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Issues affecting the financial services, remittance and self‑managed
The committee received evidence relating to the licensing and
registration issues facing actors within the financial services sector. While
many witnesses agreed that law enforcement agencies were working effectively in
deterring financial related crime, some in the finance sector criticised
aspects of the law enforcement framework, arguing that significant changes are
This chapter examines regulatory issues from the perspective of
financial services providers, and focuses on several areas, including:
the regulatory environment monitored by ASIC and the questions of
disproportionate penalties for registered and unregistered entities;
questions about ASIC's willingness to take regulatory action
against 'live scams';
registration under the AML/CTF regime, and criticism of AUSTRAC's
positioning within the sector as a law enforcement agency;
criticism of perceived unwillingness of AUSTRAC to take
regulatory action and the significant remittance industry 'de-banking' issue;
risks arising from the IVTS; and
risks to the self-managed superannuation sector.
An ongoing theme of the evidence was the perception that the financial
services sector registration and licencing regime policed by ASIC was inadequate
and unfair, and that ASIC ignored the greater risks posed by unregistered and
unlicensed operators. While AUSTRAC's role as regulators has been discussed in
Chapter 3, this chapter will examine instances where ASIC and AUSTRAC have used,
or attempted to use, their regulatory powers to prevent financial related
Registration by ASIC
There are two significant issues that were raised with reference to ASIC
and its management of its regulatory responsibilities. The first relates to the
penalties applied to non-compliance by licensed operators compared with
penalties imposed against unlicensed operations. The second relates to ASIC's
ability to use its regulatory powers to intervene in ongoing scams in a digital
environment, especially when peak bodies and banks have directly contacted ASIC
requesting its intervention. These two issues are addressed below.
Some submitters were critical of aspects of the financial services
sector regulations, as well as the role of ASIC itself. The National Credit
(NCPA), for example, questioned a regulatory regime wherein licensed operators
are penalised more than illegal unlicensed operators.
ASIC submitted that, as the financial services regulator, it has a
responsibility to administer the Australian Financial Services (AFS) licensing
regime and 'monitor financial services business to ensure that they operate
efficiently, honestly and fairly.'
ASIC noted its role as a primary law enforcement agency in the fight
against financial crime, through its regulation of Australian companies,
financial markets, financial services organisations and professionals. ASIC
submitted that combatting financial crime was a key part of its role as a regulator:
Given that financial markets and large pools of savings will
attract those with criminal intent, combatting financial crime is a key part of
our remit. Where we detect serious misconduct that is intentional, dishonest or
highly reckless, we may take criminal enforcement action.
Australian Financial Services
ASIC is responsible, under the ASIC Act, for the regulation and
licensing of businesses engaged in consumer credit activities, including banks,
credit unions, finance companies, and mortgage and finance brokers.
ASIC is also the corporate regulator which is responsible for ensuring
that companies, schemes and related entities meet their obligations under the Corporations
Act 2001. ASIC registers and regulates corporations at every point, from
their incorporation through to their winding up. ASIC is also responsible for
ensuring that company directors comply with their responsibilities under the
Directors, company officers, auditors, liquidators and market
participants play a key role in ensuring that Australia’s financial markets are
fair and efficient. We take enforcement action against these gatekeepers to
promote fair and efficient financial markets.
Some submitters, including the NCPA, argued that registered operators
who inadvertently breached the AFS regulations (regulated by ASIC) through
incorrect legal advice or interpretation would be penalised significantly more
than an unlicensed operator. The NCPA suggested that this effectively creates incentives
to act as unlicensed operators:
The penalty for unlicensed activity, if someone is caught...is
one penalty unit for unlicensed activity. The legislation says that you will be
fined this amount of money. However, a licensed lender who is doing the right
thing and who may unintentionally get it wrong through incorrect legal advice
or incorrect interpretation can be fined many times that single penalty unit,
even though they are licensed and attempting to do the right thing. We say that
the penalty for unlicensed activity needs to be many times that of what an
entity trying to do the right thing can be fined.
The NCPA was also critical of the original policy development of the National
Consumer Credit Protection Act 2009 (NCCP Act), arguing that it was
underpinned by incorrect assumptions that would cause significant ongoing
issues and result in penalties that cannot adequately discourage unlicensed
The original Treasury policy development for the NCCP Act
2009 incorrectly assumed that all lenders would apply for and obtain a licence
and hence comply with the new Act. As a result, the penalties for unlicensed
activity are manifestly inadequate to discourage unlicensed activities.
It appears that the ‘prime directive’ for the regulator
(ASIC) is to focus on the licensed lenders (who are continually bending over
backwards to comply with the law) and not the illegal unlicensed entities which
were in, or have entered, the market.
Further, the NCPA argued that because the core objective of the NCCP Act
was to ensure ASIC's focus remained on monitoring and reviewing licensed
activities, penalties in the Act also focus on breaches of licensed activities as
opposed to unlicensed activities.
The NCPA insisted that the current regulatory regime was too onerous for
licensed lenders, and that businesses attempting to follow regulations could be
shut down for minor non-compliance issues:
Civil and Criminal penalties are now so onerous for licensed
lenders complying with the Act for responsible provision of consumer credit
that Australian Credit License holders dare not operate outside the Act.
Further-more, after spending ten’s, sometimes hundreds of
thousands of dollars to gain an Australian Credit License, lenders may have
their business shut down for non-compliance. The “incentive” for licensed
lender to do the right thing cannot be overstated.
Finally, the NCPA noted that the maximum penalties for licensed lenders
for non-compliance was a $340 000 penalty, in addition to a criminal penalty of
up to 200 penalty units ($34 000) with up to 2 years imprisonment. Conversely,
the same maximum penalty applies to unlicensed activities.
The NCPA argued:
In all cases penalties for unlicensed activity should be many
times that of those who go to the trouble of applying for a licence and
becoming licensed, but who may fall foul of the law.
The committee is concerned that the evidence presented by the NCPA
demonstrates disparities within the current financial services licensing and
registration system regulated by ASIC. This imbalance is highlighted by the
example of the maximum penalty for non-compliance by licensed operators being equal
to the maximum penalty for providing unlicensed services. The committee agrees
that this has the potential to incentivise unlicensed activities, which in the
committee's view should be discouraged as such activities can be used to
perpetrate financial scams.
In this regard the committee notes a recent recommendation of the Senate
Economics References Committee 'that the government commission an inquiry into
the current criminal and civil penalties available across the legislation ASIC
The committee recommends that the government review the penalties
prescribed under financial services legislation administered by ASIC, with a
view to achieving a better balance between non-compliance by licensed operators
and unlicensed operations.
ASIC's response to 'live' scams
The NCPA was especially critical of ASIC's reaction to reports of a scam
that misused a member's AFS Licence information. The NCPA extensively detailed
the scam that was reported to ASIC for investigation:
On the day I [Mr Philip Johns, Chief Executive Officer, National
Financial Services Federation] found out about it, we...informed by email the
ASIC credit team in Sydney. Our organisation lodged on behalf of our member. We
called ASIC and reported it via their complaint line. We also send the details
of the scam to the ASIC email address: feedback@ASIC.gov.au. We informed our
members of the mechanics of the scam. That was on day zero as far as we were
concerned. Three days later, the second member reported the same scam. Again,
details were sent to ASIC regarding that. On day 3, because the information we
had was live data—it had the actual Commonwealth Bank BSB, the account number,
the account name and what appeared to be local phone numbers, I passed the
information on to the Australian Bankers' Association, who assigned a person to
assist with this. The ABA contacted the Commonwealth Bank to give them notice
that these couple of accounts were being used in the scam. I am not sure of the
time line the Commonwealth Bank shut that down. On day 6...ASIC rang one of our members
and sent an email with receipt of what they called 'concerns received'. From
our point of view, it was not concerns; this was hard, cold factual
information, including the BSB and account number, of where consumers were
depositing money with regard to this scam. That email on day 6 was to set up a
teleconference further down the track for the investigators to talk to the
members and me.
On day 18, I got an email from the ABA saying he had been
advised by ASIC that they had been aware of this type of scam since July. So it
had run from July to November before one of our members had picked it up, but
ASIC had been aware of it since July. We showed our members the tools on how to
scan the internet to see whether their logos, names, licence numbers were being
used by other entities on the net. Then a third member picked up their live
Australian credit licence number and details being used in a scam. That was
also sent to ASIC. On day 101 after we made contact with ASIC, ASIC issued
media release 14-040, but, based on the information we got from the ABA, this
public warning notice—and it was titled 'ASIC warns Australian borrowers about
overseas lending scam'—was 223 days after ASIC supposedly became aware of the
issue, which goes to the crux of what we tried to highlight in [our
I had a fairly frank conversation with one of the
investigators, who said that basically ASIC (1) does not have the technology to
try and track down these scams, (2) does not have the resources to do this and
(3) the processes of natural justice, of deciding whether this even falls
within ASIC's gamut to investigate then allowing all this, appear to be based...on
paper, fax and letter-type dealing with the process rather than the fact that
we are in a global economy and these scams are over and done with very rapidly.
And they can scam thousands of details very quickly once they are up and
running. So that is the time line, and this is why it is a concern.
The committee subsequently provided this example to ASIC for comment,
noting the significant delay in regulatory action when detailed information of
the scam had been provided so promptly. In answers to Questions on Notice
...in line with our approach to disrupt scams and protect
consumers, ASIC determined that the most appropriate regulatory response in the
circumstances was to issue a media release to educate members of the public and
to disrupt the scam. Following this, ASIC published 14-040MR ASIC warns
Australian borrowers about overseas lending scam on 10 March 2014 which was
in fact about 137 days after ASIC first became aware of the issue.
The committee is concerned about ASIC's response to the scam against NCPA's
members for three reasons. Firstly, whether it took ASIC 223 days or 137 days
to respond to the active scam detailed above, the committee considers ASIC's
response was extremely tardy. The committee acknowledges that this incident may
be an aberration, and may not be representative of ASIC's usual response
timeframe. However, on the evidence before the committee, this does not
appear to be the case, as ASIC was invited to respond directly to the issue and
its response did not contend that this was an isolated incident.
Even if it is assumed that ASIC's typical handling time is twice as fast
as its reaction in this example, the implication is that ASIC's response, from
the day it becomes aware of these sorts of financial related crimes, is between
65–110 days. At best this is equivalent to more than 2 months, at worst nearly
As many witnesses have observed, the use of modern technologies makes
the transacting of internet scams incredibly rapid. If ASIC is to deal with
internet-based financial related crimes in an effective manner into the future,
it must improve its response times to preventing and disrupting such criminal
The committee recommends that ASIC consider and then implement
mechanisms to make its response to internet-based financial related crimes far
In this regard the committee notes several recent recommendations of the
Senate Economics References Committee in relation to ASIC's complaints handling
The committee also notes the government's response, which states that
ASIC 'will undertake a formal review of its complaints management processes in
2016 to ensure that the improvements it has made have led to a more effective
handling of alleged misconduct reports.'
As part of this formal review, the committee expects ASIC to examine whether a
scam, such as the one raised by the NCPA, would be dealt with more effectively
and expeditiously through ASIC's improved complaint handling processes.
The committee's second concern raised by the NCPA evidence is that
ASIC's primary action, when presented with details of an active scam, was to
issue a press release. In the committee's view ASIC's response by media release
does not send a sufficiently robust deterrence message to future internet
Mr Johns' account of his discussion with an ASIC investigator raises
questions for the committee about ASIC's technological capacity to detect and monitor
financial related crimes. Critically, the government and the Parliament must be
assured that ASIC has the technological capacity to effectively and
appropriately deploy its regulatory powers. For this reason the committee
recommends an audit of ASIC's technological capabilities.
The committee recommends that the Australian National Audit Office
conduct a performance audit of ASIC's technological capacity, and provide a
report to the Parliament outlining ASIC's technological requirements and capabilities,
and the extent to which any deficiencies may hamper ASIC's regulatory
The committee is of the view that ASIC needs to build stronger
partnerships with the private sector to more effectively interact with relevant
organisations to detect and deter financial related crimes. The NCPA's example
shows how the intervention by the Australian Bankers' Association prompted
action by the Commonwealth Bank to close down the sham accounts. In the
committee's view, ASIC should have taken similar action as soon as it became
aware of the internet scam.
The committee recommends that ASIC strive to improve its relationships
with the private sector in order to better detect and deter financial related
Registration by AUSTRAC
Similar to the criticisms detailed above of ASIC, AUSTRAC was also
criticised for not taking strong enough compliance action against operators who
were not discharging their obligations under the AML/CTF regime, or complying
with AUSTRAC's instructions.
One concern raised by independent remitters was that penalties were
poorly targeted, and that licensed operators were often punished more severely
than unlicensed operators, who faced little or no financial penalty.
AUSTRAC's submission discussed the detection of Australian-based
remittance services that had been used to launder money. While AUSTRAC did not
disclose the proportion of businesses that are engaged in money laundering, it
did suggest that:
...law enforcement agencies have detected cases where
Australia-based remittance businesses are used as a third party to move funds
or settle transactions involving two or more foreign countries. Similar to
cuckoo smurfing, this involves overseas-based remittance dealers accepting
legitimate transfer instructions from innocent parties (for example, to import
or export goods) but instead of conducting the transfer themselves they send
instructions to Australian counterparts. This is common practice among
alternative remittance businesses, as part of their routine settlement of
debts, to ease cash flow constraints or take advantage of foreign exchange
However, some Australian remittance dealers have exploited
this opportunity to launder cash from Australian organised crime by
transferring it to recipients overseas. Likewise, the overseas remittance
dealers supply ‘clean’ cash to overseas-based crime groups with links in
AUSTRAC noted that it was able to impose civil penalties against
reporting agencies when they failed to take reasonable steps to comply with
their obligations as set out in the AML/CTF Act and associated regulations:
AUSTRAC has increased its enforcement action since the
commencement of the AML/CTF Act in 2006. Most of the obligations under the
AML/CTF Act did not come into effect until two years after its commencement, at
which time reporting entities were subject to a two-year Policy (Civil Penalty
Orders) Principles period. This meant that AUSTRAC could initiate civil
penalties against reporting entities only when the entities had failed to take
reasonable steps to comply with their obligations. AUSTRAC was well placed, as
a result of strengthening its enforcement capability, to take action when
non-compliance was identified and the full suite of powers came into effect
To minimise the high risks associated with the remittance sector in
general, AUSTRAC noted that changes were enacted to the AML/CTF Act in 2011 to both
strengthen the registration requirements for remitters, and to enhance the
AUSTRAC CEO's powers to deal with compliance issues.
While representatives of the independent remittance sector acknowledged
that the sector is deemed high risk, they noted that since 2012, many
previously unregistered operations had subsequently registered with AUSTRAC.
AUSTRAC has to date used these new powers (to refuse, suspend or cancel
registration) only once. However, it noted that it had placed conditions on the
registration of numerous agencies (15 instances as at May 2014), as well as
imposing significant financial penalties on remittance network providers for
failing to register affiliates and providing services through unregistered
Independent remitters suggested that current regulatory arrangements
were not sufficient to deter unregistered remittance operators. Further, they argued
that it may be easier for an unregistered remitter to operate than previously:
We have a subset of unregistered remitters now. If the
registered remitters ...close up shop, and a new flurry of unregistered remitters
will come to fill the space that the registered remitters [occupied]...
AUSTRAC’s detractors noted that there was evidence to suggest that
unregistered remitters could, and were still, operating effectively without the
real threat of regulatory action by AUSTRAC.
AUSTRAC countered that there was a degree of regulatory engagement with
unregistered remitters, citing Taskforce Eligo (Eligo) (as discussed in
Chapter 3) as an example. AUSTRAC argued that together with other law
enforcement agency partners, it is detecting and engaging with unregistered
With unregistered remitters, it would not be true to say
there is no regulatory engagement with them. You will have heard detailed
information, I think, from some of the earlier witnesses about Taskforce Eligo,
for example, where we are working with the Australian Crime Commission and
others. AUSTRAC, as part of that work, has identified people who have been
In response to criticism of AUSTRAC's engagement of unregistered
remitters, AUSTRAC's former CEO, Mr John Schmidt, noted that as at September
2014, there had been prosecutions for some entities that were engaged in
criminal behaviour, but that these were in concert with the ACC as part of Eligo:
We do not prosecute. We are the law enforcement agency. So,
to the extent that there is a breach of the criminal law, which is a criminal
offence, that would be a matter for law enforcement. 
Critically however, Mr Schmidt did note that he was not aware of any
prosecutions for 'being unregistered in itself', and noted that unregistered
remitters who had been identified had been prosecuted for other (possibly
related) criminal activities:
I am not aware of a prosecution for being unregistered in
itself. Having said that, unregistered remitters who have been identified as
being engaged in criminal activity have been prosecuted by law enforcement for
some of their criminal activities. Now, I cannot tell you, based on that
analysis, who would have been potentially liable for prosecution for being
The points of contention between the disproportionality of regulatory actions
against registered and unregistered remitters also feeds into the broader
challenges faced by the independent remittance industry. While apparently not
on the same scale as the financial services industry (and the aforementioned
licensing and penalties issue), the committee agrees that the discrepancies in
evidence from remitters and regulators warrants further investigation.
The committee notes that pressures on the remittance industry, including
the 'de-banking' issue (discussed below) could result in a higher use or
dependence on unregistered remitters.
The committee is concerned that, like ASIC, AUSTRAC is not as expeditious
in moving against unregistered remitters as it ought to be. The committee
believes that AUSTRAC should take a more proactive role in detecting and
engaging unregistered remitters.
The committee recommends that AUSTRAC consider and then implement
mechanisms to increase its regulatory oversight of the activities of
Remittance industry 'de-banking'
The committee heard from both independent and commercial remittance
service providers about ongoing regulatory issues in the sector. Specifically,
independent remitters argued that they were being disadvantaged by major
commercial banks for two primary reasons.
Firstly, it was alleged that the major Australian banks were using
changes to international anti-money laundering and counter terrorism financing
arrangements to justify the closure of remitters' Australian operating bank
Secondly, it was claimed that the same major Australian banks were doing
so while still offering their own remittance services, for possibly
The committee took these allegations extremely seriously, and heard from
both the independent remittance sector and major Australian banks and the
Australian Bankers Association (ABA) about this significant issue.
Over the course of the inquiry the committee heard from numerous
witnesses that the closure of remitters' bank accounts by major Australian
banks was having a detrimental effect on the independent remittance industry.
These concerns were first raised by representatives of the remitters' industry
association, the Australian Remittance and Currency Providers Association, who
argued that independent remittance services were being disadvantaged by the
closure of their operating bank accounts.
Mr Crispin Yuen, Head of Compliance at Ria Financial Services Australia
Pty Ltd, outlined the impact of the 'de-banking' of remittance businesses:
Most of the major banks have decided to not bank remittance
business, resulting in remittance business not having bank accounts with which
to operate. This is now a pressing issue, because a business without a bank
account cannot operate, and three of the four major banks have already said no.
The Australian Federal Police and the Australian Crime Commission have real
issues about the impact of these transactions going underground and being done
by private arrangement in an unregulated, unreported way if the sector loses
its banking relationships.
The affected remitters argued that as they were complying with AUSTRAC's
regulations they should not be 'de-banked'.
The committee invited Australia's four largest commercial banks to respond to
the issues raised by the independent remittance sector.
In correspondence to the committee, Westpac indicated that domestic and
international banks are finding it increasingly difficult to provide banking
and payment services to remittance operators due to the Australian and
international regulatory landscape and the compliance requirements in the
Westpac directed the committee to an ABA blog that summarised some of
the key challenges, including that the anti-money laundering scheme in
Australia which requires banks to 'know your customers'.
The ABA blog outlines the domestic and international constraints the
ACL/CTF requirements place on Australian banks:
Australian banks often use overseas banks (usually in the US,
UK, and EU as these are the preferred currencies) to facilitate these
transactions and the law requires all banks in the value chain to meet
regulatory obligations, including risk management to prevent money
laundering/terrorism financing and adhere to sanctions across multiple
jurisdictions. The expectation of overseas regulators and clearing banks is
that international transfers represent transparency, knowing your customer,
your customer’s customer and who the beneficiaries are. This is not always
possible and Australian banks need to take great steps not to breach both
foreign and domestic law, including laws on anti-money laundering, counter
terrorism financing and sanctions.
Failure to do so could result in any Australian bank that,
even unknowingly, violated these laws to be instantly cut off from access to
the US, UK or EU financial system, including significant regulatory action and
fines which would have a devastating impact on the Australian banks and
Therefore, banks in Australia are assessing the risks of
using remittance operators and companies, and in some cases choosing to cease
providing services to ensure they do not breach international laws.
In light of the requirements of financial institutions internationally,
Westpac had decided 'that like most Australian banks we are not generally in a
position to provide banking services to remittance businesses.'
Westpac acknowledged that the account closures would affect the
independent remittance industry, as well as the businesses and remittance
providers that use their services.
Class action by remitters
Westpac's correspondence also detailed a class action brought against it
in November 2014 by a group of remitters. The action was initiated by the
remitters in order to reinstate their accounts until alternative finance
facilities could be found:
The class action sought to require Westpac to provide more
time to enable remitters to seek alternative banking services. In December
, Westpac reached an in principle agreement to settle the class action
and this was approved by the Federal Court on 5 January 2015.
Westpac explained that part of the settlement included keeping banking
facilities open until 31 March 2015, 'to allow those customers time to make
alternative banking arrangements before...services cease after that date.'
Westpac advised the committee that the government has established a
working group chaired by AGD and including associated parties (regulators,
banks and remittance industry associations) 'to see what longer-term solutions
may be possible to support and help make such [remittance] payments in the
As at 23 June 2015, there is no information available on the progress of
the working group, other than indications that its work is ongoing.
Advice from the ACCC
The committee subsequently wrote to the ACCC requesting an examination
of the substantive question of whether the banks' closure of remitters'
accounts amounted to anti-competitive behaviour or a misuse of market power.
The ACCC was provided with copies of the committee's Hansard and related correspondence.
The ACCC's Chairman, Mr Rod Sims, responded:
I understand that during the course of the inquiry, money
remitters have raised a concern that most of the major Australian banks have
stopped providing banking services to independent remittance businesses and
closed their accounts.
You have asked whether this action may constitute anti-competitive
behaviour; given the banks offer their own remittance services.
Like any businesses, banks have the right to choose who they
deal with and there are many reasons why a bank may legitimately refuse to
supply goods or services.
The ACCC noted that if the banks had acted collectively to close
remitters' accounts, it would raise concerns under the cartel provisions in the
Competition and Consumer Act 2010 (the CCA).
The ACCC concluded that:
...on the basis of the material available, including the
Hansard transcript of the Committee's hearing, the letter from Westpac and the
submission to the inquiry from the Australian Bankers' Association Inc., there
is [no] suggestion that the banks have acted collectively to close remitters'
Rather, the available material suggests that the major
Australian banks have individually decided to stop providing banking services
to independent remittance businesses as a way to individually manage their compliance
risk and [to] meet their obligations under Anti-Money Laundering and Counter
Terrorism Financing regulations.
The ACCC remarked that if a bank had closed a remitters' account to
eliminate the remitter as a competitor to the bank, it could raise concerns
under section 46 of the CCA.
However, the ACCC noted:
On the basis of the available material, and assuming that the
major Australian banks have market power, there is no suggestion that the banks
have closed remitters' accounts for an anti-competitive purpose. Instead, as
noted above, it appears that the banks have individually decided to stop
providing banking services to independent remittance businesses in order to
ensure their availability to meet their regulatory obligations.
Critically, the ACCC acknowledged the importance of independent
remitters to members of migrant communities in Australia, many of whom use remitter
services to send money to families and friends overseas. The ACCC noted that
the AGD's working group had been established to work through these issues, and
offered its assistance to that process.
The questions relating to the closure of remitters accounts are complex.
In the committee's view there needs to be a suitable balance between the
constraints of a robust AML/CTF regime and the ability for legitimate
remittance service providers to access necessary financial products. The
committee acknowledges the ongoing work of the AGD working group to find a satisfactory
resolution for independent remitters' services and the communities that use
The committee chooses not to make any recommendations on this issue due
to the ongoing considerations by the working group. The committee will monitor
the groups' activities going forward, and supports a solution that takes into
account the need for a robust AML/CTF regime and does not result in the closure
of legitimate independent remittance service providers.
Informal Value Transfer Systems
As foreshadowed in Chapter 3, the ACC noted that Eligo had examined
the use of the ARS and IVTS, alternatively known as Hawala, Hundi, Fei ch'ien
or Phoe kuan.
The ACC noted that IVTS are largely used in Australia by global diaspora
communities to remit funds outside of the formal financial and banking system:
IVTS networks represent some of the oldest and most
established financial systems in the world and encapsulate a number of value
transfer mechanisms that predate the modern Western notion of formal banking.
Some IVTS mechanisms used today have existed as far back as 5800 BC, and
include Hawala (Middle East, Afghanistan, and Pakistan), Hundi (India), Fei
ch’ien (China), and Phoe kuan (Thailand). These IVTS are still in operation
across the globe and are often the preferred means of transferring value in
The ACC explained that Eligo had been established as a result of
the recognition of AUSTRAC's designation of the National Threat Assessment on
Money Laundering as 'high'. The ACC Board responded in December 2012 with the
establishment of Eligo:
...the ACC established Eligo to take a coordinated and collective
approach against high-risk remitters and IVTS operating in Australia to reduce their
adverse impact on Australia and its national economic wellbeing. The Task Force
operates under the ACC’s [Targeting Criminal Wealth] Determination, which
allowed the ACC to utilise the full breadth of its coercive intelligence
collection capabilities. The AFP and AUSTRAC were principal partner agencies
involved in Eligo; however, Eligo engaged with numerous domestic and
The aim of Eligo was to disrupt remitters and IVTS operators
assessed as posing a high money laundering risk, and to implement crime
prevention strategies that would optimise the use of AML/CTF regulations.
Eligo resulted in the seizure of more than $580 million in drugs and
assets, including in $26 million in cash.
While this is a significant success, the alternative remittance sector
noted that the use of IVTS was still high among certain communities and that
the effect of the closure of remitters' accounts would ultimately drive more
people to use unregulated services, thus putting themselves at a great
The alternative remitters acknowledged that it was possible to operate
in Australia without seeking registration, by establishing banking arrangements
Senator O'SULLIVAN: Pretend I wake up one day and
decide that I am going to become a remitter. I am not going to seek
registration in Australia under the government's regulations here. I have just
decided to establish my banking arrangements somewhere offshore. Could I
Mr Bieytes Corro: Yes, you can. If you do hawala or
hundi, yes, you would be able to do it. In that sense, there will not be any
real money transfers happening between Australia and Hong Kong. You will just
have a bank account there and a bank account here. The money is actually not
being transferred. Eventually, you use the banks, if you can, to do a
settlement with your counterpart on the other side—but that is unregulated.
The committee is concerned that the effect of the closure of remitters'
accounts could lead to a heavier reliance on IVTS systems in some communities,
potentially drawing law abiding individuals and families into the sphere of organised
and serious criminal groups through a lack of financial and banking safeguards.
The committee recognises that many IVTS users access those services
legitimately, but also acknowledges the high risks that IVTS users are exposed
to, due to a lack of regulatory action by either ASIC or AUSTRAC.
The committee believes that communities should be encouraged to use
registered and regulated services. To this end, the committee encourages the government,
through its current law enforcement arrangements, to continue to monitor the
issues raised both in Eligo and by submitters to this inquiry in
relation to IVTS.
Self-managed superannuation funds
The committee took evidence from witnesses that superannuation investments
were at particular risk of financial related crime, largely because of the
increased technological management of superannuation funds.
The ABA argued that self-managed superannuation funds (SMSFs) mostly sit
This fact provides opportunities for criminals if they can get access to the
account, and a risk that any unauthorised access may be undetectable for some
time. Further, the ABA discussed the increasing use of "phishing"
type scams with respect to superannuation:
That is where we are relying on our electronic detection to
pick anomalous behaviour up, but it is not perfect. There are ways around it.
That is one of the things that I think is a growing area, and, of course, the
criminals would see this as well. They understand that people are saving money
in these locations and they are sending out letters saying, 'Roll over your
super into this account.' I have received several letters saying, 'This person
has left employment and could you please transfer her superannuation fund to
this fund.' That was for a member of my family, so I knew it was not real, but
there are just phishing expeditions going on to probably all superannuation
The ABA noted that accountants and lawyers are not subject to current
AML/CTF regulations, and referred to them as the 'weakest link' in relation to
regulation of SMSFs:
Accountants are the people who set up SMSFs and, as with any
system; criminals go to the weakest link. In the AML-CTF space, the weakest
link is the accountants and lawyers because they are not regulated. There is a
significant amount of money going into SMSFs and, therefore, there is the potential
for those investments to be exploited for that reason for money laundering
rather than fraud.
AUSTRAC also raised the vulnerability of SMSFs generally, noting that a
significant amount of money in Australia is invested in superannuation funds,
which provides significant challenges for law enforcement agencies to monitor.
AUSTRAC mentioned the effectiveness of Task Force Galilee led by the ACC
that targeted 'boiler room scams' in which retirees were phoned and offered
investment opportunities that led to significant fraud:
Historically, one of the ways these scammers got people's
names and addresses was through various share registries and other lists which
were publicly available. I am not quite sure whether they are now available to
the same extent that they were. They say, 'Look, we've got a fantastic
investment opportunity for you.' They lure people in. They are very sophisticated.
They have websites which look legitimate. Some of the more sophisticated ones
would have what appeared to be genuine share trades, which made profits. So
they would bait the hook. Then they would invite investors to put more and more
money into these schemes or to buy particular shares, which either did not exist
or were worthless. Then the money was gone. There have been a number of
examples where people have lost significant amounts of funds through scams of
that nature. That is a particular area of vulnerability.
The committee is concerned with the evidence that SMSFs are particularly
vulnerable to financial related crime. The committee supports the important role
of Commonwealth law enforcement agencies in their work monitoring and
containing the risks to SMSFs from financial related crime.
The committee urges law enforcement agencies to continue to develop new
and effective methods of detecting and disrupting financial frauds perpetrated
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