Australia’s professional services sector is being used for money laundering. Time for tougher laws

Australia’s stable political and legal systems – and relatively resilient economy – make it an attractive place to do business.

But they are also an attractive place for criminals who want to launder illegally acquired money. This is made all the more difficult by the fact that our anti-money laundering laws are not strict enough.

In a joint appearance before the National Press Club on Tuesday, Attorney-General Mark Dreyfus and Australian Transaction Reports and Analysis Centre (AUSTRAC) Chief Executive Brendan Thomas announced the publication of two new national risk assessments of money laundering and terrorism financing in Australia.

This follows the conclusion last month of the second round of consultations on anti-money laundering and countering terrorism financing reforms.

Dreyfus and Thomas painted a grim picture of a country not only rife with the dangers of crime and money laundering, but also lacking adequate control mechanisms to prevent it.

What is money laundering?

Money laundering is the process of cleansing “dirty” money.

Dirty money is typically the proceeds of crime, including drug trafficking, tax evasion, corruption and bribery, or other scams.

Money generated by crime usually can’t simply be spent by the criminals involved. Simply depositing it in a bank would set off all sorts of alarms.

Criminals need to make it harder for authorities to trace them back to them, so they use a variety of methods to launder money. Simply put, they try to make it look like legitimate income.

This can be done by purchasing real estate, transferring funds through shell companies, depositing small amounts into various bank accounts, or playing at casinos.

Today’s presentation highlighted that many of these money laundering methods are often used by corrupt or unwitting service providers, including lawyers, accountants, consultants, trust and company service providers, financial advisers and real estate professionals.

They are known as “gatekeepers” because they act as intermediaries that can control access to certain services or information that criminals can use to launder money.

The regulations are not at the highest level

In Australia, these entities are not currently covered by anti-money laundering and counter-terrorism financing regulations, making us one of the few countries ignoring this huge vulnerability.

Coincidentally, on Tuesday the global anti-money laundering and terrorism financing watchdog, the Financial Action Task Force (FATF), also released a report examining “technical compliance with anti-corruption provisions” used by security guards.

Australia, China and the United States all scored 0% on regulatory sector requirements, placing all three countries at the bottom of the global rankings.

According to the report, in our case this is mainly because:

In Australia, these sectors are not required to implement any of the preventive measures required by the FATF standards since 2003.

Recipe for criminal exploitation

AUSTRAC’s risk assessment has classified domestic real estate, luxury goods and cash (both as a means of transfer and store of value) as “very high risk” money laundering conduits or sectors.

Accountants, lawyers, precious metals and legal structures have been classified as ‘high risk’. These sectors could play a role in better money laundering controls in Australia. Instead, they are currently passive, and sometimes active, enablers.

In the income crime risk rankings, illegal drugs, tax and revenue crimes, and government-sponsored fraud were identified as the riskiest. The proceeds of these crimes are known to be laundered. Careful laundering can allow criminals to use the money with impunity, fueling further crime.

Combine these two sets of risk assessments and it becomes clear that Australia has both highly profitable criminal activity and a number of sectors highly susceptible to money laundering abuse. It’s a recipe for criminal exploitation.

There is an appetite for change

The national risk assessments are timely. Tranche II reforms to update Australia’s AML/CFT measures are underway. The last Budget allocated A$166.4 million to implement the necessary reforms.

As part of these reforms, a wide range of gatekeeper companies in Australia will be required to develop an AML/CFT program. Organizational risk must be assessed. Suspicious transactions must be reported. The impact will undoubtedly be awareness and education about money laundering through these legal channels.

The National Risk Assessments have been a significant undertaking for AUSTRAC. They provide an evidence base for the money laundering and terrorist financing risks faced in Australia.

As AUSTRAC CEO Brendan Thomas has noted, Australia’s strong business sector is attractive to both legitimate and illegitimate businesses. Criminals are good at exploiting weaknesses, so controls that slow them down need to be stronger.

An effective anti-money laundering regime is the best tool we can have to control the flow of dirty money. While we will never eliminate it completely, we can certainly do a better job of detecting, deterring and preventing the abuse of legal channels in Australia.

Our government has had 17 years since the AML/CFT Act was passed to bring the regulations up to the minimum standards set by the global Financial Action Task Force. So far, it has failed to do so. Not only does this leave huge loopholes for criminals to exploit, but it also means that we are not collecting data on suspicious transactions in these gatekeeping industries.

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Read more: Australia is awash with dirty money – here’s how to close money laundering loopholes

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