Austrac defends its application of remittance sector rules

Austrac's use of its power to cancel or suspend the registration of remitters has been highly effective in reducing the risks associated with money laundering, terrorism and financial crime, the anti-money laundering and counter-terrorism regulator has argued in a paper.

Austrac's handling of the remittance industry was in the news throughout 2014, with the regulator stepping up its enforcement activity in the sector and a number of banks opting not to provide banking services to remitters.

Last week Austrac issued a review of the rules relating to the regulation of remitters and called for submissions, including the operation of the Remittance Sector Register.

Under Chapters 58 and 59 of the Anti-Money Laundering and Counter-Terrorism Financing Rules, Austrac is able to cancel or suspend a remitter's registration, or place conditions on an applicant's request to operate.
 

Austrac said the Remittance Sector Register and the accompanying rules had delivered significant benefits to the community and reporting entities. 



"Austrac and the Australian Crime Commission have identified that the cost of money laundering to the Australian community is significant and it is ranked as one of the three top critical crime risks for our nation," the regulator said.

It said Chapters 58 and 59 had reduced the ability of criminals to use remittance services to hide the proceeds of serious crime or to fund terrorist activities. It said this helped to protect the commercial interests of the remittance sector and had cemented its role in Australia's financial system, including its role in financial inclusion.



The regulator's comments have come at a critical time for the remittance sector, which is suffering from a wave of bank account closures on AML/CTF compliance grounds. Australia's biggest banks are refusing to offer services to remitters, which they argue pose an excessive risk under the banks' various global AML/CTF obligations.

In November last year AUSTRAC encouraged Australia's banks to continue to work with the remittance sector. In the process, AUSTRAC challenged the banks' claims that the sector posed too great a risk in terms of AML/CTF compliance.



"In Austrac's view, alternative remitters represent varying degrees of risk to banks. With appropriate AML/CTF systems and controls in place, banks should be able to manage high-risk customers, including alternative remitters," the regulator said.

Austrac urged banks to continue to assess the risks relating to their customers on a case-by-case basis, in line with the risk-based approach.

 "AUSTRAC encourages banks to engage with alternative remitters on measures that the sector could take both immediately and in the longer term to meet banks' internal risk standards," it said. 



The regulator also indicated that it would continue to work with alternative remitters and banks, alongside other government agencies, to address the "complex set of issues" underlying the problems which face the industry.



In the latest paper, Austrac said the Remittance Sector Register would help to eliminate high-risk remittance service providers from the industry. It said this would "improve the resilience and effectiveness of the sector and reduce opportunities for criminals to misuse 'weak links' in the sector to move, hide and disguise the profits from their crimes."



"Criminals, including people smugglers, will have fewer 'easy' avenues through which to channel funds to pay for their activities," AUSTRAC said.



The regulator has used these powers extensively during a crackdown on remitters over the past two years. In January it fined remittance network provider MoneyGram A$122,400 when it discovered that six of its 800-plus Australian affiliates were not registered. In November last year Austrac cancelled the registration of Sydney-based remittance provider, Bisotel Rieh, after concerns emerged about its possible links to the financing of terrorism.



In July last year it cancelled the registration of KMT Sydney, an independent remittance provider, for continuous anti-money laundering and counter-terrorism financing failures. The regulator found that KMT did not have suitable systems and procedures in place to manage or reduce its money laundering or terrorism financing risks. Austrac also found that KMT had provided designated remittance services prior to being registered with AUSTRAC, which is an offence under the Act.



In April 2013 Austrac also removed Fast Exchange, a remitter based in New South Wales, from the AUSTRAC Remittance Sector Register for money laundering breaches. 

While the register has given AUSTRAC the ability to move quickly against non-compliant entities, it has also proved controversial within the industry. Remitters have complained that banks are using the register as a "red flag list" and closing the accounts of any entities that appear on it. As such, many have said the register has backfired on them, despite having done everything within their power to comply with the AML/CTF regime.



This article was first published by the Compliance Complete Service of Thomson Reuters Accelus