AUSTRAC chief calls for more AML law enforcement resources

Nicole Rose, CEO of Australia’s financial intelligence agency, AUSTRAC, has warned that more money laundering prosecutions are needed to bolster the global credibility of Australia’s AML/CFT regime. The warning was issued by Rose at Australasia’s 2nd Annual Anti-Money Laundering (AML) and Anti-Financial Crime Conference organized by the Association of Certified Anti-Money Laundering Specialists (ACAMS) on June 20. 

Responding to Rose’s call for more resources for enforcement agencies to advance money laundering investigations, David Shannon, the Director of the mutual evaluation process for the Asia/Pacific Group on Money Laundering, cautioned financial experts that “Australia won’t get any free rides” from the Financial Action Task Force (FATF) if serious action is not taken. 

In Australia’s previous 3rd Enhanced Follow-up Report in 2018, the FATF noted that the country had failed to implement nearly one-third of its recommendations and called for urgent action to bring Australia’s regime up to speed. With the country’s next evaluation due in 2025, Australia’s new Labor government will also have to consider reforms such as the introduction of a beneficial ownership index and the implementation of tranche 2 reforms which would bring lawyers and real estate agencies into the AML system. These measures were not enacted by the previous administration. 

Establishing a culture of compliance

In the run-up to the FATF’s next MER, Rose acknowledged the importance of establishing a culture of compliance, beginning with changes in corporate behavior. 

Recent evidence of such change was seen in the major financial penalties issued to the financial institutions of Westpac and Commonwealth Bank of Australia. The firms received fines totaling $2 billion for failing to report customers’ suspicious transactions in 2020 and 2018 respectively. Rose noted that these actions helped Australian chief executives and board members “to take money laundering seriously”. 

Without this seriousness, Rose argued that setting and maintaining a culture of compliance would be impossible. The tone regarding the oversight and management of compliance obligations must be set by the Board and senior management for a compliance program to be effective long-term.

Vigilant reporting

Rose also highlighted the importance of vigilant reporting, enabling AUSTRAC to deliver “the best financial intelligence possible”.

Since June 2021 AUSTRAC has seen an uplift in both the quantity and the quality of the reporting of suspicious financial activity, due to improvements made in public-private information sharing through The Fintel Alliance.  Over the past year, a 318% increase in the number of suspicious matter reports (SMRs) was submitted by reporting entities. As the capabilities and compliance among reporting entities continue to improve, AUSTRAC notes that it will be able to create an increasingly “clearer, richer picture of the threat environment” for law enforcement agencies. 

De-risking

Rose also noted the challenge of de-risking, which has impacted money transfer businesses, digital currency exchanges, not-for-profit organizations (NPO) and FinTechs over the last ten years. 

While AUSTRAC continues to discourage the “widespread closure of accounts across entire financial services sectors”, Rose highlighted the importance of reporting entities applying a risk-based approach to providing financial services and assessing the risk of customers on a case-by-case basis. 

To further assist regulated entities in their de-risking efforts, upcoming guidance from AUSTRAC is being developed that will clarify how to provide financial services to customers from high-risk sectors. It will also provide support for financial institutions to apply appropriate risk identification, mitigation and management systems to assess these customers.

Focus on pubs, clubs and casinos

Rose reiterated AUSTRAC’s focus on high-risk, cash-intensive sectors such as pubs, clubs, and casinos. 

Earlier this year, AUSTRAC highlighted its work on enforcement investigations into casinos, with the agency undertaking civil proceedings against Australia’s largest casino operator, Crown Resorts. 

Rose notes that “effective reporting from casinos would be of great value to AUSTRAC”. To facilitate this, the agency is looking to the delivery of a new reporting system, known as the Reporting Entities System Transformation (REST) Program. This, it hopes, will provide reporting entities with a modern, secure and intuitive experience that will make it easier for high-risk businesses, such as casinos, to comply, report and interact with AUSTRAC.

AUSTRAC also published guidance for businesses that are licensed to operate electronic gaming machines in December 2021. Since then, AUSTRAC has visited 224 venues covering 398 regulated businesses that operate a total of 663 pubs and clubs during an educational campaign. 

As AUSTRAC continues towards its objective of assisting high-risk businesses with identifying their financial crime risks, further published guidance relating to these sectors can be expected.

Next steps 

Compliance teams should look out for the upcoming risk assessments Rose mentioned in her speech that will focus on remittance network providers and their affiliates; independent remittance providers; Australian casinos; and the Bullion sector. Prior to their release, compliance staff should ensure they are up-to-date with the latest risk assessments relevant to their work, including reports on Australia’s major banks; Australia’s other domestic banks; Foreign bank branches in Australia; and, Foreign subsidiaries in Australia.

Rose also referenced a Criminal Threat Update that is being developed for the superannuation sector. Firms with services in this sector should be ready to make necessary adjustments to their compliance programs to reflect any changes highlighted in this update.