FINANCIAL FRAUD experts are concerned that the upcoming federal election could further delay the Government’s overhaul of Australia’s anti-money laundering law reforms.
The review of Australia’s anti-money laundering framework began in December last year when Senator Chris Ellison, Minister for Justice and Customs, announced that Australia would be endorsing global standards issued by the Financial Action Taskforce (FATF).
Federal Attorney-General Philip Ruddock followed that with the release of consultation papers in January looking at proposed legal changes, promising to have draft legislation in place by mid year. One of the papers, Anti-Money Laundering Law Reform Issues Paper 5, suggests lawyers, accountants and company and trust service providers would have to develop new internal mechanisms to detect money laundering and report on suspicious activity by their clients.
The president of the Law Council of Australia, Bob Gotterson QC, said in February that the report raised issues that may have significant ramifications for law firms.
“When similar anti-money laundering powers were introduced in international jurisdictions, it prompted intense debate about how they might affect the well established principles of legal professional privilege and client confidentiality,” he said.
But it’s been a case of all quiet since then and financial services firms are becoming concerned over the lack of detail issued by the Government thus far on what is likely to constitute an onerous and expensive compliance effort. A policy principles paper released in June did little to sooth.
“It was almost a restatement of the white paper with almost no detail,” said Tim Phillipps, head of Deloitte Forensic. “I don’t want to seem too critical because this is a very complex area and the impact of the AML law has a different outcome depending on the market you are in.”
The regime is set to have consequences extending to non-financial businesses including real estate agents, dealers in precious metals and stones, accountants and legal professionals.
A looming issue for the Federal Government is a World Bank/International Monetary Fund financial systems assessment which has been scheduled for early next year. Observers said it is imperative that draft legislation is in place by then. A spokesperson for Senator Ellison said the exposure draft is proceeding and it is expected later this year. No date has been set by which it will be completed.
Although the delay is causing consternation in the financial sector, it could prove a lucrative diversion for lawyers.
With little guidance coming from Canberra, financial services firms are somewhat in the dark on how to prepare for the compliance effort. Additionally, in the US and the UK, countries with better-developed anti-money laundering frameworks, regulators have been cracking down on institutions associated with money laundering with devastating effect.
“The reality is that the real penalty is reputation,” Phillipps said. “Serious reputation damage to the point where a single breach of anti-money laundering legislation, if you are actually involved in the processing of laundered funds, could simply put you out of business. A large financial institution with international operations could easily go out of business very quickly as a consequence.”
The most high profile US example is Riggs Bank, once the US’s fourth largest private bank, which has been brought to its knees following revelations that it engaged in “willful, systemic” violations of anti-money laundering laws in its dealings with the embassies of Saudi Arabia and Equatorial Guinea. It has also been accused of courting business from former Chilean dictator Augusto Pinochet.
Riggs Bank was fined $35 million, but it is not the financial penalties that are the most damaging aspect of anti-money laundering. “ They are battling to stay alive — no one wants to do business with them — the government won’t, even though they were one of the largest government bankers in the US,” said one Australian source familiar with the case.
In addition, there are concerns over what will happen to the legislation should the Australian Labor Party (ALP) triumph in the election.
Calls to ALP headquarters revealed little on the party’s plans for anti-money laundering with one official saying that the ALP had not been tracking the progress of the exposure draft.
“What will the ALP actually drive during the course of the election campaign and if they win will they be ready to have legislation passed?,” said Phillipps. “It will either go quickly and be passed or it will be pushed down the agenda.”