A sophisticated money laundering operation linked to Sydney’s illegal tobacco trade has been dismantled following the arrest of Xiaoli Xue, a 36-year-old woman accused of using fraudulent mortgages to wash nearly $7 million in criminal proceeds.
The scheme: laundering through property
Mortgage fraud has long been a favoured tool of financial criminals, but Xue’s case stands out for its scale and integration with Sydney’s illicit tobacco market. Since 2020, authorities allege that Xue obtained up to 10 home loans using falsified income documents. These fraudulent mortgages were then repaid using illicit funds, effectively washing millions of dollars linked to organised crime.
The funds, investigators say, were largely sourced from the illegal tobacco trade, a booming black-market industry responsible for turf wars, arson attacks and organised crime violence across Australia.
Xue’s scheme allowed criminals to integrate these proceeds into the legitimate financial system, effectively disguising dirty money as legitimate mortgage repayments. As the loans were paid down, the capital became ‘clean,’ ready for reinvestment or withdrawal without raising suspicion.
The takedown: raids and arrests
Xue’s arrest followed an extensive six-month investigation into seven Sydney properties. Financial Crimes Squad detectives executed search warrants in Berala and Auburn, uncovering evidence that extended far beyond mortgage fraud.
Authorities seized:
- $2.5 million worth of illicit tobacco cigarettes
- $28,000 in loose-leaf tobacco
- $104,465 in cash
- A luxury Mercedes GLC300 valued at $110,000
Further searches at an Auburn property revealed an illegal gambling den and an unlicensed tattoo parlour, both believed to be linked to the broader criminal network.
Organised crime and the illicit tobacco market
Xue’s arrest is the latest development in an escalating crackdown on financial crime tied to Australia’s black-market tobacco industry. The illegal tobacco trade has become one of the country’s most lucrative criminal enterprises, with organised syndicates often with ties to outlaw motorcycle gangs and international crime networks raking in millions in tax-free profits.
In recent months, law enforcement agencies have observed a rise in violent tactics associated with the trade, including firebombings of rival tobacconists. More than 100 arson incidents in Victoria alone have been linked to criminal groups battling for market control, with concerns the violence is spreading across state borders.
Legal consequences and asset seizures
Xue has been charged with 20 offences, including multiple counts of fraud and dealing with the proceeds of crime. Despite police objections, she was granted bail under strict conditions, including the surrender of her passports, daily reporting to authorities and a $100,000 deposit to secure her release.
The NSW Crime Commission has moved to freeze her assets, launching civil proceedings to recover the alleged criminal proceeds.
Detective Superintendent Gordon Arbinja of the Financial Crimes Squad made it clear that the use of fraudulent mortgages as a laundering mechanism is a serious threat to the integrity of Australia’s financial system.
“We will not tolerate criminals who exploit legitimate financial institutions to hide their dirty money. This case highlights the sophisticated methods used by organised crime to embed itself in the legal economy.”
A growing problem
Xue’s case serves as a stark reminder of how Australia’s property market remains vulnerable to financial crime. AUSTRAC, the country’s financial intelligence agency, has repeatedly flagged mortgage fraud and real estate as primary vehicles for money laundering.
The case also reinforces the critical role of financial institutions in identifying and reporting suspicious lending activity. Red flags, such as inflated income claims, rapid mortgage repayments and transactions linked to high-risk industries, must be scrutinised to prevent further exploitation by criminal networks.
This is another example of why the inclusion of real estate agencies and other Tranche 2 entities in Australia’s upcoming AML reforms is essential. The current regulatory gap allows criminals to use property transactions as a cover for illicit funds, weakening the effectiveness of the nation’s anti-money laundering framework. By bringing these sectors under AML regulation, authorities will gain better oversight of financial flows, increasing transparency and reducing the avenues available for money laundering.
For now, authorities remain focused on dismantling the syndicates behind these operations. With Xue facing her next court appearance in April, law enforcement’s message is clear: the days of unchecked financial crime in Australia’s real estate sector are numbered.
About First AML
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