Austrac needs to harden up

Australia's anti-money laundering and counter-terrorism financing regulator Austrac has never fined a reporting entity for a violation of its obligations, preferring instead to use enforceable undertakings.

For Austrac, this is a sign of healthy collaborative approach with industry but for the Financial Action Task Force, which has just completed a review of Australia's AML/CTF regime, it is a serious shortcoming.

FATF, which is an inter-governmental body whose role is to set standards for combating money laundering and terrorism financing, wrote in a report published last week: "[Austrac's] use of sanctions for non-compliance has had minimal impact on ensuring compliance among reporting entities not directly affected by the sanction. Overall, the authorities were unable to demonstrate improving AML/CTF compliance by reporting entities."

FATF also said Austrac needed to improve its "risk picture" of supervised entities and undertake more enforcement. And it said Austrac had inadequate supervisory authority when it came to dealing with overseas branches and subsidiaries of local supervised entities.

The comments on Austrac's performance were part of a wide-ranging review of Australia's AML/CTF regime, in which FATF said Australian authorities needed to exercise more effective oversight of the not-for-profit and professional sectors, as well as "legal persons" (including foreign companies operating in Australia).

FATF also said major reporting entities, including the big domestic banks, did not always meet FATF standards. It said Austrac needed a stronger focus on compliance.

It said there were deficiencies in the preventive measures put in place by organisations working in the remittance market. And it said conviction rates for money laundering offences were "lower than they could be, relative to the nature and scale of the risks."

In response to FTAF's comments about its approach to sanctions, Austrac chief executive Paul Jevtovic said: "We want to work with reporting entities to safeguard our economy. Industry has a role to play in this. In the first instance we look to see if they in breach because of ignorance or wrongdoing. That is important.

"When the evidence supports action using the full force of our powers we will use them. But we also have to use industry as the first line of defence. Most are doing the right thing and meeting their obligations."

Jevtovic pointed out that Austrac had actually applied a financial sanction since the FATF report was prepared.

FATF would like to see Austrac collect more data. It said: "An important factor Austrac uses in identifying money laundering and terrorist financing risk at the reporting entity group level is the volume and value of transaction reports, such as suspicious matter reports and international funds transfer instructions, as an indicator of the volume of funds flowing through an entity.

"It is not sufficiently clear that Austrac, when risk profiling REGs [reporting entity groups] collects and uses sufficient information necessary to adequately determine the level of inherent risk of the REG beyond the information from transaction reports."

Jevtovic said that Austrac could gain access to other data sources, such as criminal histories, but it was important not to have a duplication of effort.

"I take FATF's comment on board but our approach is to co-ordinate with other agencies," he said.

FATF said it was also concerned about Austrac's enforcement record. The report said: "Austrac succeeds to a fair extent in promoting compliance with AML/CTF requirements. However, the number of enforcement actions and the subjects of these actions do not convincingly demonstrate that reporting entities are subject to effective and proportionate sanctions.

"Austrac's approach does not seem sufficiently nuanced to adequately account for risks of individual reporting entities in a REG. More generally Austrac's graduated approach to supervision does not seem to be adequate to ensure compliance."

Jevtovic said Austrac supervised 14,000 entities and to manage that mandate it had adopted a strategy of broad-based education.

He said Austrac had a good record of working with law enforcement agencies to disrupt a lot of criminal activity. He added that there had been a very big increase in the number of money laundering prosecutions since the last FATF review.