In Australia, legislation was introduced in 2006 that requires specified businesses (such as banks and other financial institutions, insurance companies, securities and investment companies, gambling service providers, bullion dealers and providers of alternative remittance services) to forward reports of certain financial transactions to a federal government agency, the Australian Transaction Reports and Analysis Centre (AUSTRAC). This legislation, the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) (AML/CTF Act 2006 (Cth)), is part of a suite of measures to ensure that Australia complies with the international anti-money laundering and counter-terrorism financing (AML/CTF) standards developed by the Financial Action Task Force.
The AML/CTF Act 2006 (Cth) establishes a risk-based regulatory framework in which certain businesses that offer ‘designated services’ are required to identify their customers and their customers’ financial activities that might pose a high risk of involvement in money laundering or financing of terrorism and report these to AUSTRAC. Reporting entities need to be diligent in their reporting activities and in maintaining information about their customers and transactions for the system to work effectively. In order to deter businesses from failing to comply with the legislation, the AML/CTF Act 2006 (Cth) also establishes penalties for non-compliance.
Some of the regulated businesses had comparable regulatory responsibilities under Australia’s earlier anti-money laundering legislation (Financial Transaction Reports Act 1988 (Cth)), as entities that provided certain regulated services, while others were exposed to regulatory requirements for the first time with the enactment of the 2006 Act. Businesses whose services fall under the definition in the AML/CTF Act 2006 (Cth) of what constitutes a designated service are now obliged to implement AML/CTF programs to address the level of money laundering and terrorism financing (ML/TF) risk that they believe affects their business operations. In addition, they are required to adhere to customer identification and due diligence procedures and to submit suspicious matter, threshold transaction and international funds transfer instruction reports to AUSTRAC.
As part of the Australian Institute of Criminology’s research into Australia’s AML/CTF regime, a survey was conducted in mid-2009 of all businesses with reporting obligations under the AML/CTF Act 2006 (Cth) at that time. The survey, which was undertaken during the early phase of implementation of the legislative reforms, provides a point-in-time review of the perceptions of affected businesses, many of who were still in the process of adapting to the new regulatory regime and consequently, in streamlining their processes. Most participants held neutral views about the regime, although there was general support for the regime in meeting its aims of deterring offenders, minimising risk and promoting good governance practices within the business community. Those who responded were also of the view that the costs that had, thus far, been incurred were not prohibitive at the time, with respondents spending an average of $1,000 during the previous 12 months in complying with the legislation.
Some of the findings from the survey however, reflected difficulties that a number of businesses had experienced, particularly those without previous regulatory obligations. In particular, some saw the regulatory regime as being too onerous for the perceived level of risk that they faced at the time. Many participants also felt that they would gain a better understanding of the risks and respond better to regulatory obligations, if a greater array of sector-specific education and training opportunities were made available. Almost all survey participants (the majority of whom were from micro or small businesses and irrespective of the sector that they represented), considered in mid-2009 that the ML/TF risks to their businesses were low. It is possible that this assessment was, in part, based on limited exposure to the educative material describing inherent risks to their businesses that has since been made available by AUSTRAC and other industry organisations.
Changes to the AML/CTF environment in the period since the survey was conducted may have ameliorated these concerns to some extent. On a national level, the Commonwealth Organised Crime Strategic Framework, introduced in 2009, includes among its purposes the aim of enhancing relationships between the Commonwealth and regulated industries in both understanding and responding to organised crime matters. Money Laundering Working Groups were formed under the Framework and have produced a Response Plan for Heads of Commonwealth Law Enforcement Agencies (HOCOLEA). In addition, the national regulator, AUSTRAC, has produced a range of guides, typology reports and other tools to assist entities, particularly those who have experienced difficulty in adapting to Australia’s risk-based AML/CTF approach, to evaluate risks and to apply appropriate compliance programs more effectively. Similarly, there has been an increase and improvement in industry-specific engagement through targeted education campaigns and the development of sector-specific guidance and supervision plans, which refer to individual exposure and risk levels.
The combination of regulator response, alongside increased familiarity with the regime, has arguably produced enhanced understanding of the benefits of the regime, as well as improved capability among businesses in achieving compliance with regulatory requirements. The findings presented in this report provide a useful gauge at a specific point in time of how over 4,000 Australian businesses and parts of some sectors regulated under the AML/CTF Act perceived the ML/TF risks they believed they faced. This is an important contribution to understanding the Australian risk environment and operation of AML/CTF regulation. However, the findings in this survey on business perceptions of ML/TF risk need to be viewed in a wider context. Business perceptions represent only one piece of the broader ML/TF picture. Due to the complexity and clandestine nature of ML/TF, most if not all businesses will only see a part of the environment. A significant amount of ML/TF and illicit financial activity can only be detected when government agencies examine larger holdings of transaction reporting and other information. Access to criminal and other intelligence may be needed to draw links across information sets to identify unusual or suspicious activity. Investigations are often required to confirm money laundering and criminal behaviour. Except in instances where law enforcement and other authorities approach businesses to gain their assistance on operational matters, business will not be privy to this wider array of information, much of which is highly classified.
AUSTRAC and other government agencies provide guidance and information on ML/TF risks, including summaries of real life cases and methods that have been detected. But this information is, by necessity, limited. Intelligence and operational sensitivities restrict the amount of information and detail authorities can provide to business on actual cases or the full extent of known ML/TF risk. Government authorities also acknowledge that they do not possess comprehensive visibility of the entire ML/TF risk environment. For these reasons, business perceptions of ML/TF risk presented in this report need to be seen as only one view of the ML/TF environment in Australia. Interpretation of those findings needs to take this limitation into account.
The results of the present study will be of use in providing a context of business perceptions as AUSTRAC conducts its own surveys of businesses to determine how well certain sectors understand risk and how well they have performed in implementing their AML/CTF obligations. The present results, taken in conjunction with AUSTRAC’s ongoing survey results in the future, should provide a comprehensive body of information on how Australian businesses have approached AML/CTF and their views concerning the benefits and difficulties that have arisen in practice. This information will also provide a basis for developing future outreach activities to assist businesses with compliance in this important area of financial crime control.