Understanding the vulnerabilities of each country is essential for AML professionals.
Why?
Regulated entities must identify high-risk countries with weak AML/CFT controls. These countries are more likely to have money laundering or terrorist financing.
While international country lists or national high risk country lists help, businesses need their own internal country lists. These may include countries that are not on official lists but still posing a high risk to the entity.
Therefore, understanding different countries' AML/CFT frameworks is crucial.
Financial Crime Vulnerabilities in Australia
In March 2024, the Financial Action Task Force (FATF) conducted a follow-up report on Australia's mutual evaluation. Subsequently, in July 2024, the Australian government published a comprehensive risk assessment for money laundering and another one for terrorist financing.
Here's what every AML professional needs to know about money laundering risks in Australia.
Key Findings from the Australia Risk Assessment 2024
Australia’s 2024 Money Laundering National Risk Assessment identifies several traditional channels and sectors as particularly vulnerable to money laundering:
Banks: Due to their extensive reach and customer base, banks are a common target for money launderers in Australia.
Remitters: Companies that transfer money can be used to move illicit funds across borders.
Casinos: The high cash flow in casinos makes them attractive for laundering money.
Luxury Assets: Items like luxury watches and vehicles are often purchased with illicit money and sold later for clean cash.
Real Estate: Properties can be bought with dirty money and sold to integrate illicit funds into the legitimate economy.
According to the National Risk Assessment, there are several types of crimes that generate significant amounts of illicity proceeds that require laundering. These crimes include:
Drug Trafficking: Cultivation, manufacture and trafficking of drugs are activities that produce significant illegal income for those who commit these crimes.
Tax Evasion: this involves dishonest activities to avoid paying taxes, either in Australia or offshore. It may include complex legal structures that obscure the true ownership of assets.
Fraud: Fraudsters defraud government-funded programs with the use of false information.
Digital Currencies: Unregulated digital currency exchanges and peer-to-peer (P2P) transfers are exploited due to the lack of oversight.
Unregistered Remitters: An increased use of remitters who operate without regulatory oversight. They are used to move funds to or from foreign jurisdictions with underdeveloped financial systems.
Luxury Goods Retailers: High-value items like jewelry and watches are often used to integrate illegal funds into the economy.
Cash-in-Transit Companies: These companies enable the secure movement of high volumes of funds. The extent of criminal misuse of those companies is difficult to estimate in Australia.
Gambling: Despite regulatory oversight, casinos continue to be exploited for large-scale money laundering by sophisticated criminal entities and individuals.
Professional Services: Lawyers, accountants, and real estate agents are exploited to a large scale. These providers can assist money launderers by creating complex structures that make it difficult to identify the real owner of funds.
FATF Follow-Up Report Findings
The FATF follow-up report recognises that Australia is in the process of improving its AML/CFT framework through legislative and regulatory updates.
The Stronger Regulators Act of 2020 tightened fit and proper criteria for Australian Credit Licence holders and currency exchange businesses, ensuring only qualified and trustworthy individuals occupy these roles.
AUSTRAC, Australia's financial intelligence agency, has strengthened its supervisory framework. AUSTRAC has introduced the TAP model, which updates risk profiles of regulated entities annually. This model informs AUSTRAC's supervisory activities, allowing it to prioritize high-risk entities and focus its resources where they are most needed.
Additionally, the new upcoming AML/CFT reforms are expected to further contribute to the fight of money laundering, terrorist financing and other illegal activities by enabling authorities to better prevent and detect them.
Vulnerabilities Highlighted by the FATF Follow-Up Report
Despite these improvements, the FATF follow-up report identifies several remaining vulnerabilities in Australia's AML/CFT framework:
Fit and Proper Checks: While improvements have been made, there are still deficiencies, particularly on whether the shareholders of regulated entities are for and proper for their roles. Obligations primarily apply to those with a 20% or more stake in financial sector companies, which may not cover ultimate beneficial owners or associates.
Risk-Based Supervision: Continuous improvement is needed to ensure all financial institutions and designated services are adequately supervised based on their risk profiles.
Beneficial Ownership Transparency: Efforts to improve transparency regarding beneficial ownership are ongoing, but challenges persist in ensuring that ultimate beneficial owners are properly identified and scrutinized.
Dealing with customers or funds from Australia
Understanding the vulnerabilities of a country's financial system is crucial for AML professionals to enhance their AML programs effectively, especially when dealing with customers or funds coming from those countries.
With the use of this information, AML professionals may choose to implement the following practices:
Enhanced Due Diligence to high risk sectors: Conduct thorough due diligence on customers and transactions originating from sectors identified as high-risk in Australia's National Risk Assessment(like real estate, casinos, or digital currency exchanges). This includes verifying identities, assessing transaction patterns, and understanding the purpose and nature of the business relationship.
Transaction Monitoring: Implement robust systems for monitoring transactions, particularly those involving high-risk sectors such as cash-intensive businesses (e.g., cash-in-transit companies) and sectors prone to anonymity (e.g., digital currencies, online gambling).
Enhanced Reporting Mechanisms: Ensure that reporting mechanisms are robust and encourage staff to report any suspicious activities promptly to the relevant authorities.
By focusing on these actions, AML professionals can effectively mitigate the risks associated with sectors vulnerable to money laundering in Australia. That’s why these reports are a valuable source of information!
Comments