By Cameron Cooper

The Australian Government and regulators are ramping up efforts to combat money laundering by criminal gangs – and chartered accountants are being urged to join the fight.

In April, attorney-general Mark Dreyfus released the first of two consultation papers on proposed reforms of Australia’s anti-money laundering and counterterrorism financing (AML/CTF) regime.

Part 1 is designed to simplify and modernise the operation of the regime, ahead of expansion to capture the activities of other professionals.

Part 2 extends the reforms to certain high-risk activities provided by professions, including accountants, lawyers, trust and company service providers, real estate agents, and dealers in precious metals and stones. Known as tranche-two entities, some activities offered by these professions are thought to be particularly vulnerable to exploitation by organised criminals and terrorists. Out of more than 200 jurisdictions, Australia is now one of only five, alongside China, Haiti, Madagascar and the US, that do not regulate tranche-two entities. The attorney-general’s department says regulation of the accounting sector will strengthen an accountant’s ability to avoid exploitation by crime groups, meet international obligations set by the Financial Action Task Force and help businesses to identify potential criminality.

“Organised criminals can take advantage of accountants, either wittingly or unknowingly, to obtain an entry point to misuse legitimate financial and corporate systems for money laundering,” a spokesperson says. “The accounting sector is globally and domestically recognised as providing ‘gatekeeper’ services presenting higher risks of money laundering. Accountants have also been featured as a critical component of the criminal business model.”

To mitigate such risks, the regime sets out a range of measures to protect regulated entities that are at the front line in preventing money laundering.

“These measures build resilience against misuse by criminals and require the reporting of suspicious transactions to government.”

Karen McWilliams FCA, sustainability and business reform leader at Chartered Accountants Australia and New Zealand, says the pending changes warrant support and will bring Australian accountants into line with their counterparts in New Zealand, where similar reforms were ushered in five years ago. She believes the new regime is crucial to Australia’s efforts to stop funds falling into the hands of terrorist organisations and presents a chance for accountants to further strengthen their value to businesses.

Pictured: Karen McWilliams FCA, CA ANZ.

“It’s important for members to engage with us and come on this journey together, and not wait until the last minute to respond to the new reforms.”

“Money laundering has always been illegal and this doesn’t change that,” McWilliams says, “but we don’t want accountants to unwittingly assist in the laundering of money that aids serious crimes such as terrorism, child abuse and the illicit drug trade. These reforms are about helping accountants detect and prevent money laundering, and avoid inadvertently getting caught up in it.”

The attorney-general’s consultation paper outlines the six key regulatory obligations for regulated entities, which would include accountants undertaking specific services to protect businesses from criminal activity. These are:

1. Customer due diligence

2. Ongoing customer due diligence

3. Reporting

4. Developing and maintaining an AML/CTF program

5. Record keeping

6. Enrolment and registration with the Australian Transaction Reports and Analysis Centre (AUSTRAC).

Lessons from New Zealand

New Zealand has already implemented both phases of its equivalent legislation, known as the Anti-Money Laundering and Counter Financing of Terrorism (AML/CFT) regime, providing key learnings for Australia.

Some criminal cases in New Zealand have highlighted the value of the crackdown on money laundering. In one case, lawyer Andrew Neill Simpson was jailed in 2020 after laundering NZ$2.2 million for the Comanchero Motorcycle Club as part of a sophisticated money laundering and drug operation. He has since been struck off as a lawyer, underlining the risks for professionals who get caught in such a crime web.

Nicola Hankinson FCA, national technical director at Baker Tilly Staples Rodway, is responsible for overseeing the New Zealand firm’s AML/CFT compliance framework. She says it is important for accountants to show “professional scepticism” when onboarding or dealing with clients.

“Through training in this area, we are protecting our business and our brand from unwittingly being caught up in assisting criminals to launder the proceeds of crime,” she says.

While New Zealand accountants initially faced significant challenges and compliance requirements in implementing the new regime, including debate over which accounting services fall under the scope of the legislation and frustration over the treatment of tax transfers, Hankinson believes the process has allowed accountants to forge even stronger relationships with clients and have greater transparency around their business activities. Rather than just having a tick-the-box compliance focus, accountants realise that there is value in gaining a deeper understanding of clients, their source of funding and the services they are requesting.

“We don’t want accountants to become inadvertently involved in money laundering and we certainly don’t want to see accountants being prosecuted or worse,” she says. “So, we see the AML requirements as an opportunity to get to know your clients better, rather than treating it as a compliance burden. The truth is that 99.9% of clients are going to be completely fine. It’s just about making sure that those clients who are not fine are not onboarded in the first place, or that we’re not providing any risky services that could compromise anti-money laundering laws, our brand or our reputation, or assist criminals with laundering their funds.”

In AML training sessions, Hankinson covers how to review the money-laundering risk of a potential client, and how to evaluate the “suspiciousness” of a proposed transaction based on understanding the client and the accountant’s experience of what makes good business sense. Ultimately, she says, it comes down to KYC (know your client).

High price of crime

Australian Institute of Criminology research estimates that serious and organised crime cost the Australian community up to A$60.1 billion in 2020–2021, with money laundering being blamed for most crime types. AUSTRAC is the government agency responsible for detecting, deterring and disrupting criminal abuse of the financial system. Its annual report for 2021–2022 lists specific cases that demonstrate the breadth of community harms that have been prevented or disrupted by AUSTRAC intelligence generated from industry reporting.

Some key statistics for 2021–2022 include:

• AUSTRAC data and financial intelligence contributed to the restraint by the Criminal Assets Confiscation Taskforce (CACT) of A$138 million in gross restrained assets. The Australian Federal Police-led CACT is a Commonwealth initiative dedicated to taking the profit out of crime by targeting criminals and their assets derived from criminal activity.
• The Australian Taxation Office recovered A$105 million in revenue attributable to AUSTRAC data and financial intelligence.
• Partner agencies such as the Australian Federal Police accessed AUSTRAC data 8,687,875 times.

Daniel Mossop, AUSTRAC national manager, reform policy and mutual evaluation, says the agency is committed to working with accountants to ensure the AML/CTF reforms have maximum impact, and advises firms to engage early and fully.

Andrew Douglas CA, managing director of Opportune Consulting, a qualified audit practice in New Zealand, says there has been “a steep learning curve” to bed down the AML/CFT legislation, but the reforms have been worthwhile. He advises firms to get up to speed on the scope of the reforms, and to nominate and adequately train staff who will be responsible for overseeing the implementation of the rules.

“That training component just has to happen,” he says. Douglas says accountants are not just there “to do the books”, a point that is accentuated in the new AML/CTF regime that requires greater scrutiny of client activities. “Accountants are not just number crunchers – we’re trusted business advisers. Getting to understand your clients better is invaluable.”

While some accountants worry about additional compliance work, Douglas says in his role as an auditor he drives home the message that embracing the rules is important. “At the end of the day, we’re trying to reduce money laundering. It’s drug money from gangs. They’ve got cash and they want to clean it and to do so, they have to put it through businesses to make them look legitimate.”

Prepare now for tranche-two reforms

The attorney-general’s department will consult with industry regarding the reforms during the course of 2023. “The timeline and approach for implementation is ultimately a matter for government, and will depend in part on the issues raised during consultations,” the spokesperson says.

“We appreciate the engagement and feedback received from the accounting sector thus far, and welcome continued engagement from the sector to ensure the proposed reforms to the AML/CTF regime are fit for purpose in the Australian context.”

Pictured: Mark Dreyfus, Attorney-General of Australia.

“The accounting sector is globally and domestically recognised as providing ‘gatekeeper’ services presenting higher risks of money laundering.”

With the second consultation paper due in September, McWilliams encourages chartered accountants to discuss their suggestions and concerns with CA ANZ as part of input.

“It’s important for members to engage with us and come on this journey together, and not wait until the last minute to respond to the new reforms,” she says. “While this may seem new, there is actually alignment with some of an accountant’s existing obligations. It’s also important to remember that accountants can play a key role to help stamp out money laundering. Their role is really valuable and has real-world impacts for the better.”

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What is the goal of the anti-money laundering reforms?

According to AUSTRAC, the aim of these proposed reforms is to ensure:

• The regime complies with international standards
• Industry can better understand their obligations and improve compliance
• The regime continues to harden Australian businesses and sectors against criminal exploitation
• The regulatory burden is reduced for regulated entities.

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The advice from AUSTRAC

Work on the AML/CTF reforms is being led by the attorney-general’s department, with support from AUSTRAC, says Daniel Mossop, AUSTRAC national manager, reform policy and mutual evaluation:

The responsibility of accountants

“Money laundering and other financial crimes don’t just undermine the integrity of businesses with the associated reputational damage. By making crime profitable, they contribute to significant social harms like those arising from drug dealing, child exploitation and terrorism financing. Anti-money laundering regulation equips businesses with the tools to protect themselves from criminal misuse.”

How accountants can prepare for the new regime

“International experience shows that businesses sometimes delay meaningful engagement with regulatory reforms until shortly before the reforms come into effect. AUSTRAC encourages accountants to use the opportunity presented by the consultation process in 2023 to engage early and to help shape the reforms.”

The partnership approach to regulation

“Historically, in the early stages of any reform, AUSTRAC has focused on education and assisting businesses to understand their risks. We look forward to working with the accountancy sector and building that partnership throughout the development of the proposed reforms.”

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Have your say on Australia’s AML/CTF regime

We encourage members to share their views to help shape CA ANZ’s response to the second consultation paper. You can email: [email protected]

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