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AML delays stoke growing anger

AML delays stoke growing anger

THE FEDERAL Government’s failure to publish draft legislation connected to its reform of anti-money laundering (AML) laws is stoking fires of anger and frustration among senior business figures…

THE FEDERAL Government’s failure to publish draft legislation connected to its reform of anti-money laundering (AML) laws is stoking fires of anger and frustration among senior business figures and lawyers.

The Government announced the overhaul in late 2003, following an update of the Financial Action Task Force’s international recommendations on money laundering. However, it has missed several self imposed deadlines to flesh out its plans. Senator Chris Ellison, Minister for Justice and Customs’ office, failed to returnLawyers Weeklys telephone calls.

The delay is “puzzling”, said Allens Arthur Robinson partner Peter Jones. The Government cited the federal election as a reason for delay last year, “but now this is becoming less of a genuine explanation”, said Jones. From a law firm’s perspective there has been considerable consultations by the Government, but financial institutions are wanting to get systems in place. “They are ready to gear themselves up and they’re wondering when they’ll see legislation so they can do this,” said Jones.

“This is a classic example of how governments work,” said the head of compliance at a major financial services firm. “AML was terribly sexy for a while, and then they had an election and it disappeared into a black hole. What tends to happen is that management tend to say ‘why are we worrying about this, because it’s gone away’. Those of us that have been around the legislative arena for a bit longer know that it will come back and when it does it will come back with a vengeance. They’ll say ‘we’re going to give you six months transition time’.”

He added that firms in the financial services area are unable to quantify how much they will need to invest to comply with the new laws, or indeed whether or not they will be required to comply.

“AML provisions have been around for some time in the Austrac environment so the obligation to know your client and trace the money has been well entrenched — much deeper than the average person realises — for a long time and the banks have invested in some sophisticated systems,” he said. “We haven’t had to do that in the managed investments and insurance arena. The huge difficulty for us at the moment is just to know whether we do have to make that investment or not.”

The head of risk management at a financial services firm said: “We got a group-wide risk assessment on AML done last year and expected something quickly but it’s been a very pregnant pause waiting for the legislation. Even the latest stuff from treasury hasn’t added anything and they haven’t made clear who they intend to catch in their net.”

Blake Dawson Waldron senior associate Andrew Young said he shares the frustrations held by financial institutions regarding not having any details. He agreed that system changes can be expensive and it is hard to budget when you don’t know if you will be affected.

But those companies that have never been regulated in this way before, such as casinos and real estates, will find it most difficult, Young said. “The devil is in the detail, and we haven’t seen the detail.”

For lawyers, advising clients has been difficult as they can’t answer questions in any detail, according to Young. “We’re getting frustrated because we don’t know how to guide their processes, we don’t have any material on which to base answers,” he said.

Another concern, said Allens Arthur Robinson partner Jones, is that Australia has had a good reputation in this area for a number of years, but the delay may adversely affect our international reputation. The Financial Action Task Force conducted a review of Australia’s anti-terrorism as well as AML regime and compliance in March. “It would be unfortunate if they regarded the delay in implementing the regime as something that countered Australia’s international reputation,” he said.

However, the delay could also mean that the end result will be more refined, Jones suggested. “If the time taken is used properly, to consult widely, then hopefully we will see a better draft bill. But, it is puzzling why it’s taken so long,” he said.

Observers with knowledge of the legislative process said one likely factor in the delays was the intense lobbying from various stakeholder groups intent on securing the best deal for their respective industries. The superannuation industry, for example, has claimed the reforms will cost it $900 million, while the credit union industry body CUSCAL has labelled the reforms Orwellian. The Real Estate Industry Association meanwhile said it was concerned that the Government would force it to do “extra checking, which we are not being paid to do” and the Securities Institute of Australia has said it sees the AML reforms as rivalling the Financial Services Reform Act in terms of compliance efforts.

Additionally, with several government agencies involved — Austrac, the Australian Federal Police and the Crime Commission, to name but a few — delays may be occurring through inter-agency debates over the enforceability of any new laws.

Australian corporates and legal professionals can expect uncertainty if the Federal Government’s reform goes the way of the United Kingdom’s reforms, which were kick-started several years ago.

Observers in the UK said that an initially prescriptive approach from the government has led to a more principles-based approach. However, this sea change came several years after compliance began, leaving banks to rue wasted money spent on initial compliance.

“Millions of pounds have been spent on this by the financial services sector and the legal profession, but how much terrorist financing has been disrupted because of the law?” asked one London-based AML expert. “The answer is not much.”

The issue of eroded professional privilege among lawyers is also front and centre in the UK.

Stuart Fagg is the Editor of Risk Management magazine, Lawyers Weeklys sister publication

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