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Chapter 3
Legislative and regulatory issues
3.1
As discussed in Chapter 2, the effectiveness of prescribed taskforces has
been clearly demonstrated by the collaboration between Commonwealth agencies in
Project Wickenby and Taskforce Eligo. Critically however, the
issue of information sharing remains somewhat unresolved outside of prescribed
taskforces.
3.2
This chapter examines numerous legislative and regulatory issues facing
Commonwealth law enforcement agencies, including the ATO, ASIC and AUSTRAC. Amongst
other things it examines agency requests for broader powers with which to
combat financial related crime as single agencies.
3.3
In the case of AUSTRAC, this chapter outlines the agency's efforts to
continue to implement an Anti-Money Laundering/Counter Terrorism Financing
(AML/CTF) regime that meets Australia's domestic and international obligations.
While this chapter outlines the AML/CTF regime in Australia, further discussion
of the AML/CTF regime, especially from the perspective of remittance industry
operators, and the 'de-banking' of the remittance industry, is located in
Chapter 4. New telecommunications interception agencies
3.4
During this inquiry the committee heard evidence regarding the need to
broaden the telecommunications interception arrangements to include certain individual
agencies. In some respects this issue complements the multi-agency taskforce arrangements
discussed in Chapter 2. In particular, the committee received evidence
with respect to telecommunications interception powers of the ATO and ASIC.
3.5
While support for the ATO's designation as an interception agency[1]
was broadly stronger than for ASIC, the committee examined the possibility of
both agencies being given increased telecommunications interception powers.
3.6
It is worth noting that during the course of this inquiry ASIC was
designated a criminal law enforcement agency by the passage of the Telecommunications
(Interception and Access) Amendment (Data Retention) Act 2015.[2]
This legislative change is discussed in greater detail below.
Australian Taxation Office
3.7
In 2012, the committee tabled a report into its inquiry into
Commonwealth unexplained wealth legislation and arrangements. The report
discussed many aspects of the unexplained wealth arrangements in Australia and
included a recommendation to amend the Telecommunications (Interception and
Access) Act 1979 (TIA Act). Specifically, the committee recommended:
...amending the Telecommunications (Interception and
Access) Act 1979 so as to allow the Australian Taxation Office to use
information gained through telecommunications interception in the course of
joint investigations by taskforces prescribed under the Taxation
Administration Act 1953, for the purpose of the protection of public
finances.[3]
3.8
The previous government presented a response to this recommendation in
February 2013. In its response, the government formally noted the
recommendation, arguing:
The ability to use intercepted information for an agency's
own purposes is currently limited to interception agencies (law enforcement and
anti-corruption agencies) that are investigating prescribed offences (generally
a serious offence or an offence punishable by imprisonment or a period of at
least 3 years). Section 67 of the Telecommunications (Interception and
Access) Act 1979 (TIA Act) only allows the ATO to deal with existing
intercepted information in order to assist with investigations being conducted
by these agencies.
Currently, the ATO cannot subsequently use this intercepted
information for its own investigations or tax assessments, and cannot request
interception information for the ATO's own purposes.
While the Government agrees in principle that amending the
information sharing provisions in the TIA Act will allow agencies to more fully
cooperate, appropriate limitations on the use of existing intercept information
will also need to be assessed. To enable appropriate consideration of this
recommendation, the Attorney-General's Department has sought advice from the ATO
on how the ATO proposes to use existing intercepted information in its taxation
assessment taskforces, including the offences the ATO wishes to investigate
using intercepted information. The Department will continue to liaise with the
ATO on this issue.[4]
3.9
In evidence to the committee's present inquiry, the ACC supported expanding
the TIA Act to enable intelligence sharing with the ATO, arguing:
The [ACC] is supportive of...broadening out the Telecommunications
(Interception and Access) Act to promote for instance sharing of that
product with the ATO, we believe would collectively strengthen Australia's
response to serious and organised crime in the financial sector because some of
those limitations both ways, from law enforcement to the ATO and from ATO back
to law enforcement, are in our view ripe for some reform to enable both the ATO
and law enforcement more broadly to address financial crime.[5]
3.10
Below, the committee makes a recommendation regarding the ATO's
interception powers under the TIA Act.
Australian Securities and
Investments Commission
3.11
ASIC submitted that its inability to receive or intercept
telecommunications information, 'seriously hinders [ASIC's] ability to enforce
the law in a modern corporate world'.[6]
ASIC argued that access to intercepted telecommunications information can be a
useful tool:
...particularly in the case of market misconduct, which is
generally conducted opportunistically and with rapidity, via telephone or text
messages (SMS), rather than being planned and documented in writing.[7]
3.12
Further, the fact that ASIC was not an 'interception agency' for the
purposes of the TIA Act resulted in what ASIC argued was an illogical situation,
where other agencies detect possible market misconduct but could not share the
material with ASIC:
This can lead, for example, to situations where other
agencies detect possible market misconduct offences through intercepted
information, but cannot pass this on to ASIC. We propose that, where it is
appropriate to do so, ASIC should be authorised to receive intercepted
telecommunications information from ‘interception agencies’.[8]
3.13
In answers to Questions on Notice, the AGD explained the strict
limitations placed on the TIA regime, noting that only interception agencies were
able to apply for an interception warrant to investigate serious offences[9].
The AGD noted:
Given the highly intrusive nature of this power, interception
agency status is restricted to Commonwealth and State and Territory law
enforcement and anti-corruption bodies (currently the Australian Crime
Commission, the Australian Security Intelligence Organisation, the Australian
Commission for Law Enforcement Integrity and the Australian Federal Police).
Restricted access to interception powers has been supported by successive
Parliaments, including by the Parliamentary Joint Committee on Intelligence and
Security (PJCIS) in its 2013 Report of the Inquiry into Potential Reforms of
Australia’s National Security Legislation.[10]
3.14
The AGD clarified that while ASIC could not apply for an interception
warrant in its own right, nor receive intercepted telecommunications by itself,
it was able to be provided information by an 'interception agency' in certain
specific circumstances:
...an interception agency may disclose intercepted information
to ASIC to further that interception agency’s own investigation, including in
the course of a joint investigation with ASIC. In such circumstances, any
information obtained by ASIC during the investigation can only be used for the
purposes of that joint investigation.[11]
3.15
Therefore, the original arrangements meant that ASIC needed to be
engaged in a joint investigation with an interception agency to receive
telecommunications or obtain warrants under the previous iteration of the TIA
Act. Any material obtained in this manner could not be used for ASIC activities
which were independent of the joint taskforce.
3.16
ASIC submitted that the Australian Securities and Investments Commission
Act 2001 (ASIC Act) only authorised a 'limited range of search activities',
restricting its ability to conduct investigations:
...the powers under the ASIC Act only authorise a limited range
of search activities (e.g. entering premises and taking possession of
‘particular’ books, which ASIC must attempt to name in applying for a warrant),
posing significant practical difficulties for ASIC...[12]
3.17
ASIC argued that the Crimes Act 1914 (Crimes Act) authorises a
much larger range of search activities, including the ability to examine
electronic equipment at searched premises. Its submission notes however that
the Crimes Act 'only authorises searches relating to suspected criminal
offences, whereas the ASIC Act allows for searches relating to all of the
provisions under ASIC's jurisdiction, including civil penalty provisions and
administrative remedies.'[13]
3.18
ASIC suggested that the 'gaps' in its powers meant that early choices of
which search warrant to obtain could later determine what kind of law
enforcement action could be taken. ASIC argued that a 'simple but effective'
change could be the expansion of its powers with respect to search warrants, so
that its powers were as procedurally broad as in the Crimes Act, but allow ASIC
to collect information that could be used in any type of enforcement action
ASIC may take under the ASIC Act.[14]
Data Retention Bill
3.19
In early 2015, the Parliament considered at length the
Telecommunications (Interception and Access) Amendment (Data Retention) Bill
2015 (the bill). This section focuses on the Parliamentary Joint Committee on
Intelligence and Security (PJCIS) inquiry into the bill, and the evidence below
was provided to that inquiry. The inquiry examined two issues that had been
raised in the financial related crime inquiry, namely the question of
interception powers for both ASIC and the ATO.
3.20
While the legislation itself was the subject to much public interest,
several issues from the bill are relevant to the question before the committee
about whether ASIC should be allowed telecommunications interception powers.
3.21
The PJCIS report did not explicitly comment on the question of the
designation of the ATO as a 'criminal law-enforcement agency' for the purposes
of the amended TIA Act.
3.22
The amended TIA Act now includes a definition of 'criminal
law-enforcement agency', in addition to the previous term 'enforcement agency'.
Criminal law enforcement agencies include the AFP, Police forces of states,
corruption commissions, the ACC, ASIC, the Australian Commission for Law
Enforcement Integrity (ACLEI) and the Australian Competition and Consumer
Commission (ACCC).[15]
3.23
The bill proposed the inclusion of the term 'criminal law enforcement
agency' within the revised TIA Act. The explanatory memorandum clarified that
the term 'criminal law enforcement agency' would strictly limit those agencies
able to access 'stored communications'.[16]
This is distinct from the designation of some agencies as 'enforcement
agencies', that were able to issue 'historic domestic preservation notices and
apply for stored communications warrants':
Item 3 inserts a definition of 'criminal law-enforcement
agency' after section 110 of the TIA Act. The definition removes the ability of
enforcement agencies that are not also criminal law-enforcement agencies to
issue historic domestic preservation notices under subsection 107J(1) and to
apply for stored communications warrants under section 110 of the Act. These
amendments recognise that while governments at all levels have charged a range
of authorities and bodies with responsibility for investigating or enforcing
offences punishable by significant prison terms (at least a three year term)
access to stored communications should be limited to agencies with a
demonstrated investigative need and practices to safeguard the use and
disclosure of information obtained under a stored communications warrant.[17]
3.24
The explanatory memorandum also noted that the inclusion of ASIC and the
ACCC as 'criminal law enforcement agencies' implemented a recommendation of the
Parliamentary Joint Committee on Intelligence and Security (PJCIS) which
conducted an inquiry into the bill.[18]
3.25
The PJCIS received evidence from the AGD, Professor George Williams, and
the Uniting Church Justice and International Mission Unit that supported the
inclusion of ASIC (and, in the case of the Uniting Church Mission, the ATO) as
'criminal law enforcement agencies' for a variety of reasons.
3.26
The AGD argued that ASIC's inclusion as a criminal law enforcement
agency would put it on a stronger footing with respect to its use of
telecommunications interceptions:
ASIC’s ability to access data at the moment relies on their
ability to fall within that very broadly and non-specifically cast definition
of ‘enforcement agency’, which does not identify them by name; it relies on
them falling within that broad class of agencies who are involved in
enforcement of the criminal law and related functions. A declaration as an
agency would actually give very specific certainty that ASIC is prescribed for
the purposes of accessing data. And I think if anything it puts them on a
stronger footing rather making them more susceptible to challenge on the basis
on which they can access the data.[19]
3.27
Professor Williams agreed with the department's view when he expressed
surprise that ASIC was not included in the telecommunications interception
arrangements, 'given its role in investigating quite serious crimes involving
what can be significant criminal penalties.'[20]
3.28
The Uniting Church Justice and International Mission Unit supported the
expansion of the definition of a criminal law enforcement agency to include the
ATO and ASIC. It argued that the new law would limit the information that criminal
law enforcement agencies would be able to access, and suggested that without
inclusion of ASIC and the ATO, there was a risk both agencies would suffer a reduction
of their capacity to fight financial related crimes.[21]
Committee view
3.29
The committee notes the evidence provided to this inquiry, the
committee's former inquiry into unexplained wealth, as well as the PJCIS's
inquiry into the data retention bill on the question of ASIC's and the ATO's
inclusion as a criminal law enforcement agency under the TIA Act.
3.30
Overall the committee notes a consistent level of support for the
inclusion of these agencies into the new telecommunications interception regime.
The committee further notes that ASIC has already been included as a criminal
law enforcement agency under the TIA Act due to the passage of the data
retention bill. Accordingly, the committee's further comments relate to the
ATO's possible inclusion as a criminal law enforcement agency.
3.31
On balance the committee is persuaded that with appropriate safeguards,
including adequate privacy and oversight arrangements, the ATO should be able
to access intercepted telecommunications information for the purpose of
protecting public finances from serious criminal activities such as major tax
fraud. In the committee's view, the multiple prosecutions and recovery of
billions of dollars in tax liabilities resulting from Project Wickenby, clearly
establishes the demonstrated need for the ATO to become a criminal law-enforcement
agency under the TIA Act.
3.32
For these reasons the committee remains supportive of inclusion of the
ATO as a criminal law-enforcement agency as per the recommendation in its
report into unexplained wealth arrangements in Australia.[22]
3.33
The committee continues to support the inclusion of the ATO as a
criminal law-enforcement agency for the purposes of the TIA Act.
Recommendation 3
3.34
The committee recommends that subject to appropriate safeguards
including adequate privacy and oversight arrangements, the government designate
the ATO as a 'criminal law-enforcement agency' under the Telecommunications
(Interception and Access) Act 1979, for the purpose of protecting public
finances from serious criminal activities such as major tax fraud. Australian Transaction Reports and Analysis Centre (AUSTRAC)
3.35
AUSTRAC has a central role as regulator for the purposes of the Financial
Transaction Reports Act 1988 (FTR Act) and the AML/CTF Act.[23]
This section examines AUSTRAC's role as lead agency with respect to money
laundering and terrorism financing. Criticisms of AUSTRAC's role in financial
sector regulation are examined in Chapter 4.
3.36
AUSTRAC's submission notes that as Australia's AML/CTF regulator it is
responsible for monitoring the compliance of its 'regulated population', and
takes enforcement action 'where necessary in relation to breaches of the
[AML/CTF Act].'[24]
3.37
AUSTRAC submitted that it plays a key role in analysing transaction
reports and producing financial intelligence products for 41 domestic revenue,
law enforcement, national security, human services, regulatory and
Commonwealth, state and territory partners in Australia.[25]
3.38
The effectiveness of Australia's AML/CTF regime was outlined by AUSTRAC,
which argued:
AUSTRAC’s financial intelligence contributes to multi-agency
investigations that target money laundering and tax evasion criminal networks,
in addition to a range of predicate crimes such as drug trafficking, fraud,
identity crime, people smuggling and national security matters.[26]
CTF/AML legislation and review
3.39
The committee heard evidence that the establishment of the AML/CTF
Act had resulted in a regulatory regime that effectively detected and deterred
terrorism-financing and money laundering. The Act is currently under review by
the AGD as outlined below at paragraph 3.46.[27]
3.40
The operation of the Act includes the five key obligations imposed on
reporting agencies:
- Enrolment: all regulated entities need to enrol with AUSTRAC and
provide enrolment details as prescribed in the AML/CTF Rules.
- Conducting customer due diligence: regulated entities must verify
a customer's identity before providing the customer with a designated service.
Regulated entities must carry out ongoing due diligence on customers, and
enhanced customer due diligence on high-risk customers.
- Reporting: reporting entities must report suspicious matters,
certain transactions above a threshold and international funds transfer
instructions.
- Developing and maintaining an AML/CTF Program: reporting entities
must have, and comply, with AML/CTF programs which are designed to identity,
mitigate and manage the money laundering or terrorist financing risks a
reporting entity may face.
- Record keeping: Reporting entities must take and retain certain
records (and other documents given to them by customers) for seven years.[28]
3.41
The AGD submitted that the AML/CTF Act was 'a major step in bringing
Australia into line with the Financial Action Task Force (FATF) standards and
was developed in close consultation with industry and other interest groups.'[29]
Further examination of the FATF is found from paragraph 3.50.
3.42
Both the AML/CTF Act and regulations[30]
establish a risk based approach, with certain risk management strategies in
place.[31]
AUSTRAC argued that as the AML/CTF regulator, it monitors the compliance of the
regulated population and takes enforcement action where necessary.[32]
3.43
The committee heard evidence relating to the effective prevention of
money laundering operations through the AML/CTF arrangements. The AGD noted
that money laundering is not a victimless white collar crime, but:
...an essential component of the ability of criminals to
profit from highly damaging crimes like fraud, drugs and firearms trafficking,
identify theft and cybercrime. Money laundering has the potential to threaten
the integrity of our financial system, funds further criminal activity
including terrorism, and ultimately impacts on community safety and wellbeing.[33]
3.44
As at 1 April 2014, AUSTRAC had a 'regulated population' of
approximately 13 900 reporting agencies, broken into four categories: banks and
other lenders; non‑bank financial service providers; gambling and bullion
services; and money service businesses and remittance dealers.[34]
3.45
AUSTRAC noted there was scope for the expansion of the 'regulated
population' of non-financial businesses and professions, including lawyers and
accountants, real estate agents, trust and company service providers, as well
as precious metal and stone dealers.[35]
3.46
The AGD detailed the requirement within the AML/CTF Act to review the
Act, Rules and Regulations within seven years of the Act's commencement.[36]
On 4 December 2013, the Minister for Justice, the Hon Michael Keenan MP,
announced a review of the regime pursuant to the Act:
The review will cover a range of issues including: the
objects of the AML/CTF Act; the risk-based approach and better regulation;
regime scope; harnessing technology to improve regulatory effectiveness;
industry supervision and monitoring; enforcement; reporting obligations;
secrecy and access; privacy and record keeping; and international cooperation.[37]
3.47
The AGD website notes that public submissions for consultation on the
current review closed on 28 March 2014, and that industry roundtables will be
held in 2014 and 2015. It is understood that the roundtable consultations will
focus on substantive issues raised in submissions to the review.[38]
3.48
To date, the review has received 51 public submissions.[39]
The website also notes that 'further roundtables with remaining industry
sectors will be held in 2015.'[40]
3.49
No further information on a timeline for the conclusion of the review is
available from the AGD website.
Financial Action Task Force
3.50
The statutory review of the AML/CTF Act, as outlined above, is relevant
to the ongoing relationship between the Australian Government and the FATF,
especially given the FATF's role in providing advisory reports on members'
implementation of AML/CTF reforms.
3.51
The AGD submitted that the establishment of the FATF by the Group of
Seven (G7) in 1989, and its subsequent expansion post-September 11, had
strengthened efforts to combat money laundering and terrorism–financing:
The main objectives of the FATF are to set global standards
and to promote effective implementation of legal, regulatory and operational
measures to fight money laundering, terrorist financing and other related
threats to the integrity of the international financial system.[41]
3.52
Australia is a founding member of the FATF, with the AGD Secretary,
Mr Roger Wilkins, becoming president of the group in July 2014 for a 12
month term.[42]
3.53
The FATF works to ensure an internationally coordinated approach to
combating financial crime. Its work has been encouraged by the United Nations
Office on Drugs and Crime (UNODC), the IMF and the World Bank.[43]
FATF review of Australia's
regulatory regime
3.54
The FATF regularly publishes report cards that examine member countries'
regulatory arrangements with respect to their international AML/CTF
obligations. On 21 April 2015, the FATF published a review of regulatory
arrangements in Australia, suggesting there was room for improvement within
Australia's AML/CTF regime: 'Australia has a mature regime for combating money
laundering and terrorist financing, but certain key areas remain
unaddressed...'[44]
3.55
The FATF's review noted:
While Australia regulates its major money laundering and
terrorism financing channels, such as banking, remittance and gaming, it should
improve supervision of its regulated sectors. Most designated non-financial
businesses and professions (DNFBPs) are still not subject to anti-money
laundering/counter-terrorist financing (AML/CTF) requirements and have
insufficient understanding of their risks. These include real estate agents and
lawyers, which the authorities assessed as high risk for money laundering and
terrorist financing. The report concludes that Australia should do more to
demonstrate that they are improving AML/CTF compliance by reporting entities
and that they are successfully discouraging criminal abuse of the financial and
DNFBP sectors.[45]
Committee view
3.56
As outlined above, the FATF's support for an expanded AML/CTF framework
is an important consideration for whether the 'second tier' professions, like
lawyers, real estate agents and accountants should be included in an expanded
AML/CTF regime.
3.57
The committee strongly supports Australia's history of participation in
the FATF, and its efforts to combat money laundering and terrorism financing
through the AML/CTF Act.
3.58
The committee also supports the FATF's review finding that the government
needs to examine whether the 'second tier' professions ought to be included in
the AML/CTF regime. The committee notes the ongoing AML/CTF Act review process.
In the committee's view this is a suitable mechanism for the consideration of
the expansion of Australia's AML/CTF arrangements to include 'second tier'
professions.
Recommendation 4
3.59
The committee recommends the Government consider the extension of the
AML/CTF regulations to cover 'second tier' professions in the current Anti‑Money
Laundering and Counter-Terrorism Financing Act 2006 review. Expansion of the ACC Board
3.60
One question that was raised during the inquiry was whether or not the
composition of the ACC Board should be altered by including AUSTRAC as a full
board member.
3.61
ASIC submitted that as an original member of the ACC Board, it has seen
the nature of serious and organised crime change and become increasingly
sophisticated. ASIC noted that ACC Board members have all been consulted on
whether full participation by AUSTRAC should occur:
As a Board member, the ASIC Chairman was, along with the
other Board members, asked to consider the staged inclusion of AUSTRAC on the
Board of the ACC. In early 2015, the Chairman supported the resolution to seek
the approval of the Inter-Governmental Committee - ACC to begin the process of
admitting the AUSTRAC CEO to the ACC Board and agreed to allow the AUSTRAC CEO
to attend as a non-voting observer, until such time as the Australian Crime
Commission Act 2002 can be amended to include AUSTRAC as a member of the
Board.[46]
3.62
ASIC supports AUSTRAC's evolution and increasing active involvement in
law enforcement intelligence operations, as well as its full membership on the
ACC Board.[47]
3.63
The question of whether the inclusion of AUSTRAC on the ACC Board would
enhance the relationship between the ACC, partner agencies and AUSTRAC, was also
raised by Mr Chris Dawson, CEO of the ACC. Mr Dawson contended that significant
benefits would arise for law enforcement and the intelligence community through
the inclusion of AUSTRAC on the ACC Board.[48]
3.64
The AGD agreed with the ACC, suggesting it was 'a great idea to have
AUSTRAC on the ACC Board.'[49]
Committee view
3.65
The committee notes the views of the AGD, ACC and ASIC on the inclusion
of AUSTRAC as a full member of the ACC Board.
3.66
The committee agrees that AUSTRAC's presence on the ACC Board as a full
member would greatly benefit both AUSTRAC and the ACC.
Recommendation 5
3.67
The committee recommends the government introduce amendments to the Australian
Crime Commission Act 2002 to enable AUSTRAC to become a full member of the
ACC Board.
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