The report states that
Overall, Australian authorities have a good understanding of most of Australia’s main money laundering (ML) risks but need to develop their understanding further in certain areas. They coordinate very well activities to address key aspects of the ML / terrorist financing (TF) risks but some key risks remain unaddressed, and an underlying concern remains that the authorities are addressing predicate crime rather than ML.
Authorities have a good understanding of TF risks, and are addressing them accordingly. They assess that TF is largely motivated by international tensions and conflicts. Operationally, national AML/CTF coordination is very comprehensive, but demonstrating its overall success is challenging, although results from national taskforces are showing positive trends. A stronger focus is required on monitoring and measuring success. Australia develops and disseminates good quality financial intelligence to a range of law enforcement bodies, customs and tax authorities. The amount of financial transaction data in the Australian Transaction Reports and Analysis Centre (AUSTRAC) database, and the fact that that all relevant competent authorities have access to this database and can use its integrated analytical tool, are strengths of Australia’s AML/CTF system. However, the somewhat limited use of AUSTRAC information by law enforcement as a trigger to commence ML/TF investigations presents a weakness in the Australian AML/CTF system.
Australia’s main criminal justice policy objective is to disrupt and deter predicate crime, including if necessary through ML investigations/prosecutions. Australia focuses on what it considers to be the main three proceeds generating predicate threats (drugs, fraud and tax evasion). However, Australia should expand its focus to ensure that a greater number of cases of ML are being identified and investigated adequately.
Confiscation of criminal proceeds, instrumentalities and property of equivalent value is being pursued as a policy objective; mainly in relation to drugs, and in relation to tax by the Australian Taxation Office (ATO). Competent authorities have increased their efforts to confiscate proceeds of crime, particularly since the establishment of the national Criminal Assets Confiscation Taskforce. But it is unclear how successful confiscation measures are across all jurisdictions, and total recoveries remain relatively low in the context of the nature and scale of Australia’s ML/TF risks and have only modestly increased over the past few years.
Australia’s legal framework to combat TF is comprehensive. Australia has undertaken several TF investigations and prosecutions, and secured three convictions for the TF offence. Australia also successfully uses other criminal justice and administrative measures to disrupt terrorist and TF activities when a prosecution for TF is not practicable.
Australia’s legal framework to implement targeted financial sanctions is a good example for other countries. The automatic, direct legal obligation to freeze assets as soon as an entity is listed by the UN and the numerous designations made under the domestic regime are to be commended as best practices for other countries. However, effective implementation of the legal framework is difficult to confirm in the absence of freezing statistics, financial supervision, or supervisory experience and feedback on practical implementation by the private sector.
Australia has not implemented a targeted approach nor has it exercised oversight in dealing with non-profit organisations (NPOs) that are at risk from the threat of terrorist abuse. Authorities have not undertaken a review of the NPO sector to identify the features and types of NPOs that are particularly at risk of being misused for TF.
Most designated non-financial business and profession sectors are not subject to AML/CTF requirements, and did not demonstrate an adequate understanding of their ML/TF risks or have measures to mitigate them effectively. This includes real estate agents and lawyers, both of which have been identified to be of high ML risk in Australia’s National Threat Assessment.
The major reporting entities – including the big four domestic banks which dominate the financial sector – have a good understanding of their AML/CTF risks and obligations, but some AML/CTF controls, whilst compliant with Australian obligations, are not in line with FATF Standards1. AUSTRAC has done a good job in promoting compliance with the AML/CTF standards by the vast amount of entities under its supervision. Australia has set up and developed a riskbased approach to supervision, although further improvement is required relating to the risk picture of the supervised entities. In mitigating risks through supervision, Australia should focus more on effective supervision and enforcement of individual reporting entities’ compliance with AML/CTF obligations within the various sectors.
Australia has not conducted a formal risk assessment on TF risks associated with legal persons and arrangements. The majority of legal persons are registered with the Australian Securities and Investment Commission (federal) while others with State or Territory authorities. While the information seems to be largely available to competent authorities and to the public, very limited verification is conducted on the information that is registered. Information on the beneficial owner of legal persons and legal arrangements is not maintained and accessible to competent authorities in a timely manner.
Australia cooperates well with other countries in MLA matters, including extradition. Informal cooperation is generally good across agenciesFATF considers that
Australia has identified and assessed, and has a good understanding of most of, its main ML risks and has mechanisms in place to mitigate them. Domestic and foreign organised crime groups operate in Australia. The main sources of criminal proceeds are illicit drugs, frauds, and tax evasion. Australian drug markets are said to be some of the most profitable in the world, attracting interest from major syndicates in South East Asia and South America. Most laundering involves use of the banking sector, money remitters, and complex corporate structures, facilitated by gate-keepers. Australia is seen as an attractive destination for foreign proceeds, particularly corruption-related proceeds flowing into real estate, from the Asia-Pacific region. Outwards proceeds flows are directed mainly to major financial hubs in Asia and the Middle East, with tax proceeds also flowing to European havens.
Australia has properly identified and assessed, and has a good understanding of, its TF risk, and is addressing it accordingly. Globally, the amounts of funds generated to finance terrorism vary between groups. Funds raised by groups that are part of an international network can be significant in the TF context. These groups have the financial infrastructure to undertake sizeable fundraising and money transfer operations. Small domestic groups and lone wolf terrorists are also a significant TF risk. While the amounts raised by these radicalised groups or individuals are much smaller, their intent to undertake violent acts in Australia can pose a direct threat to the Australian community. The authorities have periodically and successfully disrupted domestic terrorism plots, and the associated funding. Recently, the emerging TF risk has involved some Australians funding travel from legitimate sources to fight in conflict zones. Some funds have also been raised through abusing registered and informal “pop-up” charities linked to humanitarian fund-raising.
Australia has a strong institutional framework for combatting ML, TF, and proliferation financing. Australia’s measures are particularly strong in legal, law enforcement, and operational areas, and targeted financial sanctions; some improvements are needed in the framework for preventive measures and supervision, in particular for designated non-financial businesses and professions. In terms of effectiveness, Australia has achieved high results in international cooperation, and substantial results in risk, policy and coordination, the use of financial intelligence and combating terrorist financing and proliferation financing. Only moderate or minor improvements are needed in these areas. Major improvements are needed in other areas, as noted below.In considering "Assessment of risk, coordination, and policy setting" the report states -
Australia has a good understanding of most of its main ML risks and coordinates comprehensively to address most of them. However, some key risks remain unaddressed and, inconsistently with the FATF Standards, the authorities are focussed more on predicate crime rather than ML. TF risk is well understood and actions are being taken to mitigate it, particularly by disrupting domestic terrorist activities. Australia has produced a national report on each of its ML (the National Threat Assessment—NTA) and TF risks (the National Risk Assessment—NRA), which are supplemented by ongoing risk analysis efforts. Australia has used the results of the assessments to help shape aspects of how it combats ML and TF and has a national strategy for combating organised crime which identifies ML as an intrinsic enabler of organised crime.
Operational activities are coordinated using a mixture of standing committees and task forces that include federal and State and Territory agencies, which is salient as Australia is a federation. The objectives and activities of most of the competent authorities are generally consistent with the ML/TF risks, with the major exception being a lack of focus on addressing risks from abuse of complex corporate structures, real estate (including through regulating relevant designated non-financial businesses and professions (DNFBPs)).
Australia does not have a developed national policy setting out what the overall AML/CTF system is meant to achieve, or how its success should be monitored or measured, making it challenging to determine how well the ML/TF risks are being addressed. Accordingly, national metrics about how well the authorities’ efforts are addressing ML/TF risks are limited, and the authorities were challenged to present convincing evidence about what outcomes their efforts are achieving. Exemptions from requirements for reporting entities and the application of enhanced or simplified measures are not based primarily on the results of the NTA, NRA or other efforts to assess ML/TF risks. The authorities coordinate and cooperate to a large extent to combat the financing of proliferation of weapons of mass destruction.In discussing "Financial intelligence, ML, and confiscation" the report goes on to comment
Australia develops and disseminates good quality financial intelligence to a range of law enforcement bodies, customs and tax authorities. AUSTRAC is a well-functioning financial intelligence unit (FIU). The amount of financial transaction data in the AUSTRAC database, and the fact that all relevant competent authorities have access to this database, and can use its integrated analytical tool, is a strength of Australia’s AML/CTF system. AUSTRAC information is accessed by federal law enforcement as a routine in most cases but less so by State and Territory police who conduct most predicate crime investigations, and this information assists in the investigation of predicate offences. However, the somewhat limited use of AUSTRAC information by law enforcement as a trigger to commence ML/TF investigations, presents a weakness in the Australian AML/CTF system and should be addressed. Broader use of the sound institutional structure for combating ML would mitigate ML/TF risks more effectively.
Australia’s main policy objective is to disrupt and deter predicate crime, including, if necessary, through ML investigations/prosecutions. Australia focuses on what it considers to be the main three proceeds generating predicate risks (drugs, fraud, and tax evasion). At the federal level, the authorities charge standalone and third party ML offences, but legal issues have arisen in relation to the prosecution of self-laundering offences, and ML related to foreign predicates including corruption is not frequently prosecuted. At the State/ Territory level, prosecutions for substantive ML offences, including third party laundering and stand-alone laundering charges, are less common.
Since the last assessment, Australia has improved in terms of obtaining ML convictions, and is achieving reasonable results in relation to the key risk and those geographic areas where Australia is focusing on ML, but the overall results are lower than they could be relative to the nature and scale of the risks. The authorities have applied a range of sanctions for ML offences to natural persons, but no corporations have been prosecuted for ML offences. The authorities apply other criminal justice measures to disrupt serious criminal activity, including ML offences, but in accordance with their policy of disruption of serious and organised crime such measures are applied whether or not it may be possible to secure a ML conviction.
Confiscation of criminal proceeds, instrumentalities, and property of equivalent value is being actively pursued as a policy objective in Australia. The competent authorities have enhanced their efforts since the last assessment with the amounts being restrained and confiscated increasing at the federal level, although overall the figures remain relatively modest in the context of the nature and scale of Australia’s ML/ TF risks. The majority of assets recovered to date have flowed from the drugs trade and also from tax evasion (using ATO recovery powers). The Criminal Asset Confiscation Taskforce (CACT) takes non-conviction based asset recovery proceedings in most cases, allowing for a lower civil standard of proof; however, cases can become difficult to pursue when complicated company or overseas structures are used or when foreign predicate offending is involved.
At the State and Territory level, the combined recoveries are about twice the value of recoveries made at the federal level due to the heavy emphasis on drug-related recoveries. Australia is taking some steps to target the cross-border movement of cash and bearer negotiable instruments (BNIs). Australia remains at significant risk of an inflow of illicit funds from persons in foreign countries who find Australia a suitable place to hold and invest funds, including in real estate.In relation to terrorist financing and proliferation financing FATF comments
It is positive to note that Australia has undertaken several TF investigations and prosecutions, and secured three convictions for the TF offence. Australia also successfully uses other criminal justice and administrative measures to disrupt terrorist and TF activities when a prosecution for TF is not practicable. Australia had successfully disrupted two domestic terrorist plots (Pendennis and Neath) at the time of the onsite visit. Australia also uses these other measures to address the most relevant emerging TF risk – individuals travelling to conflict zones to participate in or advocate terrorist activity. Australian authorities identify and investigate different types of TF offences in each counter-terrorism investigation, and counter-terrorism strategies have successfully enabled Australia to identify and designate terrorists, terrorist organisations and terrorist support networks. Australian authorities have not prosecuted all the different types of TF offences, such as the collection of funds for TF, or the financing of terrorist acts or individual terrorists, and the dissuasiveness of sanctions applied has not been clearly demonstrated.
Despite the general risks identified by the authorities in the NRA, Australia has not undertaken a risk review of the NPO sector to identify the features and types of NPOs that are particularly at risk of being misused for TF. Subsequently, there is no TF-related outreach to, or TF-related monitoring of, this part of the sector that would be at risk and that account for a significant share of the sector’s activities.
Australia has a sound legal framework for targeted financial sanctions relating to terrorism and proliferation, but it is difficult to determine the effectiveness of the system. Under the Australian legal framework, the legal obligation to freeze assets is automatic upon designation at the UN; no additional action by Australian authorities is needed to give legal effect to a designation (although email alerts are sent to subscribers). This is a best practice for other countries. The Department of Foreign Affairs and Trade (DFAT) has primary responsibility for compliance with sanction requirements. However, DFAT does not adequately monitor or supervise the financial sector for compliance with the requirements of the FATF Recommendations, as would be expected of a supervisory authority. In addition, no financial institutions are supervised or monitored for compliance with the targeted financial sanctions (TFS) requirements (as in financial supervision) by any other competent supervisory authority. The absence of freezing statistics, financial supervision, supervisory experience, and feedback on practical implementation by the private sector made it difficult to confirm the level of effectiveness of the system.In relation to preventive measures and supervision
Regulated entities generally have adopted preventive measures required under the Australian regime, but some controls are not yet in line with FATF Standards. 17. Australia’s AML/CTF regime has changed significantly since the last mutual evaluation report in 2005. The regime, introduced in 2006, significantly expanded the number of businesses subject to AML/ CTF obligations – known as reporting entities. Under the new AML/CTF regime, the preventive measures’ requirements have been brought more in line with FATF Standards, although deficiencies remain. Except for gaming and bullion, other DNFBP sectors are not subject to AML/CTF obligations. Understanding of ML/TF risks and implementation of preventive measures is better among larger players and in the regulated sectors.
Within the remittance sector, effective implementation of AML/CTF controls varies, depending on the industry’s size and resources. The banks, particularly domestic ones, account for a large share of banking sector assets and international funds transfers in the system, but do not fully implement preventive measures to the extent envisaged by the FATF, especially where they meet Australian domestic requirements which do not meet the FATF standard. Most DNFBPs, including real estate agents and legal professionals, are also not subject to AML/CTF controls or suspicious transaction reporting obligations, even though they are highlighted as being high-risk for ML activities.
To a large extent, licensing, registration and other controls implemented by Australia, adequately prevent criminals and their associates from entering the financial sector. An important factor AUSTRAC uses in identifying ML/TF risk at the Reporting Entity Group (REG) level is the volume and value of transaction reports (suspicious matter report (SMRs) and international fund transfer instructions (IFTIs)) as an indicator of the volume of funds flowing through an entity, the size of an entity as a proxy measure of the number of customers, products and distribution channels. It is not sufficiently clear that AUSTRAC, when risk profiling REGs or individual reporting entities, collects and uses sufficient information necessary to adequately determine the level of inherent risk of the REG and individual reporting entities, beyond the information from transaction reports.
AUSTRAC succeeds to a fair extent in promoting compliance with the AML/CTF requirements among the sectors it has engaged. The focus of supervision is targeting what AUSTRAC considers to be the high-risk entities for enhanced supervisory activity, and to test the effectiveness of REG’s/reporting entities’ systems and controls in practice. However, the number of enforcement actions and the subjects of these actions do not convincingly demonstrate that reporting entities are subject to effective and proportionate sanctions.In relation to transparency and beneficial ownership
Australia has undertaken an assessment of the ML risks associated with legal persons and arrangements but did not comprehensively assess all forms of legal persons (including foreign companies operating in Australia). Legal persons and trusts were assessed as medium to high risk for ML but limited measures exist to mitigate risk associated with legal persons and very limited measures exist to mitigate the ML risk associated with legal arrangements. Authorities are nevertheless aware that legal persons can be, or are being, misused for ML. Australia has not conducted a formal assessment of the TF risks associated with legal persons and arrangements.
Overall, there is good information on the creation and types of legal persons in Australia, but less information about legal arrangements. Federal and State/Territory registries are publically available for legal persons and what is recorded is available to competent authorities. However, measures need to be taken, including imposing AML/CTF obligations on those who create and register legal persons and arrangements, in order to strengthen the collection and availability of beneficial ownership information.
The existing measures and mechanisms are not sufficient to ensure that accurate and up-do-date information on beneficial owners is available in a timely manner. It is also not clear that information held on legal persons and legal arrangements is accurate and up-to-date. The authorities did not provide evidence that they apply effective sanctions against persons who do not comply with their information requirements. Overall, legal persons and arrangements remain very attractive for criminals to misuse for ML and TF.
Australia cooperates well with other countries in mutual legal assistance (MLA) matters. MLA requests are processed in a timely manner in accordance with a case prioritisation framework. Australia cooperates well in extradition. Both making and receiving requests in ML and TF related matters and informal cooperation is generally good across agencies. But the ability to provide beneficial ownership information for legal persons and trusts in relation to foreign requests is more limited. Nevertheless, Australia cooperates well in providing available beneficial ownership information for legal persons and trusts in relation to foreign requests.
Australia maintains comprehensive statistics in relation to MLA and extradition matters including in relation to ML and TF, although there are some limitations in relation to categorisation of ML offences within the case management framework. AUSTRAC cooperates well with its foreign counterparts. Informal cooperation is generally good across agencies.FATF recommends the following "prioritised actions" -
Undertake a re-assessment of Australia’s ML risks in keeping with the requirements and guidance issued in relation to Recommendation 1, and formalise the ongoing processes for re-assessing risks. Australia should also identify metrics and processes for monitoring and measuring success. The authorities should place more emphasis on pursuing ML investigations and prosecutions at the federal as well at the State/Territory level. The authorities should increase efforts to address ML risks associated with:
- predicate crimes other than drugs and tax, including foreign predicates;
- the abuse of legal persons and arrangements and the real estate sector;
- identity fraud;
- fraud; and
- cash intensive activities.
CACT should continue its good early work and demonstrate its effectiveness over time to confiscate the proceeds and instrumentalities of crime.
AUSTRAC should incorporate more (inherent) risk factors besides data analysis from filed reports into identifying and assessing the risk of reporting entities. AUSTRAC should consider opportunities to further utilise its formal enforcement powers to promote further compliance by reporting entities through judicious use of its enforcing authority.
Australia should ensure financial institutions are actively supervised for implementation of DFAT lists, most likely through a legislative amendment to the statute identifying and authorising the agency responsible for supervision.
Australia should implement a targeted approach in relation to preventing NPOs from TF abuse. As a first step, Australia needs to undertake a thorough review of the TF risks that NPOs are facing (beyond the issues already covered in the NRA) and the potential vulnerabilities of the sector to terrorist activities.
Ensure that lawyers, accountants, real estate agents, precious stones dealers, and trust and company service providers understand their ML/TF risks, and are required to effectively implement AML/ CTF obligations and risk mitigating measures in line with the FATF Standards. Ensure that reporting entities implement as early as possible the obligations on enhanced customer due diligence (CDD), beneficial owners, and politically exposed persons introduced on 1 June 2014.
Australia should assess the risks of TF posed by all forms of legal persons and arrangements. Australia should also take measures to ensure that beneficial ownership information for legal persons is collected and available. Trustees should be required to hold and maintain information on the constituent elements of a trust including the settlor and beneficiary.