“That Australia has become a sink for the illicit wealth of some of the Pacific region’s worst kleptocrats should horrify all Australians.”
So says Nathan Lynch, a financial crime intelligence expert at Thomson Reuters. Financial crime is a “global catastrophe”, he says, with some $2 trillion a year being laundered, of which only 1% is detected and seized.
For more than a decade, Australia has refused to complete the second half of its anti-money laundering reform, despite repeated promises from government ministers that it was about to do so. The reforms are known in Australia as Tranche 2 of the AML/CTF regime — rules that would force lawyers, accountants,
real estate agents and other “gatekeepers” to join the global fight against serious and organised financial crime.
Australia thus joins the illustrious company of China, Mongolia, Madagascar, Mauritius and the United States in being the only six countries in the world that are not complying with global rules on Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF); non-compliant, that is, with all three of the Financial Action Task Force’s (FATF) obligations around these professions.
Behind that $2 trillion in black money are real world consequences: internationally the laundering facilitates corruption, child exploitation, environmental crime and terrorism; while locally, money laundering is undermining Australian democracy. It is also contributing to rampant rising house prices.
“It’s a damning indictment on Australian democracy when these law changes have had bipartisan political support — but no action — for 14 years. To this day, in Australia a young family buying a house at auction could be bidding, unknowingly, against a buyer’s agent for a company controlled by a corrupt overseas politician or a drug syndicate. These people are much less price sensitive than an Aussie family. Yet the accountants, lawyers and real estate agents who structured those deals are able to turn a blind eye,” Lynch said.
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Where it all began
Greek mythology tells the fable of Sisyphus, condemned to roll a rock uphill only for it to tumble back down each time. Like Sisyphus, Canberra has been struggling with the rock that is its Anti-Money Laundering/Counter Terrorism Financing law.
The 2006 AML/CTF Act targeted illegal activity in the financial sector. The Explanatory Memorandum to that bill forecast a “second tranche” of legislation covering non-financial sectors including real estate agents, accountants and lawyers. The second tranche would compel real estate agents, lawyers and accountants to report suspicious transactions to AUSTRAC.
Yet that second tranche never followed despite multiple promises from ministers that it was just around the corner.
The 2019 Amendment Bill, which should have brought an end to this 14 year-long saga, again fails to deliver the second tranche laws, dropping the issue, like Sisyphus’ rock, right back to the bottom of the hill again.
This failure to act is all the more galling given the numerous warnings Australia has received over its failure to act, including from the OECD (Organisation for Economic Co-operation and Development) in 2017 and the International Monetary Fund in 2019.
And just as Mathias Cormann has come under fire for his hypocrisy in promising a green-led recovery if he gets the OECD top job when he and the Coalition government undermined every initiative to tackle climate change, so too will his hypocrisy that he was finance minister in a government that failed to act on money laundering despite warnings from the OECD.
The anti-money laundering rules were developed more than three decades ago by the Financial Action Task Force (FATF), and OECD taskforce. The Financial Action Taskforce conducted a review in 2015 and found major non-compliance, resulting in Australia being placed on an enhanced follow-up remediation program. The report repeatedly identified the “high” money laundering risk posed by real estate agents and lawyers.
The federal government also ignored the recommendations from a statutory review by the Attorney-General’s department in 2016 to impose those obligations on the other professional groups.
Lobbyland weighs in
With so many reasons to implement second tranche laws, why has this proven such a Sisyphean struggle for the government? New Zealand implemented the second tranche in 2018, as did the UK and Canada.
According to Lynch it all comes down to lobbying interests and a flawed view of economic growth.
“The Law Council has taken a stridently anti-tranche two position, despite many of its members being strongly in favour of reform to protect the industry’s reputation. Case after case, from Australia and around the world, we’ve seen the critical role that legal advice plays in modern money laundering. And behind the scenes, representatives from the property sector have also been lobbying. and have convinced the government that preventing money laundering will harm Australian house prices.”
The Law Council of Australia states that “the legal profession is already extensively regulated … Any additional regulation of Australian legal practitioners is unnecessary.”
Lynch believes the Council’s stance is counter-productive and that the anti-money laundering regime, if extended to lawyers, accountants and real estate agents, would equip them with the tools they need, as well as the legal cover, to report suspicious activity to AUSTRAC.
Lynch also highlights that lawyers in the UK are subject to the new regime.
He says that without the second tranche, Australia “looks really bad on the international stage” because the real estate market has become a “magnet for dirty money to come into Australia”.
The Property Council of Australia said in a statement that it was “broadly supportive of the bill” – that is, the bill in its current form, which does not include the second tranche legislation.
When asked what steps the Council thought necessary to improve housing affordability, it raised “the supply of land for development, greater use of in-fill or medium density development to meet demand in larger cities, as well as the range of taxes…” There was no mention of anti-money laundering laws.
Greens senator Nick McKim has moved an amendment to the bill asking the minister to introduce by July 1, 2021, a bill to tackle the risk of money laundering and terrorism financing by professions including lawyers, accountants and real estate agents. The bill is due to be debated in the Senate this week.
The failure to implement the second tranche laws has acted as a “signal to kleptocrats and dictators of the world, if they want a safe place to store their money, Australia is open to business,” says Senator McKim.
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