The State of AML Regulations in Australia

Australia’s AML/CTF framework is continuously evolving to address new risks and improve existing regulations. Recent amendments, such as the Anti-Money Laundering and Counter-Terrorism Financing and Other Legislation Amendment Act 2020, have further strengthened the regulatory environment.

Notably, reforms introduced in June 2022 have heightened due diligence requirements for crypto asset exchanges and crowdfunding platforms, increased penalties for non-compliance, and expanded the scope of regulated businesses. These changes aim to address the growing use of digital currencies and online platforms for money laundering activities.

Australia's commitment to combating money laundering has led to the introduction of Tranche 2 regulations, which aim to expand the scope of the existing Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) Act. While the current AML/CTF framework primarily targets financial institutions and remittance services, Tranche 2 aims to extend these regulations to non-financial sectors, including legal, accounting, real estate, and high-value goods dealers.

Tranche 2 regulations are designed to close loopholes and ensure that all industries potentially exposed to money laundering and terrorism financing risks are brought under the regulatory umbrella. This means that professionals and businesses in these sectors will soon be required to implement AML/CTF programs, conduct customer due diligence (CDD), and report suspicious transactions, much like financial institutions.

The expansion under Tranche 2 is crucial as it addresses the risks posed by industries that have traditionally been outside the direct reach of AML/CTF regulations. By bringing these sectors into compliance, Australia aims to reduce the avenues through which illicit funds can be laundered or used to finance terrorism.

Non-compliance with Tranche 2 will carry similar penalties to those already in place for financial institutions, including hefty fines, reputational damage, and potential loss of licence. Therefore, businesses in these sectors must start preparing now by understanding their obligations and implementing stringent compliance programs.

• Risk Assessment: Businesses must evaluate their exposure to money laundering and terrorism financing risks and develop appropriate mitigation strategies.

• Customer Due Diligence (CDD): Entities will need to verify the identity of their customers and monitor transactions for suspicious activity..

• Record-Keeping: Accurate records of all transactions and customer interactions must be maintained for a minimum of seven years.

• Suspicious Activity Reporting: Businesses will be required to report any suspicious transactions or behaviours to AUSTRAC.

• Employee Training: Regular training programs must be conducted to ensure that all staff are aware of AML/CTF obligations and how to identify and report suspicious activities.

Several industries in Australia are subject to stringent AML/CTF laws, including banks, casinos, money transfer services, gambling operators, bullion traders, and the real estate sector. AUSTRAC reports that from 2020 to 2022, most suspicious matter reports were filed by banks, followed by casinos.

The real estate sector is expected to come under greater scrutiny, as property transactions are a popular method for laundering money. Businesses in these industries must prioritise their AML/CTF obligations to avoid significant legal and financial repercussions.

Failure to adhere to AML/CTF laws can result in severe consequences, including hefty fines, remediation actions, and loss of licences. Recent high-profile cases that faced penalties in Australia include:

• Crown Resorts: Fined $300 million in 2021 and faced potential loss of casino licences for AML/CTF failures.

• Star Entertainment Group: Fined $30 million in 2020 for breaches in its Sydney casino operations.

• Tabcorp: Fined $45 million in 2020 for failures in monitoring unlawful gambling and money laundering.

• Western Union: Agreed to pay $15.2 million in 2022 for compliance failures in its Australian remittance operations from 2016 to 2018.

Beyond financial penalties, non-compliance can severely damage a company’s reputation and erode customer trust.

The Financial Action Task Force (FATF) is an intergovernmental body that sets international standards for combating money laundering and terrorist financing. Countries that fail to meet these standards are placed on a ‘grey list’, indicating strategic deficiencies in their AML/CTF frameworks.

Fortunately, Australia is not currently on the FATF's Grey List. However, the FATF has identified areas where Australia can improve, including better inter-agency cooperation and increased outreach to non-profit organisations.

To meet AUSTRAC's stringent requirements, businesses must implement an effective Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) program. Key steps include the following:

1. Conduct a Risk Assessment: Identify specific risks related to money laundering and terrorism financing within your operations, considering the nature of the business, products, services, customer base, and geographic location.

2. Develop a Customer Due Diligence (CDD) Program: Verify the identity of customers, monitor transactions, and report any suspicious activities to AUSTRAC. This program should include detailed procedures for these tasks.

3. Establish an AML/CTF Compliance Program: Create comprehensive policies and procedures that address the risks identified in your assessment. This program should include employee training and ongoing monitoring.

4. Report Suspicious Activities: Promptly report any unusual or large transactions that deviate from a customer's known financial profile to AUSTRAC.

5. Maintain Accurate Records: Keep detailed records of all transactions and customer information for at least seven years, ensuring they are accessible for audits..

6. Regularly Review Your Program: Periodically review your AML/CTF program to ensure it remains effective and up to date with regulatory changes and emerging risks.

By following these steps, businesses can align with AUSTRAC’s regulations and contribute to the broader effort to combat money laundering and terrorism financing in Australia. It is advisable for companies to seek professional advice to tailor their AML/CTF programs to their specific needs.

To ease the compliance burden, many regulated businesses in Australia are turning to advanced technologies such as Risk Management systems. These technologies help detect suspicious transactions by analysing large datasets for anomalies that human oversight might miss. Automating compliance processes through these solutions can significantly reduce costs and improve efficiency.

In conclusion, while Australia’s economy is flourishing, the government remains committed to comprehensive anti-money laundering measures. By continuously updating its AML/CTF regulations and promoting the adoption of technology, Australia aims to effectively curb illicit financial activities while fostering business growth. Collaboration between regulators, businesses, and technology providers like MemberCheck will shape the future of compliance in Australia.

At MemberCheck, we are dedicated to helping our clients stay compliant with AML regulations. Our solutions are designed to support businesses in meeting AUSTRAC’s requirements, safeguarding them against financial loss and reputational damage.

Q1: What is Anti-Money Laundering (AML)?

A: Anti-Money Laundering (AML) refers to the laws, regulations, and procedures designed to prevent criminals from disguising illegally obtained funds as legitimate income. In Australia, these regulations are enforced by AUSTRAC, the government agency responsible for monitoring financial transactions to detect and prevent money laundering and terrorism financing.

Q2: What is the significance of Tranche 2 in AML regulations?

A: Tranche 2 is a proposed extension of the existing AML/CTF regulations to cover non-financial sectors such as legal, accounting, real estate, and high-value goods dealers. This expansion aims to close existing loopholes and ensure that all sectors potentially at risk of money laundering are regulated under the AML/CTF Act.

Q3: What are the penalties for non-compliance with AML/CTF regulations in Australia?

A: Penalties for non-compliance can be severe, including hefty fines, remediation actions, and even loss of business licenses. For example, Westpac fined $1.3 billion in 2020 for AML/CTF breaches. Non-compliance can also lead to significant reputational damage and loss of customer trust.

Q4: How can businesses ensure compliance with AUSTRAC’s AML/CTF requirements?

A: Businesses can ensure compliance by implementing a robust AML/CTF program that includes conducting risk assessments, developing customer due diligence (CDD) procedures, maintaining accurate records, and reporting suspicious activities to AUSTRAC. Regular training for employees and periodic reviews of the compliance program are also essential.

Q5: What is Customer Due Diligence (CDD) and why is it important?

A: Customer Due Diligence (CDD) involves verifying the identity of customers, monitoring their transactions, and assessing the risk they pose in terms of money laundering or terrorism financing. CDD is a crucial component of an AML/CTF program as it helps prevent financial institutions from being exploited by criminals.

Q6: What role does technology play in AML compliance?

A: Technology plays a vital role in AML compliance by providing tools for automating the detection of suspicious transactions, conducting large-scale data analysis, and reducing manual review times. Technologies such as machine learning and AI help identify patterns that may indicate money laundering, making compliance processes more efficient and effective.

Q7: Are there any sectors in Australia that are newly regulated under Tranche 2?

A: Yes, under Tranche 2, sectors such as legal services, accounting, real estate, and dealers in high-value goods, are included to the AML/CTF regulatory framework. These industries will need to implement AML/CTF programs, conduct CDD, and report suspicious activities just like financial institutions.

Q8: Is Australia currently on the FATF Grey List?

A: No, Australia is not currently on the FATF Grey List. However, the FATF has highlighted areas where Australia could improve, such as inter-agency cooperation and outreach to non-profit organisations, to enhance its AML/CTF framework.

Q9: What should businesses do to prepare for the implementation of Tranche 2?

A: Businesses should begin by understanding their new obligations under Tranche 2, conducting risk assessments, and implementing comprehensive AML/CTF programs. It is also advisable to seek professional guidance to ensure that compliance measures are tailored to the specific needs of the business.

Q10: How long should businesses keep records of transactions and customer information?

A: It is crucial for Businesses to maintain accurate records of all transactions and customer information for at least seven years. These records must be readily accessible for audit purposes and to meet regulatory requirements.