Anti Money Laundering 2014From Technical Compliance To Practical Effectiveness-

Examining Australia’s AML/CTF Regime

Senior Lawyer, Ms Carole CapleDirector of Policy, Mr Matthew Dunn

• Federal organisation

• Speaks on issues of national and international importance, federal law and the operation of federal courts and tribunals

• Represents approximately 60,000 Australian legal professionals through constituent member Bar Associations and Law Societies (‘Constituent Bodies’)

LAW COUNCIL OF AUSTRALIA

(1) The objects of this Act include:

(a) to fulfil Australia’s international obligations, including:

(i) Australia’s international obligations to combat money laundering; and

(ii) Australia’s international obligations to combat financing of terrorism; and

(b) to address matters of international concern, including:

(i) the need to combat money laundering; and

(ii) the need to combat financing of terrorism; and

(c) by addressing those matters of international concern, to affect beneficially

Australia’s relations with:

(i) foreign countries; and

(ii) international organisations.

Note 1: The objects of this Act are achieved by (among other things) requiring information to be given to the AUSTRAC CEO and by allowing certain other agencies to access information collected by the AUSTRAC CEO.

Note 2: The objects mentioned in paragraphs (1)(a),(b) and (c) relate to the external affairs power. Schedule 1 (alternative constitutional basis) contains provisions designed to attract other legislative powers (including the taxation power).

3. Objects

(2) Relevant international obligations include obligations under the following:

(a) the United Nations Convention Against Corruption, done at New York on

31 October 2003 [2006] ATS 2;

(b) the United Nations Convention Against Transnational Organized

Crime, done at New York on 15 November 2000 [2004] ATS 12;

(c) the Convention on Laundering, Search, Seizure and Confiscation of

the Proceeds of Crime, done at Strasbourg on 8 November 1990 [1997]

ATS 21;

(d) United Nations Security Council Resolution 1267 S/RES/1267 (1999);

(e) United Nations Security Council Resolution 1373 S/RES/1373 (2001);

(f) United Nations Security Council Resolution 1617 S/RES/1617 (2005).

3. Objects (cont’d)

(3) The following reflect international concern:(a) the FATF Recommendations;(b) the United Nations Convention Against Corruption, done at New York on 31 October 2003 [2006]

ATS 2;(c) the United Nations Convention Against Transnational Organized Crime, done at New York on

15 November 2000 [2004] ATS 12;(d) the Convention on Laundering, Search, Seizure and Confiscation of the Proceeds of Crime, done at

Strasbourg on 8 November 1990 [1997] ATS 21;(e) the International Convention for the Suppression of the Financing of Terrorism, done at New York

on 9 December 1999 [2002] ATS 23;(f) United Nations General Assembly Resolution 51/210 A/RES/51/210 (1996);(g) United Nations Security Council Resolution 1267 S/RES/1267 (1999);(h) United Nations Security Council Resolution 1269 S/RES/1269 (1999);(i) United Nations Security Council Resolution 1373 S/RES/1373 (2001);(j) United Nations Security Council Resolution 1456 S/RES/1456 (2003);(k) United Nations Security Council Resolution 1617 S/RES/1617 (2005).

Note 1: FATF Recommendations is defined in section 5.Note 2: In 2006, the text of international agreements in the Australian Treaty Series was accessible

through the Australian Treaties Library on the AustLII website (www.austlii.edu.au).Note 3: In 2006, the text of United Nations Security Council resolutions and United Nations General

Assembly resolutions was accessible through the United Nations website (www.un.org).

3. Objects (cont’d)

‘Commonly Used Offences

• ss.400.3-400.8 Criminal Code – dealing in proceeds of

crime etc – money or property worth any value up to

$1,000,000 or more

• s.400.9 Criminal Code – dealing with property

reasonably suspected of being proceeds of crime etc.

The CDPP website provides

Sections 400.3 to 400.8 of the Criminal Code are all similarly drafted. Each section relates to dealing with money or property which is proceeds of crime or could become an instrument of crime. However, each section relates to money or property of a different amount.

Sections 400.3 to 400.8 contain three different offences, each with a different maximum penalty, classified according to the state of mind (fault element) of the defendant. Whether the offence is classified as being contrary to subsection (1), (2) or (3) will depend upon the classification of the fault element (intention, recklessness or negligence) associated with the circumstances that the money or other property was proceeds of crime or was a potential instrument of crime.

The CDPP website provides

Offences contained in the Anti-Money Laundering and Counter-

Terrorism Financing Act 2006 are also often used in prosecuting money

laundering – in particular the following sections:

• ss.142-143 – structuring offences;

• ss.53, 55 –the movement of physical currency both in and out of

Australia;

• ss.136-138 – opening of bank accounts using false customer

identification documents;

• ss.139-141 – use of bank accounts in false names or failing to

disclose the use of 2 or more names.’

The CDPP website provides

Australian Anti-Money Laundering Legislative Outcomes

ML

Legislation

2002-

03

2003-

04

2004-

05

2006-

07

2007-

08

2008-

09

2009-

10

2010-

11

Total

POCA s 81, s 82 1 9 0 1 3 0 1 0 15

Criminal Code

s 400 n/a 5 6 11 14 40 42 50 168

AML/CTF Act n/a n/a n/a n/a 16 37 9 12 74

FTR Act 131 168 79 76 53 23 19 17 566

Total 132 182 85 88 86 100 71 79 823

Figures obtained from Commonwealth Department of Public Prosecutions, 2011

The Australian anti-money laundering regime is unique and highly

complex.

The effectiveness of Australia’s anti-money laundering system is

difficult to measure because there has been very few money laundering

convictions in comparison to say other member nations, i.e. United

Kingdom and Hong Kong. This is an issue that was also highlighted in

the FATF’s 2005 mutual evaluation assessment of Australia’s anti-

money laundering programme.

Australian Anti-Money Laundering Legislative Outcomes

The AGD and AUSTRAC’s Review AML/CTF Regime - Issues Paper of December 2013 said at page 11:

‘From fewer than 4,000 cash dealers under the Financial Transaction Reports Act 1988 (Cth) (FTR Act), the regime now has a regulated population of over 13,800 individuals and businesses (called ‘reporting entities’) in the financial, remittance, gambling and bullion sectors.’ 1

‘Transaction reporting from industry to AUSTRAC grew from 18 million reports in 2007-08 to over 84 million reports in 2012-13, a 466 per cent rise.’

However in terms of prosecutions the CDPP website provides that

‘In 2012-2013 the CDPP prosecuted 47 indictable money laundering offences and 61 summary money laundering offences.’

Reporting to AUSTRAC and ML Prosecutions

1 According to enrolments on the AUSTRAC Reporting Entity Roll at 30 September 2013

• Unlike other Designated non- financial businesses and professions, the legal profession is already subject to an extensive regulatory system and core professional obligations not to break or facilitate breaking the law

– extensive existing regulatory regime

– developed over a long period of time

– tailored to the unique role lawyers play

Existing Regulation

• At least 5 relevant ethical rules:

– paramount duty to the court and the administration of justice

– must provide legal services avoiding compromising integrity

– must not engage in dishonest or disreputable conduct

– must follow client’s lawful and proper instructions

– must supervise employees

Existing Regulation

• Trust money keeping highly regulated

– special requirements for holding trust money

– regulation of trust accounts is procedurally detailed and comprehensive

– annual audits of trust accounts

– random audits by regulatory authorities

– managers, supervisors and receivers can be appointed

– fidelity funds exist to cover any defaults

Existing Regulation

• Extensive and unique sanctions for breaches:

– regulators can appoint themselves receivers of your business at any time

– licence to practice can be cancelled at any time

– prison

– maximum fines ranging $10,000 to $100,000

– striking off – loss of occupation, not just a ban

Existing Regulation

• Suspicious matter reporting doesn’t fit in with existing regulatory regime:

– obligation to report

– obligation not to tip off about making a report (s123 AML Act)

– obligation to withdraw acting for client

Existing Regulation

• The cost and burden of additional further regulation are undesirable and unjustifiable

– significant costs in implementation

– look to UK experience

– 2008/9 surveys in UK cite costs to legal practices of compliance with AML/CTF between £26,000 and £1,035,000 per year on easily quantifiable AML costs

Costs of more regulation

• Australian legal sector demographics

– despite global connections, overall legal practices tend to be smaller businesses in Australia

– approximately 15,392 Australian legal practices

– UK experience of compliance costs equivalent to $51,861.40 per legal practice

Costs of more regulation

Costs of more regulation

Jurisdiction Private Law

Practices

Conservative

Indicative Compliance

costs AUD 2013

Victoria 6,599 $342,233,378.60

New South

Wales

5,324 $276,110,093.60

Queensland 1,653 $85,726,894.20

Western

Australia

828 $42,941,239.20

South Australia 625 $32,413,375.00

Australian

Capital Territory

169 $8,764,576.60

Tasmania 126 $6,534,536.40

Northern

Territory

68 $3,526,575.20

Total 15,392 $798,250,668.80

• Costs in context

– $800 million in potential AML/CTF compliance costs

– about 4% of all revenue in the domestic legal services market

– $855 million - export market value of Australian legal services in 2010/11

– $482 million - total national funding for legal aid in 2012/13

Costs of more regulation

• Conclusion

– legal profession committed to core values of integrity, ethics, trust worthiness and social responsibility

– certain obligations fundamentally incompatible with role of legal practitioners in the system of justice

– little or no evidence of legal practitioner involvement in unwitting participation in ML or TF activity

– way forward is best realised through current regulatory scheme, raising awareness and providing guidance

– the existing regulatory scheme is already extensive– additional costs are undesirable and unjustifiable

Costs of more regulation

Thank You

Law Council of Australia

19 Torrens Street, Braddon ACT 2612 GPO Box 1989, Canberra ACT 2601Direct: (02) 6246 3788 Email: mail@lawcouncil.asn.auWebsite: www.lawcouncil.asn.au