Why "Money Laundering is a Foreign Problem" Is a Dangerous Assumption in AML Compliance

Is Money Laundering Really Just a “Foreign Money” Issue?

In conversations across the legal sector, a common phrase comes up: "AML isn’t really a problem here — it’s about money from overseas."

It’s a comforting thought — and a dangerous one.

Money laundering is not limited to international crime syndicates funneling funds through shell companies. In fact, a significant and growing portion of financial crime in Australia stems from domestic activity, using local businesses, local properties, and local lawyers.

The Reality: Money Laundering is Both Local and Global

Yes, international funds do flow through Australia. But the domestic risk is just as pressing — and often less visible. Law firms working with small businesses, family trusts, property purchases, or post-death estates may unwittingly assist in laundering domestically generated criminal proceeds.

Common domestic sources of illicit funds include:

• Drug trafficking

• Tax evasion

• Welfare fraud

• Corruption and bribery

• Online scams and identity theft

Criminals don’t need to send money across borders to disguise its origins — they can just as easily cycle it through cash-based businesses, complex property deals, and local legal services.

Why This Assumption Is a Problem for Law Firms

If your risk assessment is based on the belief that AML is only relevant when foreign clients or offshore funds are involved, you may be:

• Overlooking high-risk domestic clients

• Under-investigating local structures used for laundering

• Failing to apply enhanced due diligence to red-flag transactions

The risk is not just theoretical. Australian authorities, including AUSTRAC and the Financial Action Task Force (FATF), have made clear that domestic laundering is a serious and growing concern — particularly involving the legal, accounting, and real estate sectors.

Tax Collection or Crime Prevention? The Political Side of AML

There’s another layer often missed in these discussions — AML isn’t always just about catching drug lords. Increasingly, governments are using AML tools to improve tax compliance and economic transparency.

Lawyers may find themselves under pressure to:

• Justify the source of a client’s wealth

• Report seemingly minor inconsistencies

• Collect additional documentation for low-risk clients

It’s frustrating — but understanding the political drivers behind the AML regime can help explain why the bar keeps shifting.

What Firms Should Do Now

To avoid being blindsided, firms need to:

• Prepare their firm-wide AML risk assessments and ensure domestic risks are included

• Train staff to spot laundering typologies that don’t involve foreign jurisdictions

• Draft internal guidance to cover scenarios involving local cash-rich businesses and domestic real estate activity

Final Thoughts

Money laundering is not something that only happens “over there”. It’s happening here — right now — and Australian law firms are on the front line.

Assumptions are dangerous. A realistic, risk-based approach grounded in facts, not perceptions, is essential to protecting your firm, your clients, and your reputation.

Need support with your AML risk assessment or training?

At AML Sorted, we help law firms across Australia identify blind spots and prepare for what’s next. Let’s talk today.