Australia’s AML/CTF Inquiry: Emerging themes and issues

This article was co-authored with Josh Mackenzie.

The inquiry into the adequacy and efficacy of Australia’s Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) regime (Inquiry) continues to provide thought-provoking and industry-centric feedback as to how current and future reporting entities envisage compliance with AML/CTF laws in Australia.

With over 20 submissions from various agencies, institutions and individuals, participants have critically and extensively engaged with the key issues raised in the Inquiry’s Discussion Paper.

These have included submissions in support of extending Australia’s AML/CTF regime to Designated Non-Financial Businesses and Professions (DNFBPs), technological and digital solutions for AML/CTF compliance as well as Australia’s continuing and important regional role in the Pacific. We explore these themes in this update.

DNFBP Developments

A majority of the current publicly available submissions have drawn on the imperative for Australia to address the gaps in the Australian AML/CTF regime as identified in the Financial Action Task Force’s (FATF) 2015 Mutual Evaluation Report.

The growing, renewed support for extending AML/CTF regulation is also timely following AUSTRAC’s recent publication of banking risk assessments for money laundering and terrorism financing risk. These risk assessments focused on the wide exposure banks have to DNFBPs including, real estate agents and lawyers, largely because they offer specific products such as statutory trust accounts to these professions.

As the main issue for the Inquiry, Tranche 2 and DNFBP challenges also go beyond regulating new services and professions and encompasses the emerging technological and market uplifts that the AML/CTF industry is currently undergoing.

Digitisation Enhancements

Technology and digital capability is another core issue raised by participants. As reporting entities and consumers continue to engage with and rely on new, innovative technology and digital products, a critical question raised in certain submissions is whether Australia’s designated services regulation model is capable of adjusting to these rapid changes.

Reporting entities and industry have already encountered these issues and have turned to digital solutions in order to streamline and reduce compliance hurdles. For example, customer due diligence obligations continue to reckon with the geographical disbursements and cyber platforms that reporting entities currently rely on in identifying and verifying customers.

Ultimately, digital solutions and measures should be fit-for purpose, especially with FATF Executive Secretary David Lewis recent comments that digitised solutions do not necessarily require the expenditure of “hundreds of billions”, which may result in increased costs to customers. This may also push demand for “alternative, cheaper, easier and riskier ways for people to send and receive money around the world”.

The Australia-Pacific Region

Drawing on Australia’s greater role in shaping the commercial and geo-political landscape in Asia-Pacific, participants have considered the risk of anti-competitive behaviours which can stem from disproportionate levels of compliance requirements and a ‘zero-tolerance’ response to comply with Australia’s AML/CTF regime in the region.

AUSTRAC’s recent offering of video conference kits to its financial intelligence unit in 7 pacific nations is a stark reminder of ongoing investment in the Pacific region to strengthen collaboration and enhance the security of the region.

As Australia considers the reforms and changes to its own AML/CTF regime, the impacts of those changes are also likely to affect Australia’s Pacific neighbours.

The recent FATF Mutual Evaluation Report for Tonga in particular noted the under-resourced financial intelligence unit, the Tongan Transaction Reporting Agency. One of the recommended actions of the evaluation, which is relevant for the AML/CTF Inquiry, is that Tonga should undertake more systematic and regular in-depth analysis and assessment of regional money laundering and terrorism financing threats including with regional partners like Australia.

As underscored in submissions by participants, risk-based decision-making in Australia is therefore essential to ensure that emerging and developing markets in the region are not neglected.

Reporting entities as well as other entities who fall within the ambit of Australia’s AML/CTF legislative regime should continue to watch this space and monitor the Inquiry closely. As the Inquiry progresses, Norton Rose Fulbright has been engaging with this Inquiry and is assisting clients. We continue to track this Inquiry closely as it evolves.