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Reactive regulators still stuck in a rut

“In this role, Mr [Warren] Day will have responsibility for management of operational aspects of ASIC’s activities,” he said. “This will free up the Commission to focus on regulatory and enforcement decision making, key strategic issues, external relations and communication.”

The key message was ASIC is a proactive regulator, not reactive; a novel concept given its track record.

But reactive regulators have been a recurring theme in this country. It was a criticism also levelled at Australia’s financial crime watchdog AUSTRAC earlier on Friday, when Senator Deborah O’Neill lobbed a series of questions at two officers about its capacity to have oversight on money laundering breaches.

Labor senator Deborah O’Neill grilled AUSTRAC and questioned whether it was a reactive regulator.

Labor senator Deborah O’Neill grilled AUSTRAC and questioned whether it was a reactive regulator.Credit:Eamon Gallagher

What became clear from her questions is the regulator has a lot of gaps to fill to bring it in line with global counterparts, including New Zealand.

The first relates to the number of entities in its orbit due to a government failure to amend the Anti-Money Laundering and Counter Terrorism Financing Act to include industries such as real estate, fine art, jewellery as well as the so-called gatekeeper professions such as lawyers and accountants.

These amendments have been bouncing around for years.

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If introduced, it would expand the number of entities required to register with AUSTRAC as a reporting entity from 15,000 to more than 100,000.

These industries would be obliged to report any suspicious activity or cash transactions over $10,000 to AUSTRAC.

Until they do, crooks will be able to exploit the booming real estate market and the absence of anti-money laundering and counter terrorism financing in real estate and launder money by buying high value properties.

In relation to gateway professions such as lawyers, the Panama Papers leaked in 2016 showed how a law firm can facilitate various money laundering schemes to enable billions of dollars to slip through undetected until the leak.

Shortly after the Panama Papers scandal, the government launched a feasibility study to investigate widening AUSTRAC’s net.

It then announced plans to update the Act, but that was 2018 and since then there has been little movement.

As we saw from the Westpac money laundering scandal, the risks are real. The bank received a record fine after being caught breaching AML-CTF laws more than 23 million times, including allowing customers to transfer money to the Philippines for the purposes of child exploitation.

At least one of those customers made 625 transactions between 2013 and 2019, including transferring money to a person in the Philippines who was arrested in 2015 for child trafficking and live streaming of child sex shows and selling child sex.

O’Neill pointed to another case mentioned in the Financial Action Task Force and Egmont Group report in December 2020 that didn’t attract any fines despite banks being involved. “It states that in 2017 the Australian Border Force found more than $500 million had passed through Australian bank accounts since 2014 after it was referred from an international partner.”

Upon further reading the $500 million was the proceeds of crime for South American cocaine cartels.

“The criminal proceeds were transmitted to bank accounts in south-east Asia, before they were subsequently layered through a multitude of Australian bank accounts. The proceeds were remitted to offshore bank accounts, or used to purchase small, high-end electronic devices for export to companies in south-east Asia and the Middle East. The undervaluation of exported devices exaggerated the illicit value being transferred offshore,” the report says.

AUSTRAC did a great job pinging Westpac, Commonwealth Bank and Tabcorp for rampant breaches of the act. It was a huge win, and in the case of Westpac, the $1.3 billion fine was the largest anti money laundering penalty ever handed down outside of the US.

But when it comes to the gambling sector, AUSTRAC has been a massive disappointment.

In 2017 it conducted a casino junkets campaign with a finding that “casinos are broadly aware of and comply with their Anti-Money Laundering and Counter Terrorism Financing Act (ML/CTF) obligations regarding casino junkets.”

For years there have been reports of systemic money laundering at Crown Resorts, including an ABC Four Corners expose back in 2017. Then in 2019 a joint venture with The Sydney Morning Herald, The Age and 60 Minutes revealed Crown had links to Chinese crime bosses, drug syndicates, money laundering and alleged sex trafficking rings.

It took AUSTRAC until October 2020 to finally launch an inquiry. This was after the NSW casino regulator ventilated the issue in a very public high profile inquiry throughout 2020.

When asked how many other companies it was investigating, AUSTRAC declined to respond, taking regulatory opaqueness to a new level.

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