Failure by successive governments to expand the coverage of the country’s anti-money laundering and counter-terrorism financing regime to cover non-financial businesses has earned Australia a poor report card from the global AML/CTF standard setter and monitoring agency.
The Financial Action Task Force released a report on Australia’s compliance with global AML/CTF requirements last week, assigning non-compliant ratings to four of its previous recommendations for improvement of the regime.
Three of the non-compliant ratings relate to AML/CTF coverage of “designated non-financial businesses and professions”. These DNFBPs include lawyers, accountants, real estate agents, conveyancers, trust and company service providers.
The other area of non-compliance identified in the latest FATF report related to “transparency and beneficial ownership of legal arrangements”. FATF said Australia relies exclusively on ASIC to trace beneficial ownership of shares, which only covers public companies. “No such mechanism exists for private companies,” it said.
Australian AML/CTF law applies to financial institutions, money remitters, digital currency exchanges, gambling service providers and gold bullion dealers. DNFBPs are covered in most countries that have AML/CTF regimes and FATF would like Australia to fall into line.
The issue has a long history. In 2015, FATF released a review of the Australian regime, which included the finding that one of its shortcomings was that “professional groups did not demonstrate an adequate understanding of their AML/CTF risks or have measures to mitigate them effectively.”
In 2016, The Statutory Review of the Anti-Money Laundering and Counter-Terrorism Financing Act recommended that Australia's regime should be extended to cover “other services” that pose ML/TF risk. In the Australian context, the expansion of the regime to cover DNFBPs was referred to as “tranche 2”.
The government of the day supported a move to tranche 2 but nothing was done about it.
In March 2022, the Senate Legal and Constitutional Affairs References Committee released a report on the adequacy of Australia’s AML/CTF regime, recommending that the government “accelerate its consultation with stakeholders on the timely implementation of tranche 2 reforms.”
In April last year, Attorney-General Mark Dreyfus released a consultation paper that included proposals to introduce tranche 2 reforms.
At the time the paper was released, Dreyfus said: “Australia is now one of only five jurisdictions, including China, Haiti, Madagascar and the United States, out of more than 200 that do not regulate tranche 2 entities.”
Since then nothing has been done. The FATF report also pointed to a number of “technical compliance deficiencies” that need to be addressed for the Australian AML/CTF regime to be fully compliant with international standards.
Dreyfus was on the front foot following the release of the FATF report, saying Australia’s relatively poor AML/CTF compliance compared with its global peers was the result of “the former government’s failure to act”.
Dreyfus must accept that his government has also failed to act.
The case for including professional service providers in the AML/CTF regime has been made a number of times over the years. In 2022, FATF reported that real estate transactions pose high money laundering and terrorism financing risks and that effective implementation of its standards must include coverage of the sector
FATF said the purchase of real estate allows for the movement of large amounts of funds, all at once in a single transaction as opposed to multiple transactions of smaller value. Buyers and sellers do not usually have ongoing relationships, which makes it more difficult to identify patterns of suspicious activity. And in many countries there are only limited requirements to determine the beneficial ownership or source of funds behind the entity making the purchase.
Last year’s government consultation paper also outlined proposals to simplify and streamline AML/CTF obligations.
This is another overdue reform. The 2016 statutory review said the rules were too complex. “This complexity generates uncertainty, impeding industry's ability to understand and comply with its obligations,” it said.
The proposed changes include a move to a more principles-based approach, allowing regulated entities to determine their risk level and establish an appropriate AML/CTF program.