Posted 28/04/2015 by Dianne Heriot
On 21 April, the Financial Action Taskforce (FATF) released a Mutual Evaluation Report assessing the effectiveness of Australia’s anti-money-laundering and counter terrorist financing (AML/CTF) measures. Established in 1989, FATF is an inter-governmental body responsible for setting and monitoring compliance with international standards for combating money laundering and the financing of terrorism and of the proliferation of weapons of mass destruction.
Australia, Belgium, Norway and Spain are the first countries to undergo evaluation since the FATF adopted revised standards in 2012 and a new assessment methodology in 2013. Results have been mixed. Norway’s report finds ‘significant weaknesses in a number of key areas’; Spain’s sets out ‘how well Spain has implemented the technical requirements of the FATF Recommendations and how effective its AML/CFT system is’; and, while Belgium ‘has the core elements’ in place, some are not ‘fully in line’ with the current Standards.
FATF finds Australia has ‘strong legal, law enforcement and operational measures for combating money laundering and terrorism financing’ but needs to make ‘important improvements’ in a ‘number of key areas’.
Prominent among these is the fact that ‘most designated non-financial businesses and professions (DNFBP) are still not subject to’ Australia’s AML/CTF regime and have an inadequate understanding of their ML/TF risks and mitigations. This includes lawyers and real estate agents which are assessed as high risk sectors in Australia’s National Threat Assessment. These groups were not included in the services regulated under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (the Act) and were intended to have been picked up under a second tranche of legislation that has not yet eventuated. The report concludes that Australian authorities should do more to demonstrate that they are ‘successfully discouraging criminal abuse of the financial and DNFBP sectors’.
Noting that Australia has a ‘good understanding’ of most of its main money laundering risks, the report concludes that these are not all addressed comprehensively or in a manner consistent with the standards. The lack of a national AML/CTF policy setting out clear objectives and national metrics makes ‘it challenging to determine’ how well risks are being addressed. The report raises concerns that Australian authorities focus more on disrupting a limited number of predicate crimes (fraud, drugs and tax evasion), rather than on the laundering of their proceeds. Foreign predicates (including corruption) are infrequently prosecuted. While restraint and confiscation of criminal proceeds is actively pursued, total recoveries remain ‘relatively low in the context of the nature and scale of Australia’s ML/TF risks’.
While AUSTRAC disseminates good quality financial intelligence, law enforcement makes limited use of its data which is a’ weakness’ in the system. AUSTRAC supervision has a range of deficiencies with authorities ‘unable to demonstrate they are improving AML/CTF compliance’ by those subject to regulation.
While Australia has undertaken an assessment of the 'ML risks associated with legal persons and arrangements’, it has not comprehensively assessed ‘all forms of legal persons (including foreign companies operating in Australia)’ and mitigation measures are ‘very limited’. Existing measures to ensure access to timely and accurate information on beneficial ownership and legal persons and arrangements are judged insufficient.
In regard to terrorism financing, the report finds that Australia uses its legal framework and ‘other criminal justice and administrative measures’ effectively to investigate and prosecute TF and to disrupt TF activities when prosecution is not practicable. However, the dissuasiveness of its legal sanctions has not been clearly demonstrated. It notes Australia is yet to develop a ‘targeted approach or oversight’ for not-for-profit organisations vulnerable to terrorist abuse. Its legal obligation to freeze assets automatically once an entity is designated by the United Nations for terrorism-related activities commended as a good example for other countries. However, the report points to the lack of freezing statistics and of supervision for compliance with these requirements as a gap in the system.
Other areas of strength include effective national coordination and international cooperation.
The report finds Australia compliant with 12 standards, largely compliant with 12 and partially compliant with 10. Australia is rated non-compliant against six standards, comprising all DNFBP related standards and also those relating to non-profit organisations, correspondent banking, transparency and beneficial ownership.
Priority actions for Australia include:
- reassessing ML risks as per FATF requirements/guidance; formalising ongoing processes for re-assessing risks, and identifyng measures and means for monitoring and measuring success
- placing increased emphasis on pursuing ML investigations and prosecutions
- increasing efforts to address ML risks associated with a wider range of predicate offences, including foreign crimes
- ensuring financial institutions are supervised for compliance with targeted financial sanctions
- implementing a targeted approach in relation to protect Not for Profit Organisations from TF abuse, and
- ensuring that lawyers, accountants, real estate agents, precious stones dealers, and trust and company service providers are subject to AML/CFT regulation and understand their ML/TF risks.
The Government has indicated it will ‘look closely at FATF’s findings’, including as part of a statutory review of the Act which commenced in December 2013 and is still underway.