If you thought Australia’s anti-money laundering/counter terrorism financing (AML/CTF) laws were strict, then you were spot on.
A recent report by the Australian Institute of Criminology for the Commonwealth Attorney-General’s Department found that Australia’s AML legislation has tighter reporting requirements than in most other countries. However, the level of AML prosecutions in Australia is low by international standards.
The study compared the AML/CTF regime in Australia with those of eight other countries: the United States, United Kingdom, France, Germany, Belgium, Singapore, Hong Kong and Taiwan. Interestingly, the AML/CTF laws reviewed reflect the principles of the intergovernmental Financial Action Task Force Recommendations of 1990 and 2001(recently updated and extended).
A big point of difference between Australia and the other jurisdictions studied is that Australia requires all regulated entities to report all international electronic funds’ transfer instructions (IFTIs) regardless of size. This is in addition to the requirement, common to all the jurisdictions, that regulated entities report suspicious transactions.
It is interesting to note that in 2008-2009 the combined number of reports made to the Australian Transaction Reports and Analysis Centre (AUSTRAC) was over 19 million (an increase of more than 300 percent from 2002-03). More than 70 percent of those reports were IFTIs. The report comments that additional reports offer the law enforcement community and other agencies such as the Australian Taxation Office, more information to inform investigations, but conversely require additional resources to process and analyse the information (in contrast to the AML/CTF requirements in such countries as France and Germany where the positive consequences of more targeted and fewer reports might include improvement to the value and utility of the information).
The report also notes that the number of individuals prosecuted for federal criminal money laundering increased from five people in 2003-04 to 79 in 2009-10 (in contrast the report notes that in UK there was a dramatic increase from 16 offenders found guilty or cautioned in 2003, to 1628 offenders in 2006).
In addition to the criminal penalties (such as fines or lengthy periods of imprisonment) that can be imposed for the money laundering offences, there are also significant civil penalties (of up to $11 million) that can be imposed for regulatory breaches of the AML/CTF Act.
AUSTRAC has not instituted any civil penalty proceedings since the AML/CTF Act came into force although it has accepted enforceable undertakings from a number of high profile financial institutions.
In contrast, the UK Financial Services Authority (FSA) has imposed a number of significant fines for non-compliance. The report noted that in the period 2001 to 2008 the FSA imposed fines against 9 financial services entities for AML compliance breaches. Since then, the FSA has continued to impose financial penalties, the most significant of which was in 2010 when it fined a large UK bank £5.6 million for AML failures.
The report comments that any changes to AML/CTF legislation such as expanding requirements for business or the scope of the regulated sector, as happened in Australia in 2006, is likely to influence compliance.
For example, the report claims that regulators are likely to shift resources away from enforcement-orientated compliance monitoring to education and training (awareness raising, education and training became focus areas for AUSTRAC in 2009-2010).
While AUSTRAC has not applied for any civil penalties under the AML/CTF Act, its priorities for 2011-2012 indicate that it may be moving away from these focus areas towards a more supervisory and enforcement approach. Specifically AUSTRAC has said that it plans to triple its direct supervisory engagements compared to last financial year by undertaking 7,000 supervision engagements.
AUSTRAC has also said (in its 2011-2012 Enforcement Strategy) that a particular focus for frontline supervision in 2011-2012 will be to assess reporting entities AML/CTF programs and compliance with know your customer (KYC) obligations. The AUSTRAC enforcement team will focus its activities on those reporting entities that are identified as being non-compliant with these obligations.
AUSTRAC supervision also intends to assess the quality of transaction reports in certain industry sectors and enforcement will also focus its activities on reporting entities found to be deficient in these obligations.
For Australian banks and other financial intermediaries, the report is a reminder, not only that AUSTRAC expects all regulated entities to comply with their reporting obligations, but also that it has the capacity to analyse and act on the information received in those reports.
Additionally, AUSTRAC’s stated intention to increase its supervisory engagements and concentrate on AML/CTF programs and KYC, is a reminder for financial services industry that their AML/CTF programs need to be regularly reviewed and kept up to date. Maintaining customer and counterparty profiles, which are up to date and accurate is important for quality assurance and efficiency gain, as is collecting relevant and accurate data on new customers.
Failure to meet AML/CTF program and KYC obligations could lead at best to AUSTRAC supervisory action and at worst to enforcement.