What Australia can do to stop money laundering

FinCen files Australia

6 October 2020

When the International Consortium of Investigative Journalism analysed thousands of leaked financial documents – the FinCEN files, they exposed the vast extent of money laundering around the world.

More than $US2 trillion (AU$2.7 trillion) in suspected dirty money moved through the global financial system between 2000 and 2017. More than AU$200 million in transactions flowed through Australian banks.

This bombshell story exposed the sheer extent of the world’s dirty money problem. Transparency International Australia has long called for an overhaul of our Anti-Money Laundering/Counter-Terrorism Financing (AML/CTF) laws. The latest scandal demonstrates why we need to fix the holes in our regulatory system. This piece details how we plug those gaps.

We need a system overhaul

Money laundering allows criminals to enjoy the spoils of their crimes and enables corrupt officials to profit from their misconduct.

When money illegally flows out of countries, avoiding tax, those countries risk losing money that should contribute to national revenue. When money flows illegally into countries, it can fund organised crime, contribute to local corruption and distort the property market.

The impacts are devastating. Money laundering perpetuates inequality and poverty. As Transparency International has declared in response to the FinCEN files ‘An overhaul of the global anti-money laundering system is needed.

Big banks as laundromats

The FinCEN Files made clear that big banks continue to play a central role in moving money tied to corruption, fraud, organised crime and terrorism.

The allegation that Australian banks have been caught up in money laundering is not new. Australia is major destination of the world’s dirty money, money that can be linked to criminal gangs, drug trafficking, people trafficking and the proceeds of corruption.

The FinCEN files paint a stark picture of the ease with which shell companies registered in Queensland are allegedly at the heart of Mexican drug lord money laundering, arms deals in breach of UN sanctions, and tax fraud

Australian banks are required under our AML/CTF laws to identify, mitigate and manage the risk of their business, products or services being exploited by criminals and report suspicious transactions to the regulator, AUSTRAC.

While not all suspicious transactions are criminal, reporting what looks suspicious is vital and it’s the law. However, when it becomes known or suspected that the funds could be the proceeds of crime and corruption, banks can and must do more than just report. Freezing accounts is one option, but that may have unintended consequences, and potentially discriminate against clients and individuals with no criminal links.

The $1.3 billion agreement reached between AUSTRAC and Westpac, subject to Federal Court acceptance, will be the largest civil penalty in Australian history. The fine will send a clear message that banks must meet their reporting responsibilities. But fines alone are not enough to fix a broken system. It has exposed due diligence gaps.

Continuous due diligence must be the bedrock of their risk approach. ‘Know your customer’ must reach new heights. This means a much greater understanding of the integrity, track record, and character of clients and account holders. It means unravelling the web of corporate structures and identifying any suspected links to politically exposed persons and crime and corruption syndicates.

Who’s behind the wheel?

The challenge is knowing who really sits behind the wheel – who is the ultimate beneficiary of the transactions. The banks’ inability to identify the true owners of companies means that transactions are routinely processed without knowing the ultimate source or destination of the money and without proper due diligence checks on clients and company directors.

You need more ID to get a library card than to register a company in Australia.

Australia’s corporate system of non-beneficial ownership without a trust register makes confirmation of the real owner impossible.

Australia has become a convenient and easy place to register a business thanks to a lax system of corporate registration that requires no verification of company information supplied to the Australian Securities and Investments Commission (ASIC).

The system will be improved by the proposed introduction of a Director Identification Number (DIN), but it will still allow for anonymous registration of directors through director nominee appointments. Once again, this shrouds the real owner and beneficiary. With an overhaul of the corporate registration system announced, Australia must ensure that control and ownership of Australian registered companies is transparent.

Company service providers openly advertise they can assist companies to maintain their privacy, to keep their real name off the company register, and provide them with a Resident Director who will enable the real beneficial owners to remain anonymous and links to other business entities hidden. This means that Resident Directors can be named and appointed as a company director on the corporate register, without their knowledge, and no checks.  It’s not surprising that Australia has become a go-to money laundering destination.

Australia needs stronger anti-money laundering laws

TI Australia has been calling for an overhaul of the AML/CTF laws for years. Some progress has been made, and casinos and bullion dealers (well-known money laundering venues) are now covered alongside the banks and required to report suspicious transactions.

But we have some way to go. The real estate sector is a gaping hole in our regulatory system. As Transparency International’s research has found, Australia’s property market has left the country’s doors wide open to money laundering.

Australia’s property market is an ‘attractive destination’ for the proceeds of corruption in the Asia-Pacific region”. Financial Action Task Force (FATF).

That’s because the real estate agents, accountants, lawyers and company service providers – those people who facilitate the purchase and sale of property, are not covered by our AML/CTF law, and not required to report suspicious transactions.

You can purchase property in Australia, with few questions asked about the identity and character of the client, if it is being purchased through a shell company or trust nominee. Without knowing who the ultimate beneficiary and owner is, and where the funds come from – we can’t know if it comes from the proceeds of crime and corruption or not.

Australia needs to strengthen its anti-money laundering laws to stop criminals from profiteering though our financial institutions and the real estate sector.

Australia needs to:
  • Extend the AML net to cover lawyers, accountants, real estate agents and company service providers.
  • Establish a public register of beneficial owners, including nominee trusts and Directors.
  • Ramp up the investigation and prosecution of financial crime, including money and stolen assets from foreign governments that are shifted to Australia, and return those stolen assets where possible.
  • Establish a national unexplained wealth scheme to combat the ability of criminals to profit from their crime.

Photo by Clément Falize on Unsplash