The adequacy and efficacy of Australia’s Anti-Money Laundering/Counter-Terrorism Financing regime

On Wednesday 23 June 2021, the Australian Senate passed a Motion brought by Senator Deborah O’Neil to refer to the Senate Standing Committee on Legal and Constitutional Affairs for inquiry and report by 2 December 2021 matters relating to the adequacy and efficacy of Australia’s Anti-Money Laundering/Counter-Terrorism Financing (AML/CTF) regime (Inquiry).

The Motion has been published on the parliamentary website, and includes:

• the Australian Transaction Reports Analysis Centre’s (AUSTRAC) response and reliance on reporting entities;
• the extent to which Australia’s AML/CTF regulatory arrangements could be strengthened;
• the effectiveness of the AML/CTF Act to prevent money laundering outside the banking sector;
• the attractiveness of Australia as a destination for proceeds of foreign crime and corruption, for example in the real estate market;
• Australia’s compliance with the Financial Action Task Force (FATF) Recommendations; and
• the regulatory impact, costs and benefits of extending AML/CTF reporting obligations to designated non-financial businesses and professions (DNFBPs or ‘gatekeeper professions’), aka ‘Tranche Two’;
• the extent to which DNFBPs take account of money laundering and terrorism financing risks, and how their  existing professional obligations are compatible with AML/CTF reporting obligations.

To all keen observers, it should not come as a surprise that Australia’s AML/CTF framework continues to be in the spotlight.  The number and magnitude of penalties levied by AUSTRAC, increasing enforcement actions initiated by AUSTRAC, the surge of financial criminal activity during the COVID-19 pandemic and record-setting property prices (which some suggest is being driven by the absence of Tranche 2 legislation) are just some of the reasons why this Inquiry was perhaps inevitable.

As noted in the Motion, this it is not the first time Australia’s AML/CTF regime has been under the microscope.

In 2015, the FATF Mutual Evaluation report provided a summary of the AML/CTF measures in place in Australia. The report analysed the level of compliance with the FATF 40 Recommendations and the level of effectiveness of Australia’s AML/ CTF system, and provided recommendations on how the system could be strengthened.

Most designated non-financial business and profession sectors are not subject to AML/CTF requirements, and did not demonstrate an adequate understanding of their ML/TF risks or have measures to mitigate them effectively. This includes real estate agents and lawyers, both of which have been identified to be of high ML risk in Australia’s National Threat Assessment.

Financial Action Task Force, Mutual Evaluation of Australia 2015, Executive Summary Page 6

In 2016, the Report on the Statutory Review of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 and Associated Rules and Regulations made 84 recommendations to strengthen Australia’s AML/CTF regime and implement a more efficient and effective regulatory framework. The recommendations arising from the review were a response to the 2015 Mutual Evaluation report by the FATF and were designed to bolster measures to protect the Australian community and financial system, while not imposing unnecessary costs on regulated businesses.

The announcement of the Inquiry may provide a unique opportunity for organisations to shape the future of Australia’s evolving financial crime regime. Norton Rose Fulbright has a leading financial crime practice in Australia and across the Globe. The firm intends to engage with this Inquiry and to assist clients who wish (or are called upon) to do the same.

We will be tracking this Inquiry closely and look forward to engaging with the industry as it evolves.