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Tranche 2 and inter-jurisdictional cooperation

November 6, 2019

 

 

 

 

Last week, GRC Professional reached out to Director of Legal Risk and Head of Financial Services, AML Experts, Andrew Ham, regarding the Australian Federal Police seizure of $17.3 million in assets of two Chinese nationals who were using the Australian real estate market to launder proceeds of crime.

 

According to the AFP, in 2012, the two Chinese nationals used $23 million to develop property in Melbourne and Tasmania. 

 

This story comes at interesting time, since it is anticipated that Australia will receive a poor mark in their Financial Action Taskforce (FATF) mutual evaluation. One of the key issues will no doubt focus on Tranche 2 under the Anti-Money Laundering and Counter Terrorism Financing Act (AML/CTF).  

 

Speaking recently, Ham said that, “The AFP announcement on Thursday of another $17.3M of real estate assets restrained as part of an AFP joint investigation into alleged laundering of the proceeds of crime by Chinese nationals is a laudable new instalment in the series of such AFP announcements. Taken in context, however, it’s a drop in the bucket and does nothing to address this criminal activity at its source.”

 

Ham went to add that, “For example, the Black Economy Task Force Final Report estimated the black economy in Australia to be as large as $50 billion pa (3% of GDP) and growing exponentially (50% over the ABS 2012 estimates).”

 

Ham also suggested that the successful inert-jurisdictional partnership is also dependent on the fact that the enforcement bodies have shared strategic priorities.

 

Without Tranche 2, the follow-the-money approach—which has been the approach behind the AML/CTF legislation to date—will not be effective on those industries that sit outside of the legislation and are not fully covered.

 

“Gateway legal, real estate and accounting businesses will need to practice ‘good hygiene’ in trust account transactions to manage their bank’s risk when determining whether these transactions pose too great a threat of involving the bank in money laundering offences. They will need to leading their businesses to take steps to end these banking relationships,” Ham explained.

 

 

Legislative gap could hurt in the long run

The GRC Professional also caught up with Dr Angus Young from Hong Kong Baptist University. Young looked at the difficulty of tracking financial crime through industries that do not fully come under the AML/CTF regime and how can this curtail inter-jurisdictional cooperation.

 

“First of all, without Tranche 2 legislation, it does make it more difficult to track money laundering. However, the Criminal Code does offer a differential range of penalties for those who commit offences of money laundering. Further, the Proceeds of Crime Act 2002 (Cth) gives the authorities power to confiscate property from laundered money. So, lawyers, accountants, property agents and other professionals must be diligent in ML risks and AML compliance. Greater enforcement by Austrac and the Federal Police would go towards increasing general awareness. Besides, professional bodies have a role in educating their members of the risks.”

 

Young added that, “In terms of whether partnerships like the AFP and MPS can go without the support of suspicious matter reporting—this would appear to me, if there were an active investigation either from the AFP or MPS, to trigger either authority to notify their counterparts.

 

“Since China has committed substantial resources to combat corruption, I suppose the reported cases in the news are from active investigations by the MPS, rather than a tip-off from property agents, lawyers, accountants or the AFP. Because if a Chinese business person turns up on the doorstep of a property agent, or even their lawyers, wanting to buy real estate, the primary concern would be their residency status and seeking the Foreign Investment Board's approval for the investment. Such gaps in regulations and enforcement would, over time, harm the Australian financial market’s reputation and integrity. For now, there seems to be no political will to do so, especially when our economy is heading for a downturn—or at least a sluggish performance. Then again, to attract FDI lax practices in money laundering will put a dent in foreign investors' confidence.”

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