Australia Seeks To Expand AML/CTF Framework In New Consultation

April 25, 2023
A new consultation is seeking comment on plans to bring previously unregulated sectors into Australia's anti-money laundering/counter-terrorism financing (AML/CTF) framework, as lawmakers voice concerns that the country could be heading for the FATF greylist.

A new consultation is seeking comment on plans to bring previously unregulated sectors into Australia's anti-money laundering/counter-terrorism financing (AML/CTF) framework, as lawmakers voice concerns that the country could be heading for the FATF greylist.

In a new consultation, the Attorney-General’s Department has asked for public feedback on plans that would see the country’s AML/CTF laws expanded to so-called “tranche-two” entities.

These entities, which are also known as designated non-financial businesses and professions (DNFBPs), include law firms, accountancies, trusts, company service providers, real-estate agencies and precious metals and gem dealers.

In March last year, the Senate Legal and Constitutional Affairs References Committee published an inquiry into the adequacy and efficacy of Australia’s AML/CTF regime.

The inquiry proposed a number of recommendations for lawmakers, including expansion of AML/CTF rules to tranche-two entities, and all of which have since been accepted by the government.

Mark Dreyfus, attorney-general, said the changes are necessary given that the previous government failed to respond to “evolving international standards” and “changing threat environment” facing firms.

“Significant regulatory gaps and vulnerabilities have made Australia an increasingly attractive destination for laundering illicit funds,” he said.

“Left unaddressed, Australia’s financial system would remain vulnerable to criminal exploitation through the use of professional services, weakening the overall integrity of Australia’s AML/CTF regime.

As Dreyfus pointed out, Australia is currently one of only five jurisdictions worldwide that does not regulate tranche-two entities for AML/CTF purposes, alongside the US, China, Haiti and Madagascar.

“As the rest of the international community strengthens their regulation of these sectors, Australia would continue to fall further behind,” he said.

Since 2015, Australia has failed to comply with 16 out of 40 Financial Action Task Force (FATF) standards.

As a result, Australia now risks being “grey-listed” by FATF, a move that would significantly harm the country’s economy, according to the attorney-general.

FATF monitors compliance with its standards through a peer review process known as mutual evaluation. Jurisdictions undergo mutual evaluations to assess the technical compliance of their legislative frameworks and the effectiveness of their regimes.

A poor mutual evaluation can result in being publicly listed and subject to increased monitoring — a process known as greylisting.

Australia will undergo its next mutual evaluation between 2025 and 2027. Greylisting could result in significant economic costs for Australia, such as increased costs of doing business, reduction in credit rating, foreign direct investment and capital flows, and the potential loss of international banking connections.

Collectively, these impacts can result in significant decreases to a country’s GDP. In 2021, research by the International Monetary Fund (IMF) found that total capital inflows decline on average by 7.6 percent of GDP when a country is greylisted.

Expansion and simplification

The consultation is split into two parts, with the first part focused on simplification of existing AML/CTF obligations and the second part focused on tranche-two expansion.

In 2016, the Attorney-General’s Department published a report on a statutory review of the 2006 Anti-Money Laundering and Counter-Terrorism Financing Act.

The review called for AML/CTF obligations to be simplified to reduce regulatory burden on firms, particularly small businesses.

“The existing regime is complex, resulting in regulatory inefficiencies for business and government,” said Dreyfus.

“The former government had six years to implement the 2016 recommendations but left office without taking action to address these industry concerns,” said Dreyfus.

In line with the 2016 Statutory Review, the Attorney-General’s Department has proposed that the 2006 act be amended to align with globally recognised AML/CTF measures and to introduce a new “risk-based approach” for firms.

“This will support regulated entities to prevent and detect financial crime by shifting the approach away from ‘tick a box’ compliance towards effective measures to identify, mitigate and manage money-laundering and terrorism financing risks,” the consultation notes.

The 2016 Statutory Review identified two key obligations for priority reform: the requirement to adopt and maintain an AML/CTF programme; and the requirements around customer due diligence.

In addition, the Attorney-General’s Department proposes further reforms to modernise aspects of the regime.

These include lowering the reporting thresholds for the gambling sector, amending the tipping-off offence, extending the regulation of digital currency exchanges, modernising the travel rule and providing a statutory exemption for assisting an investigation of a serious offence.

Firms have until June 16 to respond to the questions outlined in the consultation. Industry feedback on the proposals will assist the development of a further consultation paper to be published later this year.

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