Australia’s doors are wide open to money laundering and corrupt conduct

Money laundering

30 March 2021

Australia’s corporate regulatory system is not up to scratch.

This means it is far too easy for people who may have been involved in corruption and other illegal activities to register companies, and their nominee directors, in Australia. They can register without adequate due diligence checks, beneficial ownership disclosure, identification of potential links to politically exposed persons or a robust assessment of their business activities and legitimacy, both in Australia and internationally.

In March 2021, Transparency International Australia (TIA) hosted the Doors Wide Open webinar to discuss  these flaws in the system and the risks it poses both in Australia and the region. We heard just how easy it is for companies and their associated entities – often with opaque business structures – to be registered in Australia. This enables entities to use Australia as a launching pad for dubious activities, including money laundering and other corrupt conduct.

Australia must step up its diligence on who is doing business here, and an improved corporate registry system would help. It would provide legitimacy and protection to businesses, mitigate risks for financial institutions and support regulators to undertake compliance activities.

IMPACTS ABROAD: A SOLOMON ISLANDS CASE STUDY

TIA recently investigated the opaque corporate structures surrounding the owners of the Goldridge mine in the Solomon Islands.

Our investigation raised many red flags relating to opaque business structures, questionable property deals and multiple court actions associated with the Australian registered company and directors with shares in Goldridge. This has been reported in the press. We heard that assumptions are made that due diligence checks are being done here in Australia. That is simply not the case and puts corruption-prone countries like the Solomon Islands at risk.

We heard firsthand from Transparency Solomon Islands of the impacts the Australian registered companies associated with the Goldridge Mine are having. This included a lack of community consultation, opaque deals, land displacement and loss of livelihoods for local communities living near the mine. Executive Director Ruth Liloqula reminded us how the flaws in our corporate registry not only pose risks in Australia but has ramifications in her country and the Pacific region.

OUR REGULATORY SYSTEM IS NOT FIT FOR PURPOSE

We heard from Gill Donnelly, who has a background in commercial private investigating and law enforcement, of the difficulty of conducting due diligence because of our inadequate regulatory system.

Due diligence comes at a cost in Australia, with the Australian Securities and Investments Commission (ASIC) database being one of the most expensive in the world to access. Once you have paid for the data you will still be in the dark on whether a director is a nominee or if they are non-beneficially holding shares. This allows for an astonishing level of anonymity.

ASIC is just a registration body and is not required to validate the data they receive, meaning it does not need to check criminal history, or whether a person is politically exposed, or if their personal information is correct.

To make matters worse, Australia has no trust register. This means you cannot find out the beneficiaries of a trust. Gill emphasised how frustrating this all is given that the global Financial Action Task Force (FATF) 14 years ago recommended that trusts should be covered by Anti-Money Laundering and Counter-Terrorism Financing laws in Australia. We are still waiting.

Gill briefed us on the Modernising Business Registers Program, recently initiated by the government. It appears the changes – such as a Director Identification Number and a consolidation of registers, are driven by a deregulation agenda rather than a focus on improving due diligence mechanisms. At this stage there has been no indication on whether the loophole of nominee relationships will be addressed.

To better protect Australia’s financial system, and guard against money laundering, the system must be more transparent. Currently there are too many opportunities for dodgy people to hide nefarious entities. They do not need to employ the services of other jurisdictions when the Australia system offers such opportunities for exploitation. These are risks we can’t ignore.

CORPORATE DUE DILIGENCE- ‘KNOW YOUR CUSTOMER’

Cassandra Hewett, Head of Financial Crime, Group Money Laundering Reporting Officer at ANZ provided invaluable insights on how the corporate regulatory system affects her business.

There are competing pressures. On the one hand, consumers are pushing for speed of access to new accounts, requiring an efficient onboarding system by the banks to remain competitive. At the same time, the banks recognise their obligations and value in ‘knowing your customer’ through the corporate registry. They rely on registry data to be reliable, adequate, accurate and timely to achieve this.

Cassandra emphasised just how time-consuming robust due diligence is, and noted it is even harder for smaller organisations that don’t have the additional systems the ANZ has. In her view, ASIC and other regulators need to provide the information banking institutions require to undertake their ‘know your customer’ work. The system could be improved by multiple government agencies (including ASIC, Australian Transaction Reports and Analysis Centre (AUSTRAC), Australian Security Intelligence Organisation (ASIO) and law enforcement) coming together to connect the dots on what information is available to undertake due diligence work.

RECOMMENDATIONS FOR THE AUSTRALIAn GOVERNMENT AND REGULATORS

The Australian corporate regulatory system is not as robust as some might have us believe. There are plenty of risks for both Australia that we need to consider.

To address these risks TIA recommends the Australian Government and Regulators must:

  • Make it free to access the register
  • Close the loophole allowing the anonymous appointment of directors and beneficial shareholders, ensuring nominees make their role apparent and reveal who they are a nominee for
  • Verify current data and collect additional data to properly identify the individuals registering companies, and identify whether they have been involved in corrupt or criminal conduct in Australia or overseas
  • Establish a centralised public beneficial ownership register
  • Establish a trust register requiring full disclosure of beneficial owners and ultimate beneficiaries

The drivers behind why a public beneficial ownership register is required needs to shift from simply catching tax cheats, to the risks of money laundering, tax evasion and other crime. Implementing these reforms will ensure the corporate regulatory system is fit for purpose, preventing people who have been involved in corruption and other illegal activities from registering companies in Australia.

Photo credit: Sean Pollock/Unsplash

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