I was a young Australian Federal Police officer in Sydney when Australia’s first piece of anti-money laundering legislation came in. The Cash Transaction Reports Act 1988, along with the Proceeds of Crime Act 1987, offered law enforcement a real opportunity to target higher echelon criminals.

Before that, we’d frequently come across suspects with large cash hoards and false bank accounts, but lacked the tools to take effective action. All we’d had was income and sales tax laws. In 2006, the Anti-Money Laundering and Counter-Terrorism Financing Act (AML/CTF) and its mandatory reporting obligations were introduced. It currently applies to about 14,000 entities across Australia in the financial sector, gambling sector, bullion dealers and remittance service providers.

The long-awaited second phase of the AML/CTF legislation, known as Tranche 2, is expected to be before the Australian parliament in 2020 or 2021. It will officially extend anti-money laundering obligations to accountants, solicitors, the real estate sector and jewellers.

When enacted, accountants will be required to have and maintain an AML/CFT compliance program to send AUSTRAC threshold transaction reports (for transfers of A$10,000 or more or the foreign currency equivalent), international funds transfer reports and suspicious transaction matter reports where required. 

This is a plus for law enforcement, but it will add to the cost of doing business – as any anti-crime program does. However, the AML/CTF procedures could also be applied to bring in value to an accounting practice.

The money-laundering trap

First, the risks. Australia has very comprehensive and tough money laundering and proceeds of crime laws and civil forfeiture law. The Commonwealth civil forfeiture laws can and are triggered by any of the offences contained in the AML/CTF Act or Commonwealth money laundering offences.

In Australia, a person can be convicted of money laundering if they engage in any dealing of money or property that is either the proceeds of a crime or an instrument of a crime. The property involved in the offence is confiscated until the owner can prove in court that it wasn’t the result of any criminal activity.

Some individuals may have full knowledge that the money or property is the proceeds of crime or an instrument of crime, while others may be reckless or negligent in their dealing with the money or property.

Money-laundering and forfeiture laws, however, pose a significant legal risk to accountants. Even if it can’t be established that accountants had knowledge, or were reckless or negligent, they can still be found guilty if the money or property involved is “reasonably suspected of being proceeds of crime”.

In relation to that provision, law enforcement agencies don’t have to prove that an accountant knew the money or property came from criminal dealings. What an accountant thought about the money or property he or she was dealing with is irrelevant.

The lesson to take away is that if accountants fail to show due care, and are unknowingly connected with the proceeds of crime, they can be charged with money laundering.

The maximum penalty for money laundering in Australia is 25 years’ imprisonment and/or a fine of up to 1500 penalty units, for values of A$1 million or more. (Penalty units are used to describe the amount payable for fines. For infringements on or after 1 July 2017, A$210 is payable for each unit.)

Why you should know your customer

That legal risk can be reduced by applying the know-your-customer (KYC) measures spelt out in the AML/CTF rules. The minimum requirements are that reporting entities identify and verify their customers, although additional measures should be applied commensurate with the level of money laundering risk.

Detailed customer information, when assessed and analysed, reduces the risk of being a victim of fraud, because the accountant has more information to identify and assess that risk.

But there’s another benefit, too. Going beyond the minimum know-your-customer requirements can bring more value to your business. It can identify selling opportunities for a higher level of service and products, and underpin a cradle-to-the-grave strategy when engaging new clients.

“Going beyond the minimum know-your-customer requirements can bring more value to your business.”

Knowing your customer means what it says. As well as asking a client for acceptable identification, an accountant should also ask where they work, or their means of support if they’re retired. You should know about any business they own, the corporate structure operated, their close family, their investment portfolio and any future business or personal investment plans, etc.

Some customers might push back and not want to provide information that goes beyond the minimum KYC standards – they have a right to do so. But that resistance should be included in any risk profile developed on the customer, along with any other behaviour and information you might have about them.

Remember, we are in an era where information is the new wealth. Those firms without information will be at a distinct disadvantage to those who collect more of it and do better things with it.

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