SENIOR COMPLIANCE and risk sources are concerned that the Federal Government’s new anti-money laundering regime will do little to disrupt terrorist financing.
While there is expected to be debate over the contents of the bill until the consultation phase ends in April, most observers agreed that it would be effective in lowering the amount of money laundered through the Australian financial system. There are, however, greater concerns over the perceived ‘tagging on’ of counter terrorist financing (CTF) measures to the anti-money laundering regime.
“The issue there is how effective is any program in combating terrorist financing?” said Anna Lenahan, a partner at law firm Allens Arthur Robinson. “There is a bit of skepticism over whether this kind of compliance program will be that effective in deterring terrorism financing.”
Experts accept that money laundering and terrorist financing are different activities with different motivations. “Yes, they are different in that AML is keeping the proceeds of crime out of your organisation, whereas CTF can be good money used to finance evil acts,” said Chris Cass, partner at Deloitte. Indeed, while the Government has expressed concerns that AML reform could send hot money into the underground banking system, those seeking to launder the proceeds of crime expect the same legal recourse as those making legitimate transactions.
However, the issue is not clear cut. While anecdotal evidence from the UK suggests its regime has not been overly successful in disrupting terrorist financing, its reforms were based on amendments to the Proceeds of Crime Act and came before the Financial Action Task Force’s 2003 40 recommendations on combating money laundering.
Another difference concerning terrorist financing and laundering the proceeds of crime is the amount of money involved. The largest ever terrorist attack on September 11 cost the New York economy around $50 billion; it cost just $500,000 to carry out.
While Australia has combined its AML reforms with counter terrorist financing reforms, many countries have not. “Most countries have not rolled CTF into AML law because CTF law is usually passed in panic parliamentary sessions and never has the timetable of an AML type bill,” said Cass.
Australia’s financial institutions are already required under the Suppression of Financing of Terrorism Act 2002 to monitor lists of proscribed persons and ensure they do not do business with known or suspected terrorists. Observers, however, said there has been a worrying lack of activity on that front.
“Of course the really worrying thing for Australia is the lack of effort put in by financial institutions into the Suppression of Financing of Terrorism Act 2002,” said one senior AML expert who asked not to be named. “Many financial institutions have not heard of this law which requires name checking of terrorist lists from the Department of Foreign Affairs and Trade whilst others are not doing name checks in a robust and consistent manner. This should be a concern to all of us and some pro-active regulatory oversight should help to rectify this risk issue.”
However, despite concerns over countering terrorist financing, observers said Australia would lead the way by combining AML and CTF. “There has been a lot of publicity in Australia about level of regulations and number of different regulators,” said one. “Bringing the CTF legislation and regulation into Austrac’s portfolio helps reduce this issue and of course Austrac already has a significant role around CTF reporting.”
Maintaining separate regulatory systems for AML and CTF would also up compliance costs considerably.
The draft Bill is currently subject to a consultation period which ends next month.
Stuart Fagg is Editor of Lawyers Weekly’s sister publication, Risk Management.