Squillions: How money laundering quietly won the war against regulators

Every Australian who has opened a bank account in the last decade has filled in the same tedious forms: proof of address, certified ID, source of funds, beneficial ownership, the lot. Every accountant, real estate agent and crypto exchange now has a compliance officer. We are, on paper, drowning in anti-money-laundering rules. And yet, as the novelist and financial writer John Lanchester argues in his recent London Review of Books essay Squillions: Where's all the cash?, the dirty money keeps moving — bigger, faster and more brazenly than ever.

Lanchester's question is deceptively simple. If the world's anti-money-laundering (AML) regime catches, by most credible estimates, only a tiny sliver of illicit flows, where is the rest? The answer is uncomfortable: it is in property, in art, in shell companies, in sovereign debt, in luxury goods, in football clubs — and increasingly, in the legitimate economy that the rest of us depend on. Money laundering hasn't been defeated. It has been absorbed.

The compliance theatre

The modern AML system was built in the late 1980s and 1990s, when policymakers — alarmed by the cocaine boom and the rise of organised crime — designed a regime around banks. The logic was straightforward: dirty money had to enter the financial system somewhere, so make banks the gatekeepers. Force them to know their customers, file suspicious activity reports and freeze accounts that smelled wrong.

That bet paid off, briefly. But, as Lanchester's essay traces, the architecture is now decades old and obviously broken. Banks file millions of suspicious activity reports a year. Almost none of them are read. Almost none result in prosecutions. Penalties for the largest banks — HSBC, Danske Bank, ING, Standard Chartered — have run into billions of dollars for laundering the proceeds of drug cartels, sanctioned regimes and kleptocrats. None of these fines has changed the underlying business model. They are simply the cost of doing business in a system that, on aggregate, is hugely profitable.

The result is what compliance professionals privately call "security theatre": an enormous, expensive performance of vigilance whose primary output is paperwork. Australia's AUSTRAC has had its own moments in this saga — recall the record $1.3 billion penalty against Westpac in 2020 over breaches that included payments linked to child exploitation. The scandal was real. The lesson, apparently, was not.

Why the system can't catch up

Lanchester's essay is at its sharpest when it explains why reform never quite arrives. There are three structural reasons, and all of them matter for anyone trying to understand the contemporary financial world.

The first is jurisdictional. Money is global; regulators are national. A wire transfer can pass through five jurisdictions in an hour, each with different rules, different appetites for enforcement and different incentives to look the other way. The British Virgin Islands, Delaware, Dubai, Cyprus, Singapore — every serious reform proposal eventually runs into the fact that someone, somewhere, will accept the business that London or Sydney refuses.

The second is the rise of asset classes that simply do not fit the bank-centric model. Property is the obvious one. London's prime real estate, Sydney's eastern suburbs and the Gold Coast have long been understood as parking spaces for money whose provenance no one wants to inspect too closely. Art and collectibles work similarly, with the added bonus of mobility and opacity. And then there is crypto — a parallel financial system explicitly designed, in many of its corners, to resist the very surveillance that AML rules depend on.

The third reason is the most awkward. The professionals required to launder money at scale — lawyers, accountants, estate agents, trust and company service providers — are precisely the people the regulator is asking to police themselves. In most jurisdictions, including Australia, the so-called "tranche 2" extension of AML rules to these professions was promised for years and only recently legislated. The lobbying against it was ferocious, and the implementation timeline remains generous.

The NFT detour, and other distractions

While regulators were preoccupied with the last war, the financial frontier kept moving. A telling sideshow: Ancient Origins recently reported on an aristocratic Czech family selling NFTs to fund the conservation of their historic estate. The story is charming on its own terms — heritage preservation through digital tokens — but it is also a small reminder of how quickly novel asset classes appear, attract money, and create new envelopes inside which value can move without obvious oversight.

NFTs themselves turned out to be a less convincing laundering vehicle than the hype suggested, largely because the market collapsed. But the broader pattern is real. Every few years, a new instrument emerges — special purpose acquisition companies, tokenised real-world assets, stablecoins, private credit funds — that sits awkwardly outside the existing rulebook. By the time regulators catch up, the money has moved on.

What regulators still don't understand

Reading Lanchester alongside the daily flow of enforcement actions, three blind spots stand out.

One: the problem is not detection, it is consequence. Banks already detect enormous volumes of suspicious activity. What is missing is investigation, prosecution and asset recovery on a scale that would deter anyone. Filing a report into a void is not enforcement.

Two: beneficial ownership transparency is the whole game. Almost every serious laundering scheme depends on opaque corporate structures. The UK's beneficial ownership register, Australia's slow-moving equivalent, and the EU's wobbling efforts on the same — these are the actual frontline. Yet they are routinely undermined by lobbying, weak verification and exemptions for trusts.

Three: the political will isn't there, because the money is useful. This is the part of Lanchester's argument that lingers. Dirty money props up property markets, funds football clubs, finances political campaigns and pays the salaries of the professional services class. Cleaning it out is not a technocratic problem with a technical solution. It is a political choice that successive governments — in Britain, Australia and almost everywhere else — have declined to make.

What it means for the rest of us

For ordinary Australians, the consequences are not abstract. When laundered capital floods into housing, prices rise and locals are priced out. When tax havens shelter trillions, the burden shifts onto wage earners. When sanctions are evaded, foreign policy becomes a fiction. When fraud and scams proliferate — and Australia has watched scam losses balloon into the billions annually — the same weak identity and payments infrastructure is to blame.

There are reasons for cautious optimism. The expansion of AML obligations to lawyers, accountants and real estate agents, long overdue, is finally happening. Public beneficial ownership registries are gaining ground. Sanctions enforcement against Russian assets after 2022 demonstrated that, when political will exists, the system can move quickly. And artificial intelligence may, for the first time, make the analysis of suspicious activity reports tractable.

But Lanchester's essay is a useful corrective to the assumption that we are winning. The honest scoreboard says otherwise. Money laundering did not lose the last thirty years; it grew up, professionalised, and quietly integrated itself into the infrastructure of global finance. The question now is not how to defeat it but how much of the legitimate economy we are willing to let it remake before we admit the policy framework needs to be rebuilt from the ground up.

The squillions, in other words, are not missing. They are hiding in plain sight, in the buildings we walk past every day.

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