Clean on paper, dirty in reality: Inside Australia’s cigarette cash pipeline
Behind the lucrative dirty tobacco trade is a sophisticated laundering system. Puffed-up gangsters exploit banks and payment systems to launder millions and bankroll crime empires.
Cash from illegal cigarette sales in a suburban strip mall can be in the hands of an offshore crime boss within 24 hours.
A card payment made in Melbourne in the morning can be part of a bulk transfer to Dubai, Hong Kong or another overseas location by nightfall.
That’s the reality facing the financial crime watchdog, which warns that organised syndicates behind the booming illicit tobacco trade are using legitimate payment systems to launder millions in criminal profits – and send them beyond the reach of police almost as quickly as they’re made.
Although authorities have disrupted thousands of cigarette importations and shut down retail outlets, the financial side of the trade remains a formidable challenge.
Criminal kingpins are exploiting the banking system, payment terminals and international wire transfers to move illicit cash offshore under the guise of ordinary business activity.
Australian Criminal Intelligence Commission deputy chief executive Matt Rippon said the illicit tobacco trade was no longer just a tax issue – “it’s a national security threat”.
“Criminal networks are exploiting Australia’s financial infrastructure to launder millions in illicit profits, often moving funds offshore within hours of a sale,” Mr Rippon said.
“Their illegal activities cost the Australian economy up to $68.7bn annually.
“These networks are sophisticated, resilient, deeply embedded in our financial and retail systems and globally connected. They’re using legitimate payment systems to mask criminal activity, and the proceeds are fuelling broader organised crime, including drug trafficking and extortion.”
The ACIC notes that “organised criminals view the illicit tobacco trade as low-risk and high-reward”.
The process often begins in a small tobacconist, convenience store or corner shop selling contraband cigarettes. Transactions, whether paid for with cash or by card, are processed through point-of-sale terminals linked to major banks or other financial service providers. On paper, the proceeds look like legitimate retail turnover.
But in reality, they include the takings from untaxed cigarettes smuggled into the country or manufactured in hidden facilities.
Banks are legally required to know their customers, understand the nature of their business, and monitor transactions for suspicious activity.
This includes reporting cash transactions of more than $10,000, recording international funds transfers, and submitting “suspicious matter” reports to the nation’s financial intelligence unit, Austrac, when customer behaviour doesn’t match the expected business profile.
But there is no ban on providing payment services to high-risk merchants. Whether to open – or close – an account with a business suspected of selling illicit tobacco is a commercial decision for the bank. That discretion is where the laundering process finds oxygen.
If a bank decides it can “manage the risk” of dealing with a suspicious merchant, the retailer retains access to the financial system. Sales continue to be processed, accounts remain open, and the funds keep flowing.
Once the proceeds are banked, they can be aggregated and shifted between accounts. From there, one of the most common methods of laundering is the conversion of cash into an outgoing funds transfer. This can happen almost instantly, sending money to accounts controlled by syndicate members in overseas jurisdictions.
This does not mean the banks haven’t picked up on suspicious behaviour and made a report. Often, these offshore accounts are in countries with limited transparency or weak co-operation with Australian authorities, making recovery of funds nearly impossible once they’ve left the country.
Although new payment technologies and cryptocurrencies attract attention, traditional cash remains the preferred medium for criminal networks. Cash-based laundering methods frequently overlap with other high-risk channels, including poker machines, ATMs and certain cryptocurrency exchanges.
These venues offer the luxuries of anonymity, easy accessibility and rapid movement of funds, all of which appeal to criminals looking to distance themselves from the physical proceeds of crime.
Sources say that wherever there is a service that can convert cash into electronic form – whether through a gaming venue, a point-of-sale terminal or a remittance service – there is a potential laundering vulnerability.
International transfers are a critical step in the illicit tobacco money trail.
The criminal networks controlling the trade often have operational hubs outside Australia. Moving profits offshore allows them to pay for future shipments, settle debts with suppliers, and invest in other criminal enterprises.
Financial intelligence officials say the speed of modern banking systems, combined with the volume of transactions, makes it difficult to distinguish dirty money from legitimate trade without robust reporting from banks.
Sources inside the illicit market have told The Australian a well-established tobacconist or “gift store” can rack up to $9000 a day, while less popular stores could make a minimum of $600 a day.
Exiled tobacco boss Kazem “Kaz” Hamad, Fadi Haddara and Bakarat brothers Dib and Hassan control much of the black market in Australia, while they also demand an “extortion fee” or “Kaz tax” of $2000 to $5000 a week from retailers caught selling the black market nicotine products.
Those who refuse to pay are threatened, and if they refuse to fall in line, their shops may be firebombed.
There have been reports suggesting Hamad, an exiled Iraqi smuggler, has amassed more than $1.4bn in wealth in just two years, making him the biggest-earning criminal in Melbourne gangland history.
Shopkeepers wanting to clean dirty money could also conduct “cash drops” at front businesses, where complicit owners agree to inflate daily takings and deposit the funds as if they were genuine revenue.
Austrac deputy chief executive of regulation Katie Miller said criminals would use any available channels to launder illicit funds.
“In addition to financial institutions, payment terminals and wire transfers, other channels to move illicit funds offshore include offsetting, trade based money laundering, cash couriers or mules, cash to crypto, cash to luxury assets, and cash based gambling,” Ms Miller said.
“The obligation to identify, mitigate and manage money-laundering risks applies to the channels used by financial institutions and remitters as it does other Austrac-regulated businesses.
“If the risks are too difficult to manage, or the risk profile of a service or customer doesn’t align with a business’s risk appetite, the business must consider whether they continue offering the service or doing business with the customer.
“If a business is going to retain the service or customer, the business needs to be able to manage the money laundering risks through customer due diligence, transaction monitoring and reporting to Austrac.”
Last month, Victoria Police revealed how an Iraqi-based tobacco boss was using a small takeaway shop in Somerton and a small factory in Epping, in Melbourne’s north, to wash his dirty money.
Police believe more than $83m of cash has been laundered at these locations since May 2021.
Austrac and other law-enforcement agencies run multi-agency taskforces targeting illicit tobacco networks, sharing intelligence from suspicious matter reports, threshold transaction records, and international transfer data. But regulators openly acknowledge they depend heavily on banks and payment providers to detect and report suspicious patterns in the first place.
Without those reports, the agencies have little visibility into the day-to-day money flows of suspect merchants.
Failure to report suspicious activity is a civil penalty offence under the Anti-Money Laundering and Counter-Terrorism Financing Act. Yet enforcement is complex. Gathering the evidence needed to prove non-compliance takes time, and action can be delayed while cases are built to a prosecutable standard.
Some changes in the sector have come not from regulation but from public scrutiny. In the wake of media investigations into ATMs in tobacconists being used to launder cash, some banks and service providers have withdrawn those machines from high-risk locations.
Regulators have described such withdrawals as a positive step, but the fact they occurred voluntarily, without direct enforcement, underlines how much power banks hold in determining the reach of criminal networks.
The illicit tobacco trade is estimated to cost the federal budget billions of dollars in lost excise every year. Authorities stress that the real damage goes beyond lost revenue, feeding the growth of transnational organised crime groups that also deal in drugs, weapons and human trafficking.
Despite targeted operations, the core laundering pipeline remains intact: a customer buys a packet of untaxed cigarettes in a suburban shop; the sale is processed like any other; the banked funds are bundled into an international transfer; and the money arrives in an overseas account, all within a single day.
Clean on paper, dirty in reality, powered by the very financial infrastructure designed to prevent it.
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