Stopping Russian dirty money – is Australia up to the task?
Daniel Bartos I 21 July 2022
Australia’s strong rule of law, political stability, and advanced financial services – yet relatively porous financial regulations – make it an attractive destination for dirty money, including that of Russian kleptocrats.
A 2022 report by Transparency International (TI) outlined where some of the globes’ leading economies stand with regards to their ability to ‘freeze and seize’ dirty Russian money in light of recent Western sanctions.
The effectiveness of these sanctions imposed upon Russian kleptocrats in response to Russia’s 2022 invasion of Ukraine rests upon the existence of strong anti-money laundering investigative and enforcement powers. The report, ‘Up to The Task? The state of play in countries committed to freezing and seizing Russian dirty money’, investigated the efficacy of eight countries’ anti-money laundering capabilities. These countries were Australia, Canada, France, Germany, Italy, the United Kingdom and the United States. Consistent with the broader findings, the report highlights a persistent lack of transparency measures that ensure Russian kleptocrats can continue to find safe havens for their dirty money here in Australia.
The report first touches on the newly-formed multilateral task force, the Russian Elite, Proxies and Oligarchs (REPO) – of which Australia is a member. While the report noted the benefits of such a task force for the sharing of intelligence across borders in the fight against dirty Russian money, it also suggested that this task force should evolve from its current role as an anti-money laundering coordinator into an entity better able to globally trace what are often ambiguous financial assets.
The report then switched its focus to the transparency of each country in relation to: the beneficial ownership of companies and trusts, those gatekeeper professions responsible for the facilitation of the movement of financial resources, and the ability of states to confiscate and return stolen assets to victims. While there have been some high-profile seizures, these are only a small proportion of the wealth stashed abroad. Without reforms, inadequate transparency measures that kleptocrats have abused for decades will continue to allow the elites to keep their assets out of the reach of authorities.
As noted by the report, complex company ownership structures produce many challenges for governments wanting to identify the beneficiaries of business dealings. Australia, a country with no register for beneficial ownership of assets, lagged the most. Australia will find it especially difficult to identify sanctioned individuals who set up companies in secrecy jurisdictions and who use nominee directors and shareholders to hide themselves. Australia is falling well behind on commitments it made in its own First Open Government National Action Plan (2016-2018) to drastically improve its transparency around beneficial ownership. While AUSTRAC requires institutions which are “reporting entities [to] identify the beneficial owners of their customers and assess the money laundering/terrorism financing risk they pose” – access to this information is not public and there are other entities (e.g. real estate agents, accountants, lawyers, corporate service providers) not covered by the Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) Act.
Australia is currently in the process of rolling-out its Modernising Business Registers program (MBR) which hopes to consolidate our many corporate registers into the Australian Business Registry Services (ABRS). This program will not deliver a beneficial ownership register. However, the new Labor Government has promised to establish a public registry of ultimate beneficial ownership for companies and other legal vehicles.
This issue of complex company ownership is mirrored by Australia’s lack of a trusts register. Trusts, whose control and ownership are inherently separate, can have multiple benefactors. Again, current regulations ensure that the benefactors of trusts remain difficult to ascertain. These problems are endemic to Australia’s opaque property market, a major destination for internationally laundered money.
Australia, with no centralised land and real estate ownership register also finds it exceedingly difficult to stop Russian kleptocrats from investing in Australia’s real estate market. TIA has repeatedly highlighted the glaring loophole in Australia’s AML/CTF laws that enable money laundering in our property market. Here, real estate agents, lawyers, accountants and other financial gate keepers are not obliged to report suspicious activities. Furthermore, Australia does not require foreign companies, even those companies potentially linked to Politically Exposed Persons (such as Russian kleptocrats), to disclose their beneficial owners in order to purchase Australian property. The same is true for vendors of other luxury goods, such as jewellers.
Australia, along with the US and the UK, has legislation that allows for the civil forfeiture of assets that are accompanied by criminal prosecutions. These enforcement and investigative bodies, accompanied by the powers they hold, represent Australia’s most positive reflections from TI’s report. Yet, enforcement will be difficult without the capacity to gather all relevant information.
TI’s recommendations for Australia are listed below:
- Australia should assist other REPO taskforce members in expanding the Task Forces’ mandate to include the tracing of assets beyond just those of Russian kleptocrats.
- Australia requires centralised public registers identifying the beneficial ownership of all trusts, companies and other legal vehicles. Ensuring this will fulfil its international obligations and will better enable the disclosure of the ultimate beneficiaries of transactions, including the purchase of real estate as well as luxury items in Australia.
- Australia should improve its AML/CTF laws to ensure real estate agents, lawyers, jewellers and other high value good dealers and corporate service providers are legally obligated to report suspicious activity such as involving politically exposed persons and high value cash transactions.
- AUSTRAC should be appropriately funded to be able to make productive use of the increased data from these additional new reporting entities.