk and low-risk groups.

High-risk money movers are then scrutinised. For instance, if a person's name matches that on a criminal database, alarm bells start ringing. Suspicious money movements have already led the ACC to drug importations, while early estimates suggest many of the top money movers in the high-risk category are linked to the drug trade.

Says one state police source aware of the ACC's operations: "The commission is finding evidence of specific imports without even setting out to look for them. Many of the seizures around the country come from the ACC, but you wouldn't know it because other agencies take the credit."

But the flow of drug money offshore is also highlighting an unpleasant reality — the scores of importations that Australian authorities are missing at the border. What the figures suggest is that despite regular seizures, massive quantities of drugs are frequently getting through.

Says Milroy: "There are a lot of good seizures by customs and the AFP that are having a good impact. But how do you quantify that impact? Clearly there are still drugs in the street and drugs that are getting through."

Recent drug busts support this; police and drug policy experts say the federal police's seizure in Melbourne in mid-2007 of the world's largest shipment of ecstasy — 14.5 million tablets — made no difference to the availability or price of pills.

Criminologist John Walker says the ACC's estimates about billions of drug dollars flowing overseas appear to confirm what many police privately concede: that despite the best efforts of customs and the AFP, many more drug importations pass over the nation's borders than are detected in individual police operations.

"If all police ever do is chase individual importations, they never see the big picture. I think what the ACC is doing, by looking at transnational organised crime as economists would, is a big breakthrough in law enforcement thinking in Australia," says Walker, who believes the ACC's figures should spark alarm about the failure of traditional policing to fight the drugs trade. "Law enforcement cannot solve an economic problem. It never solved prostitution or prohibition. In fact, what police do makes it worse because it drives up the price."

The ACC's work is likely to fuel calls to wed more effective policing with strategies aimed at dampening consumer demand for drugs. Federal Police Commissioner Mick Keelty acknowledged the need to do this recently at a news conference called to trumpet a big drug seizure. "What we have to do is to treat demand as much as we … deal with supply," he said.

Police drug expert Paul Dillon says the task is urgent, and the Federal Government must properly resource law enforcement while also boosting strategies for reducing demand. "If you don't do something about demand, you will see no meaningful benefit from police work. There needs to be more of a balance," says Dillon.

PETER Chen's thriving abalone business in Sydney was a far call from the small farm he was raised on in the rural backblocks of China's Guangdong province. In the early 1990s, Chen appeared no different from the hundreds of thousands of industrious Chinese migrants who, drawn by the promises of opportunity in the West, had settled in Canada, the US, Europe and Australia. But Chen was not content with the spoils of the seafood trade. In the mid-1990s, Australian authorities began to suspect that he may have been importing more than shellfish. Further investigation triggered more alarm bells. Police files linked Chen to one of China's big four criminal triad gangs, the Wo Shing Wo. The last public inquiry into Asian organised crime in Australia was conducted by a federal parliamentary committee in 1995, around the time Chen began to attract the interest of state and federal police.

The story is different in the US and Canada, where police and government reports have continuously highlighted the presence of Asian organised-crime groupings, including triads.

A 2003 US Library of Congress report estimated that the Wo Group triads had 20,000 worldwide members while a 2006 Royal Canadian Mounted Police report warned that global triad networks had "real potential to become formidable organised crime threats to Canada and the United States".

But in Australia, reference to triads or Asian organised crime has, over the past decade, dropped almost completely from public discussion. Minimal public scrutiny and debate, of course, suited Australian triad figures such as Chen. Lack of public pressure for action generally means no impetus for protracted and expensive organised crime investigations.

Throughout the 1990s, Chen was one of a number of suspected Asian crime figures who gradually built up wealth and power while staying a step ahead of police.

But too much money can be a bad thing. In 2003, ACC officers began to examine hundreds of cash transfers from banks in Sydney to six bank accounts in Hong Kong. Each transfer was below $10,000, the figure at which money transfers have to be reported to AUSTRAC, the nation's financial watchdog. As the transfers multiplied, Chen's phone was bugged. More than $3 million was wired to Hong Kong before Chen was arrested.

In March, he was sentenced to 9½ years in jail for money laundering. How the money was earned was never revealed in court, but police suspected Chen was part of a drug trafficking syndicate that had operated for years before being caught. Chen's Hong Kong-based brother was also jailed.

While the convictions were a good result, the impact of locking up a middle-ranking Australian Wo Shing Wo member was minimal. Figures such as Chen are disposable to the networks they belong to. Those at the board table of organised crime groups rarely get locked up. It is this daunting reality that underlines the ACC's drug money project. It is believed the ACC has monitored, in real time or shortly afterwards, hundreds of millions of drug dollars moving offshore, much of it linked to Asian organised crime syndicates. Watching dirty money move offshore, rather than seizing it, is a risky business for a policing agency, because it leaves open the possibility that money earned from drug dealing is pumped back into the crime syndicates to finance further shipments. But waiting can pay off; Operation Gordian has shut down several dedicated money laundering syndicates, while the ACC's continuing work has led to dozens more arrests.

"By taking out those particular money dealers that day, you are not going to stop the money going offshore," says Milroy. "The organised crime groups will find other ways to send the money offshore. To show your hand early on in the piece, you would actually be achieving very little in terms of stopping the money going offshore or shutting down the businesses."

The ACC's project is an ambitious one, in need of things often in short supply in Australian policing; resources, patience and improved co-operation between domestic and overseas law enforcement agencies, including some in notoriously corrupt countries. It will also need support from politicians, who are likely to be wary of making public concessions that the battle against the drug trade is not as successful as it appears in the news conferences that trumpet big drug busts.

Of course, relying on traditional policing methods in the hope of getting a few big busts at the border each year carries with it a big risk. An increasing concern among Australian police is that the country will become a "source" nation — that is, not only on the receiving end of drug importations, but a drug exporter as well.

If the ACC's money trail project reaches its potential, the pay-off may well be big. The commission will not say who is on their list of suspected top-ranking organised crime bosses, but it is understood they include high-ranking figures within multinational companies and figures with influence in some national governments.

"When you look at the amounts of money being sent overseas, you can't imagine that all that money is being used to resupply the Australian drug market," says Milroy.

"Some of that money has to go into the legitimate economy at the end point. I would imagine there has got to be investments in property, in business enterprises, maybe in financial services products. Someone has to be the ultimate beneficiary of all that wealth. That is where we need to get to in the end."

Nick McKenzie is part of the Age investigative unit.

http://www.theage.com.au/national/drugs-and-dirty-money-20080926-4ovf.html?page=-1