This report provides an industry perspective of the risks of money laundering and financing of terrorism that are considered to exist in Australia in the professional business groups identified by FATF as DNFBPs and considered by FATF as gatekeepers to financial services (FATF 2012).
The preliminary assessment combined a review of public source information and roundtable consultations held with various professional associations and regulators of the businesses in question; namely, legal practitioners, accountants, real estate agents, dealers in precious metals and stones, and trust and company service providers. The outcomes of the review and roundtables were presented against industry demographic information and income sources for each DNFBP where it was available publicly. For legal practitioners and accountants particularly, this information is salient as industry participants identified heightened risks of illicit behaviour linked to specific sections of the practitioner community and to specific transaction types.
The assessment of the DNFBPs in Australia was supplemented by an overview of the extent of regulation of DNFBPs in some countries in the European Union, North America and Asia.
With the resources available, it was not possible to collect all statistical data concerning criminal convictions and professional disciplinary proceedings from all Australian jurisdictions involving members of each professional group, although information from some of the largest jurisdictions and professions was examined. Convictions information, specifically for offences such as fraud, might have revealed additional risks and vulnerabilities to money laundering in DNFBPs where those convictions demonstrated anonymous or disguised movements of the funds by professionals. Conversely, it may have also revealed the capacity of the existing criminal and regulatory frameworks to identify examples of anonymous or disguised movements of funds. On the basis of the information examined, however, few instances of intentional money laundering were identified.
Professionals tend to be both represented and regulated by professional bodies made up of the professionals themselves, often with lay representatives involved pursuant to legislative regulatory procedures. Professional bodies often have a role in ensuring that unqualified people do not practice in the profession (Smith 2002). The exclusive nature of the professions has been challenged by a number of developments, including the rise of competition policy (in Australia the professions became subject to the Trade Practices Act 1974 (Cth) in 1996), the rise of multi-disciplinary practices, the increasing use of associate professionals and the use of information technology (Smith 2002). The rise of associate professions, such as conveyancing services, is also important. A much larger group can now perform what was once a solely professional task.
Generally, the publicly available evidence of the risks of money laundering taking place in Australia in the professional groups examined was extremely limited. There were few actual examples from industries that in Australia at present comprise many thousands of members. It has not been possible to assess the level of risk among those professionals who operate outside current legislative and professional regulatory controls and it is among these groups that levels of risk may be higher. Further exploratory research using qualitative research methods would be needed to provide a risk assessment relating to these individuals.
On the basis of the evidence available, however, the following conclusions may be drawn.
The current FATF Recommendations (FATF 2012) seek to make the use of professional services unattractive to those seeking to engage in ML/TF. Any future legislation that may extend the AML/CTF regulatory requirements in Australia to specified services provided by certain business and professional groups, would be in addition to the existing professional regulatory regime applicable to some registered practitioners such as legal practitioners, as well as the ordinary provisions of federal and state or territory criminal laws concerning money laundering and financial crime. Although the Australian material assessed for this report identified some instances in which legal practitioners had acted illegally for personal gain, no instances were reported of legal practitioners unwittingly being involved in money laundering. Of course, such conduct would be difficult to identify and might only become apparent as part of separate investigations into money laundering by the clients of legal practitioners. While the report does assess the extent of evidence of deliberate involvement, it should be recognised that criminal offences are already in place to combat such situations. There are also existing various reporting obligations on solicitors to report cash transactions to AUSTRAC.
Arguably, future legislative reforms would assist in identifying some instances of unwitting involvement of legal practitioners in money laundering, although such cases could also be uncovered using existing criminal law investigatory and professional disciplinary regulatory powers. The conclusion from the current research using publicly-available information appears to be that either money laundering within the legal profession is exceedingly rare or non-existent, or that instances of money laundering have not been detected to date using existing laws and procedures. It may also be the case that some practitioners have been unwittingly implicated in money laundering by their clients.
Money laundering convictions, allegations and charges
Research conducted by the AIC has found that in Australia to the date of writing, no legal practitioners have been convicted of money laundering offences under federal, state or territory legislation. The allegations proved against Paul Gregory represent the only instance of a legal practitioner conspiring with a client to hide that client’s assets, although that case related to tax evasion rather than money laundering. It does, however, indicate the ability of the existing system to reveal the involvement of legal practitioners in complex schemes to hide assets.
The AUSTRAC typology involving a solicitor presented above does not clearly identify the role of the Australian-based offender’s occupation as a solicitor in the structuring transactions. The information available, however, does not clearly demonstrate that the Australian-based solicitor’s actions extended beyond structuring offences. The typology, if substantiated by actual case material, may constitute direct evidence of money laundering by a legal practitioner, although the details of the case might also indicate that the offender’s occupation was incidental to the structuring offences.
Regulation and other legal instruments
Legal practitioners (with the NSW model considered in detail) are arguably subject to the most stringent regulation and scrutiny of the DNFBPs considered in this report.
All legal practitioners operating a private practice, including notaries, are subject to licensing requirements and ongoing accreditation. Legal practitioners are subject to statutory requirements and professional conduct rules that govern aspects of legal practise. Most states and territories have statutorily established independent supervisory bodies for legal practitioners that are agencies of the state or territory government as well as the Law Society and Bar Association performing supervisory functions.
The NSW model of regulation mirrors many aspects of AML/CTF regulation, although the two regulatory systems have different aims. Trust funds for legal practitioners (predominantly solicitors, as barristers are not permitted to hold a trust account in New South Wales) are subject to statutory regulation. A number of aspects are similar to those in the current AML/CTF regulation or could serve similar functions to track the movement of funds. The NSW model:
- Prohibits holding funds under a false name and requires records of names and addresses for funds held in trust.
- Prohibits moving funds in transactions that cannot be traced electronically—for example, any trust money received as cash must be deposited into a general trust account, any transit money taken as cash must also be deposited into a general trust account before following the payout instructions for the money and any controlled money received as cash must also be paid into a controlled money account.
- Has annual auditing requirements for trust accounts and allows additional audits by the Law Society as well as power to conduct investigations and appoint external supervisors, managers and receivers.
- Requires trust accounts to held at approved ADIs only.
- Imposes a positive obligation on regulators who suspect on reasonable grounds, after investigation or otherwise, that a person has committed an offence against any Act or law, to report the suspected offence to any relevant law enforcement or prosecution authority and make available to the authority the information and documents relevant to the suspected offence in its possession or under its control.
- Requires ADIs holding trust accounts to report any irregularities in the accounts.
Disciplinary proceedings and prosecutions
The disciplinary cases from New South Wales, Western Australia and Queensland did not reveal any direct evidence of money laundering with the unwitting or complicit assistance of a legal practitioner. The majority of the disciplinary proceedings brought against legal practitioners in New South Wales were for consumer matters. Matters that resulted in criminal proceedings in New South Wales, as well as disciplinary outcomes, centre on the misappropriation of trust funds and other frauds motivated by personal gain.
Some industry participants reiterated in subsequent feedback on this report that criminal cases of legal practitioners committing fraud did not constitute direct evidence of money laundering in the profession because they do not show evidence of legal practitioners unwittingly or complicity assisting clients to launder funds. The common theme across these cases is one of the practitioner knowingly obtaining client funds for illicit personal gain (C Slater personal communication 12 June 2009; Law Council of Australia personal communication 29 May 2009). The disciplinary cases outlined for New South Wales were included to consider whether the existing framework might be able to reveal money laundering activities should they involve legal practitioners.
It is not surprising that the NSW disciplinary cases did not reveal any specific money laundering cases, as the system is not looking for money laundering activities. The existing regulatory system in New South Wales is geared to detect fraud offences and not money laundering (S Mark personal communication 5 June 2009). The NSW cases suggest, however, that the existing regulatory requirements, for trust accounts particularly, are sufficient to identify the illicit movements of funds. In Law Society of NSW v G  NSWADT 38, the practitioner’s misappropriation was revealed by his employer and not as a result of a complaint made by the owner of the funds involved. The case tentatively suggests that the system is able to identify the illicit movements of funds without the beneficial owner of the funds making a complaint.
The prosecution and disciplinary actions for fraud offences may also indicate that the oversight of the profession may be sufficient to reveal the involvement of legal practitioners in activities aimed at disguising or hiding assets. The case arising from the Wickenby investigation further indicates the ability of the existing system to reveal the involvement of legal practitioners in complex schemes to hide assets. This was the only example of a legal practitioner who conspired with a client to hide that client’s assets. The vast majority of cases discussed in this report involve legal practitioners who have committed fraud offences for their own gains.
The single AUSTRAC typology involving a legal practitioner did not clearly identify the role of the Australian offender’s occupation as a solicitor in the structuring transactions. The solicitor in Hong Kong established companies to hide the funds and remit these back to Australia, so the hiding of funds hinged on his ability to create company structures. The information available, however, does not clearly show the Australian solicitor’s actions extended beyond structuring offences. The typology, if proven, may constitute direct evidence of money laundering by a legal practitioner although the details of the case might also indicate that the offender’s occupation was incidental to the structuring offences.
Summary of industry views
Almost all of the representatives from the legal sector who participated in the roundtable stated that they were unaware of legal practitioners being involved in laundering money for their own gain or on behalf of their clients. The sector’s professional associations had rarely seen evidence of practitioners being involved in criminal activities and had almost never seen cases of money laundering. When legal practitioners were involved in criminal matters, these invariably involved fraud without money laundering being charged.
In response to a question about possible areas of risk, some roundtable participants identified certain professional activities as potentially involving higher risks of money laundering. However, not all of the participants agreed that all of these activities would entail higher levels of risk and no participants were able to identify actual examples of money laundering having occurred in connection with these activities. The types of legal work identified as potentially carrying higher risks included:
- transactions involving trust accounts;
- cash transactions;
- high-volume work, such as small criminal matters with a quick turnover;
- creating complex business arrangements and structures, and giving advice on these types of structures; and
- matters finalised over long periods of time, such as where the beneficiaries of an estate were unaware of the funds available.
In relation to the future legislative reforms, a number of participants stated that any suspicious matter reporting obligation for legal practitioners would conflict with existing professional obligations such as LPP and the nature of the relationship between the legal practitioner and the client. One participant noted that legal practitioners already have ethical obligations to report the probable commission or concealment of serious offences. It was argued by participants that existing professional ethical obligations should be respected in any legislative reforms introduced. Many participants also expressed their concerns regarding the compliance costs for legal practitioners if further regulation were implemented. These concerns are reflected in the AIC’s Perceptions of Money Laundering and Financing of Terrorism in the Australian Legal Profession Report (Choo et al. forthcoming).
Although roundtable participants from the legal profession expressed strong reservations about further regulation of the sector, the profession has actively sought to ensure that its members are fully informed on money-laundering risks and issues.
The legal practitioners involved in this exercise did not discuss conveyancing. The role of conveyancing in the legal profession as perceived by real estate industry representatives is discussed in connection with real estate transactions.
The accounting profession, unlike legal practitioners, is composed of varied service providers and also unlike legal practitioners, is not regulated as a single profession. Tax agents, BAS agents and accountants providing financial advice have statutory registration requirements, as do auditors, liquidators and insolvency practitioners. The latter three types of services have been considered as trust and company service providers in this report.
Regulation and other instruments
Accountants who provide services that are encompassed by the AML/CTF Act (predominantly those holding AFSL) have existing AML/CTF obligations. The new requirements for tax agents and BAS agents do not include aspects that mirror AML/CTF obligations, such as specific customer identification or verification requirements or reporting mechanisms for suspicious activities.
Members of the key accounting professional organisations are subject to additional professional requirements and disciplinary mechanisms that mirror those of legal practitioners to an extent. Membership to the professional organisations, however, is voluntary. Voluntary membership and the service-based approach to regulation allows some accountants to provide services without any specific regulation. Some of the services that a non-member accountant might offer without supervision of either nature include providing advice or creating business structures and bookkeeping.
The transactions identified by some industry professionals as those with the greatest vulnerability to money laundering involve the receipt of funds into a trust account. The current standards for trust accounts (for members of the key professional bodies) have extensive audit requirements but do not contain many obligations that mirror the regulations aimed at preventing money laundering or to assist in identifying it. These standards do not have specific identification requirements for clients involved in trust fund transactions. The means of disbursing funds are not limited to electronic transactions as the regulation of legal practitioners’ trust accounts are. There are no reporting requirements for any practitioners that identify an irregularity in a trust account ledger, nor is the ADI holding the account bound to make a report. The auditor of a trust account, however, must make a report of any irregularities.
The second area of concern for accountants is their involvement in setting up company and business structures. There are no conduct guidelines from the professional organisations governing this area with specific guidelines for these services. The ABS (2003b) income information does not give an indication of the frequency with which accountants provides these services, although business tax services generated the largest proportion of income for firms with less than 20 principles.
The professional ethics and standards for both CPA Australia and ICAA contain an AML guidance note. The ICAA module suggests client identification procedures, screening funds passing through trust accounts and avoiding cash transactions. The guideline suggests discussing any suspect transactions with the ICAA for advice on reporting these to a law enforcement authority. The guideline is modelled on the previous AML/CTF regime and is not binding. It does indicate, however, that members might be subject to disciplinary action if they fail to comply. The guidelines for ICAA and CPA Australia do not extend beyond members of those organisations.
Disciplinary proceedings and prosecutions
The accounting profession has had examples of complicit involvement in money laundering. One accountant has been convicted of a structuring offence, although the details of the structuring activities and the means of discovery are not publicly available.
The AUSTRAC typology involving an accounting firm receiving and paying out the proceeds of crime offers some support to the industry’s perception of trust funds and corporate structures as key risk areas.
The pending cases involving the Sydney accountant and the other prosecutions referred to above indicate that the profession’s view that matters involving company structures are a potential high-risk area has some basis. The information available on each case, however, suggests that the accountants involved were allegedly using these mechanisms to allow clients to avoid tax obligations.
The disciplinary procedures of the accounting organisations have focused on consumer matters rather than criminal activities. The organisations will respond to criminal and regulatory matters involving members. ICA does not do so until the matter has been finalised. CPA Australia is able to do so, although will usually also await an outcome. The professional organisations have indicated that this is, in part, to avoid prejudicing the outcome of criminal or regulatory matters. The professional bodies do not have the powers of law enforcement and regulatory agencies such as to compel documents for an investigation.
The professional bodies are unlikely to uncover complicit money laundering unless it has the subject of a complaint by an external party. The professional bodies will, however, respond to money laundering activities identified by law enforcement or regulatory agencies.
Real estate industry
Real estate agents
The NSW model of regulating real estate agents has licensing and registration requirements that mean all providers are known to the NSW OFT. One of the more common reasons for disciplinary action against real estate agents was a violation of the licensing requirements or restrictions.
The NSW model of regulation has record keeping and trust account auditing requirements for real estate agents. The trust account auditing and record keeping obligations are extensive enough to allow the NSW OFT to track any funds an agent receives. The disciplinary proceedings in New South Wales illustrate that this system is an effective means of tracking trust account deposits and proceedings have been initiated for discrepancies and auditing failures.
The auditing requirements do not, however, guarantee that the buyer of a sizeable asset has been identified. The key vulnerability in the NSW regulatory model for real estate agents is the absence of any formal identification requirements for buyers or sellers. The conveyancing process of a real estate transaction might identify the buyer and seller, but there is no evidence of specific identification procedures in legislation or regulation governing conveyancing.
Buyers obtaining financing, however, will be identified by the bank providing the loan. Buyers obtaining finance through a mortgage broker are also going to be identified for the bank by the broker acting as an agent prior to being identified by the lender. The MFAA’s disciplinary outcomes, which include cases of falsifying identification checks as a broker, illustrate that the MFAA is able to identify deficiencies in the process.
Real estate transactions where the buyer does not engage an external provider to perform the conveyancing, and does not seek financing, may not be formally identified at any stage in the process. The existing system is theoretically vulnerable to holding assets in a false name. The typology from AUSTRAC illustrates the possibility of doing so, although in this case the conveyancing was alleged to have been done by a third party.
Real estate agents held the view that conveyancing was where identification would take place. This is where the actual transaction takes place. Buyers, however, are able to do their own conveyancing meaning the transaction is not overseen by another party that might identify the buyer.
There are no clear examples of real estate agents facilitating money laundering either unwittingly or knowingly. There is some evidence to suggest that the investigation and disciplinary mechanisms for real estate agents may be able to identify cases involving money laundering and other criminal behaviour. The existing investigation and disciplinary powers of the NSW OFT extend beyond responding to consumer complaints. The NSW OFT is also the recipient of trust account external audits. These two aspects suggest that an irregularity in a trust account, once identified by an auditor, may be investigated by the NSW OFT even in matters outside of potential consumer fraud committed by the agent against a client.
The disciplinary cases from Victoria demonstrated that the Victorian investigation system is able to identify irregular movements of monies through a trust account. In one case, the Victorian system identified irregular movements that were not necessarily the subject of an immediate consumer fraud. The suggestion is that the system is able to identify agents moving money and identify those knowingly laundering money. The other disciplinary case from Victoria is interesting as the agent’s misidentification of the buyer to the seller was found to be a breach of his fiduciary duty to the seller. While the case was about the below market sale price, it perhaps demonstrates that the Victorian Consumer Affairs Tribunal’s willingness to consider identification issues as part of the duty of the agent in disciplinary matters.
Transferring value between individuals using real estate, such as by overpaying or underpaying for a property, is possible. The role of valuers in transactions of this nature is unclear as there is no requirement for buyers or sellers to have a property valued. The valuation performed by a lender involved in any such transaction would be a significant hurdle should the buyer require finance. Any intentionally fraudulent activities involving a property valuation are difficult to uncover in the current system predominantly because of the inexact nature of the valuation process.
Mortgage brokers in some states have registration requirements identifying all participants in the industry. The regulation for mortgage brokers has two levels. Brokers have record-keeping requirements and are subject to the investigation powers of the state Departments of Fair Trading. Brokers, as agents of lending institutions with AML/CTF obligations, are bound by the identification requirements required by the institutions receiving the loan applications. The industry body, MFAA, offers training for brokers on the requirements held by lending institutions.
The allegations made in one case illustrate a means of using mortgages to hide value. The accused, however, was alleged to have held the mortgages rather than acting as a broker. There are no direct examples of mortgage brokers involved in money laundering.
The MFAA has conducted disciplinary proceedings against brokers violating identification requirements through acts such as falsifying documents. This suggests that the MFAA is capable of enforcing the obligations intended to prevent unwitting involvement. The MFAA does not have direct dealings with borrowers, although it is able to follow up information about violations of any obligations held by brokers that it receives from third parties in some circumstances (C Duffy personal communication 23 June 2009).
Dealers in precious metals and stones
Regulation and other instruments
Wholesale and retail precious metals and stones transactions are more vulnerable to money laundering activities than transactions going through pawnbrokers or secondhand dealers.
The legislation and regulation governing pawnbrokers and secondhand dealers, including antiques, varies between states and territories. The model presented for New South Wales, identified by industry participants as one of the least regulated states, has some features that reduce the vulnerability of this aspect of the industry to money laundering.
The New South Wales model:
- allows all industry participants to be identified and prohibits operating without a licence;
- has set identification procedures for transactions that resemble the minimum identification requirements that might be employed by AML/CTF reporting entities;
- requires businesses to retain records of all transactions and requires larger businesses to submit a report of all transactions to the NSW Police Force; and
- lacks auditing requirements but allows representatives from the Department of Fair Trading and the police to search premises and to obtain documents.
The requirements are targeted at hindering the movements of stolen goods rather than preventing money laundering. Despite this, the identification, record keeping and investigations aspects are likely to reduce the vulnerability of the industry to both complicit and unwitting money laundering.
Retailers, valuers and wholesalers of precious stones, by contrast, are completely unregulated. Membership to the various industry associations is voluntary and there is no external register of industry participants from these sectors. The vulnerability of retailers, valuers and wholesalers to money laundering initially appears similar as they are all unregulated. The likely threat of involvement in money laundering activities by each aspect of the industry is quite variable.
Risk factors within the industry
The views of the precious metals and stones industry suggest that the transactions posing the greater likelihood of laundering money are those involving very high-value stones. There are product and industry characteristics that increase the vulnerability of these parts of the industry to money laundering beyond a lack of regulation.
Very high-value stones offer an attractive means of holding value and transporting value across international borders. The extreme level of liquidity of precious stones internationally is an attractive quality and heightened vulnerability. Diamonds are also far more attractive than coloured gemstones, not only because of their value but also because of a greater degree of certainty about market prices.
Jewellery pieces have the greatest risks of losing value and are the least attractive. The implication from the views of industry is that the likelihood of involvement by retail jewellery businesses is very low.
The gemstone industry lacks transparency and is one where large cash transactions are not uncommon. Some industry participants saw the closed aspect of the industry as a factor insulating the industry against illicit activities. It is difficult to gauge, based on the evidence available, if the reputation risks and distrust of outsiders of industry participants is enough to prevent any complicit or unwitting money laundering.
The lack of transparency does mean, however, that it would be extremely difficult to identify either complicit or unwitting involvement in an industry where very large amounts of value can be moved very easily, completely undetected by external parties and very easily turned back into cash.
Trust and company service providers
Trust and company service providers are a diverse industry with very large variations in the extent of regulation applied to their services. There is no direct evidence suggesting that service providers in any area of the industry have engaged in unwitting or complicit money laundering activities. The range of regulatory approaches taken to the different components, however, also suggest the regulatory and other bodies have differing capacities to uncover any such activity.
Company formation agents
Company formation agents are not required to register with ASIC and as such, there is no central body listing all of the service providers. Service providers are bound by the Corporations Act to take reasonable steps ensure that the information they provide to ASIC is correct, although there is no means of verifying identity information. Company formation agents are not regulated by other instruments, although their potential to engage in money laundering activities is limited to forming companies where the beneficial owners or identities of officers have been disguised.
The case involving the company implicated in the Sarin Gas attacks concerned beneficial owners of a sheep station. The investigation showed how a company can be used to transfer funds into and out of Australia while obscuring the beneficial owners. Unfortunately, there is no indication of whether a company formation agent was involved and whether reasonable steps were taken to provide correct information to ASIC. The company could have been established by the individual involved in the case.
AISC has not released any information on any actions taken against formation agents. Similarly, however, there is no evidence to suggest that the investigative powers of ASIC are insufficient to identify a company formation agent submitting false documents to create companies.
Providers of company secretary services cannot provide services to a company without being registered as an officer of the company. Company secretaries are bound by extensive requirements in the Corporations Act and subject to the investigative and disciplinary actions of ASIC. As with formation agents, there are no specific examples of ASIC banning or otherwise sanctioning company secretaries for money laundering. There is also no evidence suggesting that ASIC would be unable to adequately identify examples of money laundering by company secretaries.
ASIC has brought charges and implemented banning orders, against company secretaries in matters such as making false or misleading statements and fraud. Some of these cases examples of matters where ASIC has pursued company secretaries after companies have wound up or other officers have been prosecuted.
Auditors, liquidators, and insolvency practitioners
The regulatory framework of liquidators and auditors is not dissimilar to that of other service providers regulated by ASIC. As with the other service providers, there is no direct evidence of involvement in money laundering, nor is there any evidence to suggest that ASIC’s powers are insufficient to detect involvement.
The situation for bankruptcy trustees, regulated by ITSA rather than ASIC, is also not dissimilar. ITSA has professional conduct requirements and investigation and sanction powers. There are no reported examples of bankruptcy trustees engaging in unwitting or complicit money laundering. The information that ITSA has released about its inspection and complaints outcomes indicate its capacity to identify examples of practitioners hiding assets or failing to adequately investigate assets or income.
As with ASIC, there is also little evidence to suggest ITSA’s powers are insufficient to identify any cases of money laundering involvement if necessary.
Public (corporate) trustees
The current levels of regulation in New South Wales require trustee companies to supply financial statements to the NSW Attorney-General. The lack of public information on the examination procedures for these financial statements and the absence of any specific cases of money laundering makes drawing a conclusion about the ability of the current regulation to identify money laundering difficult. Corporate trustee companies can be compelled to produce an account of the property and assets held in the trust. The Supreme Court can also appoint an auditor to examine the accounts of a corporate trustee company allowing the Court the ability to examine the accounts in suspicious circumstances.
Corporate trustee companies, like mortgage brokers, are likely to be regulated federally by the end of 2009. The approach taken to regulating trustee companies is likely to change with a federal system.
Providers of registered addresses, office space and locked bags and post office boxes
Businesses providing registered addresses, leasing office space, or supplying locked bags and post office boxes are completely unregulated. Some companies, such as Australia Post and Servcorp, require some identification and business documents in the application for a service. These requirements are company policies rather than statutory obligations.
The AUSTRAC typology demonstrates the capacity to move value using company structures. In this case, the offender allegedly engaged office space providers, as a part of laundering money through several companies via a value transfer mechanism. The office providers do not appear crucial to the scheme.
There are no typologies available documenting the crucial involvement of any of these services to launder the proceeds of another offence. The lack of regulation and monitoring of these industries, however, suggests that uncovering examples of money laundering is unlikely.
The vulnerabilities and risks that the data reported from this project suggest were attached to each of the DNFBPs in Australia reflect the broad spectrum of businesses and business sectors encompassed in FATF’s definition. The risk-based system of AML/CTF regulation adopted in Australia directs regulated businesses to identify the risks to their businesses and to implement a response proportionate to those risks. The potential expansion of AML/CTF regulation to DNFBPs would see different responses and regulatory burdens from businesses within each of the industries included.
The experience of other countries indicate that extending AML/CTF regulation to DNFBPs is not a panacea to all of the risks of illicit transactions taking place using those businesses. The United Kingdom extended its AML/CTF requirements to legal practitioners in line with the requirements of the European Union’s Third Money Laundering Directive in 2007. In 2010, the Solicitors Regulation Authority participated in an investigation into the alleged acquisition of a legal firm for the explicit purpose of committing offences such as mortgage fraud and money laundering (Peel 2010). The example suggests that implementing the best practice approach to AML/CTF regulation will not eradicate all risks.
Directions for future research
The authors of this report sought to determine the vulnerabilities of the industries in Australia classified as DNFBPs to ML/TF and to assess the threats of either crime taking place. The report was the result of the first risk assessment of this type and the preliminary findings offer opportunities to extend the work conducted. The limitations of the existing report, such as the AIC’s position outside of the intelligence community limiting the data collection to publicly available information and the resource constraints of the project, offer opportunities to expand on the work undertaken.
Future research to document the AML/CTF risks could be directed toward the following areas:
- A comprehensive overview of the current regulation applicable to all aspects of each of the DNFBPs for each state and territory would reveal a picture of state-based vulnerabilities for each industry. Some industries, such as mortgage brokers and corporate trustee companies, will undergo substantial regulatory changes with the implementation of the COAG agreement to federal regulation. The vulnerability of these industries to ML/TF will need to be reassessed in light of those changes.
- Investigation and case information for offences of defrauding the Commonwealth could provide information about the potential for legal and accounting professionals to hide wealth. Participants from the legal, accounting, and precious metals and stones industries discussed the presence of tax evasion in the industries. The legal and accounting industries, particularly, noted the mechanisms associated with tax crimes, such as trust funds and complex business arrangements, are also those potentially associated with laundering money. Tax investigations and cases may reveal typologies for hiding wealth relevant to money laundering, as well as cases that might also be considered as direct involvement in money laundering.
- The current risk assessment has relied solely on documenting regulatory controls, rather than examining the way in which these are implemented by different agencies across different states and territories. Future risk assessment research would benefit from consulting the data kept by regulatory bodies and speaking with regulators in each business group.
- Investigators from consumer protection agencies, some state police and ASIC could inform an assessment of the effectiveness of the regulation of some industries considered in this report. Assessing the way investigative powers are used, such as the ability to command documents or conduct and receive audits, would enhance the current assessment of cases and statistics.