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Australia’s Senate Urges the Country to Stop “Dragging its Feet” Over DNFBP AML Regulations

Regulation DNFBP Latest News

An extensive report into the adequacy of Australia’s anti-money laundering and combating the financing of terrorism (AML/CFT) measures has condemned a delay in expanding the scope of the country’s regulations.

The Senate committee report focuses on the failure to expand the scope of AML measures to cover designated non-financial businesses and professions (DNFBPs) such as lawyers, real estate agents, casinos and other gambling service providers, auditors and dealers in precious metals and stones.

“Australia is a laggard on the world stage, one of only three states to fail to enact any regulation in relation to DNFBPs,” the report says, adding that delays are “exposing Australians and the Australian economy to harm and risking Australia’s credibility.”

Gaps in AML legislation for DNFBPs have been blamed for billions of dollars being laundered through Australia’s housing market, and “serious and systemic non-compliance” by casino operators.

Timely Implementation of Tranche 2 Needed

While Australia has committed to introducing AML reforms for DNFBPs, its tranche 2 reforms have remained on the back burner for over a decade. The 2008 financial crisis, subsequent shifts in political priorities and fierce opposition from lawyers have all been cited as reasons for the delay.

The report notes that none of the key bodies sharing insight with the committee have been consulted in relation to tranche 2 reforms since 2017. “The need for action cannot be ignored, and the government has dragged its feet for too long,” the report says.

In 2015, the Financial Action Task Force’s (FATF) Mutual Evaluation Report (MER) found that Australia was largely non-compliant or only partially compliant with recommendations relevant to DNFBPs. In the FATF’s 3rd Enhanced Follow-up Report & Technical Compliance Re-Rating (3rd Enhanced Follow Up Report), Australia was assessed as remaining largely non-compliant with recommendations related to DNFBPs. As such, Australia remains in enhanced follow-up.

Contributors to the report note that Australian banks have already had to provide additional information to foreign financial services firms to assuage doubts caused by Australia’s non-compliance with FATF DNFBP recommendations.

The report recommends that Australia accelerate its consultation on the timely implementation of tranche 2 reforms. It also advises that regulator AUSTRAC be provided with adequate resources to effectively implement and manage the tranche 2 regime. 

AUSTRAC has argued that for tranche 2 reforms to be useful in detecting money laundering through DNFBPs, the quality of reporting is critical. 

Concerns have been raised about the cost of more stringent compliance rules for DNFBPs, but the report notes that other jurisdictions, including New Zealand and the UK, have managed this, and that technology is reducing the cost and burden of Know Your Customer (KYC) and Customer Due Diligence (CDD) checks

Introduction of a Beneficial Ownership Register

The report also notes the importance that introducing a beneficial ownership register would be an important enabler of tranche 2 reforms. This has been highlighted as an area where Australia is behind the US, UK and parts of Europe. Suggestions included collecting this information centrally in the annual statement that Australian companies are required to complete.

“The committee acknowledges the evidence that the development of a robust beneficial ownership register would both mitigate the burden on small business by enhancing and simplifying ‘know your customer’ searches and at the same time would reduce Australia’s vulnerability to money laundering,” the report says.

More widely, the report recommends considering how technological innovation could streamline regulatory processes and lower costs, alongside streamlining the existing “unnecessarily complex” AML/CFT framework, which makes it hard for firms to understand their obligations. 

It calls for Section 242 of the AML/CFT Act 2006 to be amended, to ensure the proper operation of legal professional privilege. 

2022 Milestones: FATF Review & Federal Election

FATF is likely to review progress against Australia’s 2015 MER this year and while it is unlikely that Australia will be placed on the gray list, it is clear that gaps in legislation are creating opportunities for criminals and those seeking to hide assets. For example, the Tax Justice Network specifically calls out Australia in an article about oligarch assets and the lack of beneficial ownership registration.

A federal election has also been called for May 21st, which will likely slow down any legislative progress on these issues as the government campaigns, and then post-election as the newly elected/re-elected government sets its priorities.

While additional pressure is building for reform, it is therefore unlikely that any legislative reforms will be introduced imminently. Compliance teams should use this time to review the report – and its proposed recommendations in particular – and map these against their own risk and control procedures. This will help to ensure that, should amendments to Australia’s AML/CFT program be introduced, they are well placed to adapt.

Find out more about the state of financial crime in 2022 with our global guide.

An extensive report into the adequacy of Australia’s anti-money laundering and combating the financing of terrorism (AML/CFT) measures has condemned a delay in expanding the scope of the country’s regulations. The Senate committee report focuses on the failure to expand the scope of AML measures to cover designated non-financial businesses and professions (DNFBPs) such as lawyers, real estate agents, casinos and other gambling service providers, auditors and dealers in precious metals and stones. “Australia is a laggard on the world stage, one of only three states to fail to enact any regulation in relation to DNFBPs,” the report says, adding that delays are “exposing Australians and the Australian economy to harm and risking Australia’s credibility.” Gaps in AML legislation for DNFBPs have been blamed for billions of dollars being laundered through Australia’s housing market, and “serious and systemic non-compliance” by casino operators. Timely Implementation of Tranche 2 Needed While Australia has committed to introducing AML reforms for DNFBPs, its tranche 2 reforms have remained on the back burner for over a decade. The 2008 financial crisis, subsequent shifts in political priorities and fierce opposition from lawyers have all been cited as reasons for the delay. The report notes that none of the key bodies sharing insight with the committee have been consulted in relation to tranche 2 reforms since 2017. “The need for action cannot be ignored, and the government has dragged its feet for too long,” the report says. In 2015, the Financial Action Task Force’s (FATF) Mutual Evaluation Report (MER) found that Australia was largely non-compliant or only partially compliant with recommendations relevant to DNFBPs. In the FATF’s 3rd Enhanced Follow-up Report & Technical Compliance Re-Rating (3rd Enhanced Follow Up Report), Australia was assessed as remaining largely non-compliant with recommendations related to DNFBPs. As such, Australia remains in enhanced follow-up. Contributors to the report note that Australian banks have already had to provide additional information to foreign financial services firms to assuage doubts caused by Australia’s non-compliance with FATF DNFBP recommendations. The report recommends that Australia accelerate its consultation on the timely implementation of tranche 2 reforms. It also advises that regulator AUSTRAC be provided with adequate resources to effectively implement and manage the tranche 2 regime.  AUSTRAC has argued that for tranche 2 reforms to be useful in detecting money laundering through DNFBPs, the quality of reporting is critical.  Concerns have been raised about the cost of more stringent compliance rules for DNFBPs, but the report notes that other jurisdictions, including New Zealand and the UK, have managed this, and that technology is reducing the cost and burden of Know Your Customer (KYC) and Customer Due Diligence (CDD) checks Introduction of a Beneficial Ownership Register The report also notes the importance that introducing a beneficial ownership register would be an important enabler of tranche 2 reforms. This has been highlighted as an area where Australia is behind the US, UK and parts of Europe. Suggestions included collecting this information centrally in the annual statement that Australian companies are required to complete. “The committee acknowledges the evidence that the development of a robust beneficial ownership register would both mitigate the burden on small business by enhancing and simplifying ‘know your customer’ searches and at the same time would reduce Australia’s vulnerability to money laundering,” the report says. More widely, the report recommends considering how technological innovation could streamline regulatory processes and lower costs, alongside streamlining the existing “unnecessarily complex” AML/CFT framework, which makes it hard for firms to understand their obligations.  It calls for Section 242 of the AML/CFT Act 2006 to be amended, to ensure the proper operation of legal professional privilege.  2022 Milestones: FATF Review & Federal Election FATF is likely to review progress against Australia’s 2015 MER this year and while it is unlikely that Australia will be placed on the gray list, it is clear that gaps in legislation are creating opportunities for criminals and those seeking to hide assets. For example, the Tax Justice Network specifically calls out Australia in an article about oligarch assets and the lack of beneficial ownership registration. A federal election has also been called for May 21st, which will likely slow down any legislative progress on these issues as the government campaigns, and then post-election as the newly elected/re-elected government sets its priorities. While additional pressure is building for reform, it is therefore unlikely that any legislative reforms will be introduced imminently. Compliance teams should use this time to review the report - and its proposed recommendations in particular - and map these against their own risk and control procedures. This will help to ensure that, should amendments to Australia’s AML/CFT program be introduced, they are well placed to adapt. Find out more about the state of financial crime in 2022 with our global guide.

Originally published April 8, 2022, updated May 6, 2022

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