GRC Professional took the opportunity to catch up with Andrew Ham, Director of Legal Risk and Head of Financial Services, AML Experts, on the topic of Tranche2 and what impact in may have on inter-jurisdictional partnerships.
This release from the AFP makes the fact that Australia is going to do terribly on the upcoming mutual evaluation seem a little ridiculous. How beneficial do you think the joint partnership between the AFP and the Chinese Ministry of Public Security is really without industries such as the real estate sector not being regulated the same way as the financial sector?
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. For example, the Black Economy Task Force Final Report estimated the black economy in Australia to be as large as $50billion pa (3% of GDP) and growing exponentially (50% over the ABS 2012 estimates).
These kinds of investigation into the cross-border laundering of the proceeds of crime require international cooperation to be successful. The Chinese Ministry of Public Security, notwithstanding its partnership with the AFP, cannot be assumed to share the AFP’s strategic priorities and is a political as well as a State law enforcement agency. The success of the partnership will also depend on the quality of the intelligence AUSTRAC can access at home. While the AFP has many sources of information, and it’s impossible to know exactly how far reaching these are, it’s clear from Thursday’s announcement that we are losing the battle, and that new tools such as the extension of AML/CTF requirements to the gateways to the Australian property market, are more important than ever. The Tranche 2 reforms to extend KYC checks to the trust accounts of real estate agents, lawyers and accountants were strongly supported in the Report. Without these changes, success will always be a matter of luck and slow, labour-intensive police work.
If the Government continues to delay on the implementation of Tranche2, will increasing partnerships with the AFP and other jurisdictions through their own trade craft still be able to track money laundering operations in Tranche 2 sectors?
Cross-border cooperation is crucial to investigating cross-border crime. The ability of the AFP to investigate potential money laundering activity in Australia is limited by the quality of the information it can collect about the relevant activities. This entails the creation of records by industry, such as those relating to the identity of clients and the nature of their transactions, and the creation of appropriate information gathering powers (with appropriate safeguards) to enable these clients and their property transactions to be investigated. If these records don’t exist, or the AFP is unable to obtain those that do, then whatever the level of international cooperation, Australian authorities are hampered in being able to secure a conviction. Typically, an investigation may ‘follow the money’ in a trail of transactions (which may, for example, be reported as suspicious across various jurisdictions as the funds travel around the world) but while Tranche 2 continues to be delayed, the trail will go cold in Australia as there is no obligation on the recipient of the funds (as an agent, account or lawyer) to ID their client or to report the transaction, however suspicious it may be.
Will enforcement action from the AFP potentially drive real estate agencies to voluntarily develop their own compliance systems to make sure they are not facilitating the proceeds of crime?
No business wants to be associated with the outcomes of money laundering. Lawyers, real estate agents and accountants may make some effort to identity their clients as part of their own business risk management, but such arrangements cannot have the rigour or effectiveness of incorporation into the AML/CTF regime, and lack the critical element of a reporting regime to bring suspicious matters to the attention of law enforcement. The reputational impact of having a customer or client’s assets seized is generally transitory, unless there is a strong pattern of bad behaviour. More significantly, other high ML/TF risk industries (such as the remittance sector and digital currency exchanges) have been subject to de-risking by the banks and responded with increased levels of rigour in their AML-CTF compliance. Gateway legal, real estate and accounting businesses will need to practice ‘good hygiene’ in trust account transactions to manage the risk of their bank when determining whether these transactions pose too great a threat of involving the bank in money laundering offences. They will need to lead their business to take steps to end these banking relationships.