As stronger AML/CTF laws come into force, it may be easy for us to forget the extensive advocacy and persistent journey our AML/CTF professional community endured prior to the amendments.  Once progress has been made and new laws are enacted, the focus can quickly shift to the need to comply.  This often cloaks the prior complacency and delay experienced in the lead up to regulatory reform.

Amongst the wash of new regulations and progress (and relief that comes with that!), it’s easy to forget that the Australian government was first put on notice about some of the deficiencies in Australia’s AML/CTF regime, and its misalignment with global anti-financial crime standards (in particular the extension to designated non-financial businesses and professions (DBFBPs)), back in 2005.  That’s almost 20 years ago.

The government was again put on notice in 2015, roughly 10 years ago, when the Financial Action Taskforce (FATF) produced its first mutual evaluation report on Australia’s AML/CTF regime.  Four key deficiencies were identified, one of which was the exclusion of DNFBPs from the regime.  It then took the Attorney General Department’s 3 years to conduct a statutory review into the AML/CTF regime and then a further 6 years before the Legal and Constitutional Affairs References Committee delivered a report recommending an accelerated industry consultation on expanding the regime to DNFBPs (“tranche 2 entities”).  The delay in maintaining a critical piece of legislation has been significant.

We finally saw a draft AML/CTF Amendment Bill on 11 September 2024 followed by a Senate Inquiry report on 13 November 2024 and a Bill passed by the House of Representatives on 29 November 2024.  This gave the impression of last-minute panic.  One of Australia’s most important legislative regimes may have been passed with an “it will have to do” attitude to avoid potential grey-listing by an international regulator.  And even after this long regulatory reform journey, there are still some questions about whether the reforms actually simplify the existing regime and properly align with FATF standards.

The series of events leading up to the passage of the Bill indicate that something may have gone fundamentally wrong in the management and maintenance of our AML/CTF laws.  Some questions include:

1. whether industry was properly consulted;
2. whether the right expertise was deployed to draft the amendments;
3. whether those with practical experience in designing and implementing measures to comply with the law have been included and properly listened to;
4. the impacts of the significant delay; and
5. whether the proposed amendments actually simplify the law and meet international standards.

 

Investigating the answers to these questions may prevent the same complacency, delay and complexity in regulatory reform in the future, for not only AML/CTF but other fundamental regimes that we must change to align with advances in technology and for the benefit of the Australian community like our Privacy laws.  The volume alone and complex drafting makes these regimes almost impossible to maintain for the benefit of us all – our businesses (particularly small businesses), investors, consumers, legislators and regulators.

The management of the AML/CTF reforms are perhaps a perfect example of Australia not doing simplicity well.  Changes in governments, shuffling the maintenance of these regimes between departments and the need to consult with industry should not be adequate reasons to justify the inefficiency and delay in reforming some of our most critical laws.  The AML/CTF regime is pivotal to protecting our economy and communities from financial crime including money laundering, terrorism financing and other serious crimes.  It does this by obtaining important intelligence to combat crime, by guiding organisations on how to combat these significant risks to their business and its customers and by establishing essential partnerships between Australia’s private and public sectors to collectively combat financial crime.

The calibre of our AML/CTF laws should also represent the important role Australia plays in the global fight against financial crime.  Where we are misaligned with international standards that strengthen measures to combat financial crime and increase protection for our communities and economy, we should be proactive and efficient in addressing this.  As a founding member of FATF and an advanced economy, Australia shouldn’t be coming close to being grey listed by an international body for failing to properly implement strong anti-financial crime laws.  The fact that the FATF recommendations are just “standards” and compliance is not strictly mandatory is not an adequate reason for such extensive delays in extending the regime to DNFBPs.  Perhaps there are stronger justifications for the delay, which remain unknown.

As AUSTRAC’s most recent National Risk Assessments have revealed, Australia’s legal, accounting and real estate sectors are not in fact unique to the rest of the world when it comes to their risk profile and are not so unique to warrant such delay in including them in our fight against financial crime.  As these regulated sectors start to identify and assess their ML/TF/PF risks, time will tell in how high a risk profile these sectors present and how much intelligence these sectors can provide (and would have provided if previously regulated) to assist in combating crime.    The question of why we didn’t regulate tranche 2 entities sooner (in particular the real estate sector) is likely to arise.  The true compliance burden upon newly regulated sectors will also come to light as these sectors begin to navigate the volume of legislation, rules and regulator guidance and attempt to comply with a regime designed to regulate financial institutions.

With the AML/CTF Amendment Bill now behind us and as we enter a more progressive chapter in Australian AML/CTF, let’s not forget the journey so far, and the need to further simplify our legislation and properly maintain it through stronger governance, process and accountability.  In this respect, newly regulated sectors that constructively question why aspects of the regime are so complicated, impractical and difficult to navigate will be most welcomed in driving forward further simplification and modernisation.