Australia is at risk of serious economic damage and is already suffering fallout from its failure to bring lawyers and other professionals into the anti-money laundering and counter-terror finance (AML-CTF) regime, a Senate committee says.
The legal and constitutional affairs references committee, which has been examining the adequacy of Australia’s current AML-CTF regime, said the country was a laggard by international standards and needed to move quickly to avoid being placed on a list of jurisdictions with systemic deficiencies in their laws.
It also recommended the government fulfil its longstanding promise to create a register of beneficial ownership that would reveal who really owns assets held through opaque trust or company structures – something Australia’s financial intelligence agency, Austrac, said on Thursday would make it easier to track flows from sanctioned Russian oligarchs.
It comes after warnings from experts that Australia’s current laws, which exclude lawyers, real estate agents and other “gatekeeper” professions from laws that force banks and other financial institutions to report large or suspicious transactions, were putting the country at risk of becoming a target for Russian oligarchs seeking a haven from sanctions over the invasion of Ukraine.
Speaking at Senate estimates on Thursday, Austrac’s head of intelligence, John Moss, said there were “operational activities under way that we’re involved in that have links to sanctioned entities”, led by federal police. These operations “may include real estate”, he said.
Asked by Greens senator Nick McKim if a beneficial ownership register would help, Moss said: “Yes.”
The government first promised to bring “designated nonfinancial businesses and professions” (DNFBPs) – a group that includes lawyers, real estate agents, accountants and company service providers – under the AML-CTF umbrella in 2014 but has failed to do so since amid fierce opposition from lawyers, who claim it would impinge on client legal professional privilege.
Austrac’s chief executive, Nicole Rose, told estimates that bringing the professions into the system “absolutely could be of intelligence use”.
She said the failure to bring in the reforms, known as “tranche 2”, could be make Australia more attractive as a place for Russian oligarchs to launder money.
“I don’t have any concrete evidence that that is particularly occurring, but it could be an area of weakness,” she said.
In its report, tabled in parliament on Wednesday, the Legal and Constitutional Affairs References Committee said: “Australia is a laggard on the world stage, one of only three states to fail to enact any regulation in relation to DNFBPs.”
The committee, chaired by outgoing Labor senator Kim Carr, said Australia, a founding member of the global standards-setting body the financial action taskforce (FATF), had made repeated promises to bring in “tranche 2”.
“The government’s failure to enact tranche 2 reforms call into question these commitments,” the committee said.
“It is difficult to ignore the gap between the commonwealth government’s words and its actions.”
It said Australia risked being placed on the FATF’s “grey list” of countries subject to increased monitoring – a group that currently includes Syria, Myanmar and South Sudan.
This “could cause significant economic harm to Australia”, the committee said.
“Regardless of the likelihood of whether that will occur, the real-world consequences are already being felt,” it said in the report.
“As a result, Australian banks are being required to go out of their way to prove Australia’s suitability to receive credit. To risk Australia’s reputation and economy in that way is reckless.”
It said implementing tranche 2 would take some time.
“However, the need for action cannot be ignored, and the government has dragged its feet for too long,” it said.
The committee said it recognised arguments from lawyers that bringing them into the AML-CTF reporting regime would compromise client confidentiality.
“The committee is of the view that lessons can be learned from jurisdictions where such reforms have been reconciled with legal professional privilege (including the United Kingdom and New Zealand), and where issues have arisen (for example Canada),” it said.
It said bringing the professions into the system would vastly increase the number of reports financial intelligence agency Austrac received, raising concerns about its resourcing.
“The committee acknowledges the evidence that the development of a robust beneficial ownership register would both mitigate the burden on small business by enhancing and simplifying ‘know your customer’ searches and at the same time would reduce Australia’s vulnerability to money laundering,” the committee said.
In 2016, the then-assistant treasurer, Kelly O’Dwyer, promised to introduce a beneficial ownership register.
However, in 2019, Treasury said that “no commitment to implement a register has been made by government”.
More recently, in October last year, the treasurer, Josh Frydenberg, said that a project under way to modernise the company registry will “enable the development of a beneficial ownership register”.
