ABC’s Four Corners program this week highlighted concerns that Chinese criminal funds may be propping up Australia’s real estate market. Why is Australia’s anti-money laundering framework not providing sufficient comfort that these concerns are addressed?
The answer lies in both the scope of Australia’s anti-money laundering and counter-terrorism financing laws, as well as the enforcement of these laws, especially in relation to proceeds of foreign offences.
In the 1980s Australia became one of the first countries to adopt anti-money laundering laws. In 1989 it joined a small group of countries in the Financial Action Task Force (FATF), taking the lead in identifying appropriate policing measures. FATF then developed into the international standard-setter for anti-money laundering measures, as well as counter-terrorism financing measures, a mandate added in 2001. It also assesses its members’ compliance with those standards, known as 'recommendations'.
Businesses covered by these rules need to identify and verify the identities of their customers, assess and mitigate the money laundering and terrorist financing risks they pose and report suspicious transactions as well as certain large transactions. By doing that they protect themselves from committing money laundering offences and their industries from abuse by launderers.
Australia held FATF’s presidency in 1992-1993 and again in 2014-2015. However, its early start in adopting anti-money laundering laws and its leadership role in the FATF did not ensure a soft assessment regime for Australia. In 2005, FATF criticised Australia’s anti-money laundering and terrorism financing regime for lagging behind, especially in terms of the scope and enforcement of its laws. It was held to be fully compliant with only 12 recommendations and largely compliant with another 14 of the 49 recommendations that applied at that stage.
This spurred Australia to adopt the current Anti-Money Laundering and Counter-Terrorism Financing Act of 2006 (AML/CTF Act). This Act created a world-class framework in relation to financial institutions. But the overall framework was not complete. FATF’s standards apply to financial institutions as well as a number of so-called 'designated non-financial businesses and professions'. This list includes casinos, lawyers, real estate agents, dealers in precious metals and stones, and trust and company service providers.
In 2006, with the exception of casinos and bullion dealers, these were set aside to be addressed in a second tranche of AML/CTF Act reforms. Despite various statements and government consultation, also in the context of the current statutory review of the AML/CTF Act, these reforms have not yet been effected.
Combined with the limited transparency of the beneficial ownership of companies and trusts, it leaves the property market vulnerable to money laundering and terrorist financing abuse.
The lack of enforcement of the existing criminal laws is, however, also a cause for concern.
Australia has a well-developed set of statutory money laundering and terrorist financing offences, both at the federal and a state/territory level. At the federal level, for example, the Criminal Code creates offences that can be committed knowingly, recklessly and even negligently, for example when dealing with property which is reasonably suspected to be proceeds of crime.
The 2015 FATF assessment report of Australia found that money laundering offences involving proceeds of foreign offences, including corruption offences, are not frequently prosecuted 'because Australia does not consider that foreign predicate offences are major predicates for money laundering in Australia.' (par 3.44). Predicate offences are offences generating the proceeds of crime to be laundered.
Authorities mentioned the difficulties of obtaining off-shore evidence to prove the foreign offence. But a lack of effective federal/state law enforcement coordination was found to pose a particular barrier, especially in relation to the property market:
For example, while ML (money laundering) of foreign illicit proceeds through real estate is perceived to be a risk for Queensland (Gold Coast), Queensland has no ML convictions for this activity. AFP (Australian Federal Police) indicated that it does not focus on this risk, believing this ML activity relates to State level predicates, whereas the Queensland Crime and Corruption Commission stated it does not focus on this risk as it relates to foreign money and is thus a matter for AFP.
At the same time, assessors took note of two examples of successful prosecution for foreign predicates (fraud and corruption) by AFP and the registration of two restraint orders from Papua New Guinea in Queensland.(par 3.44)
The overall enforcement strategy therefore does not reflect a high level of concern about the abuse of the property market by those wishing to launder proceeds of foreign corruption.
Much can be done to increase the protection of the property market against criminal abuse. While the AML/CTF legal framework should be extended to all businesses and professions covered by the FATF standards, compliance and red tape concerns may continue to delay the second tranche of reforms. The best starting point would therefore be to work with the available legal tools and to prosecute money laundering offences involving designated non-financial businesses and professions and markets of concern, such as the property market. In relation to foreign corruption that will require close cooperation with foreign counterparts.
Increased prosecution will also provide improved evidence of the abuse that actually occurs and inform the debate on the urgency and nature of the law reforms that are required. However, Australia must also enhance the transparency of beneficial ownership of companies and trusts. If criminals find it more risky to purchase property in their own names, they will increasingly hide behind business structures. It is therefore important to improve public information regarding the control of companies and trusts.
It is also important to reflect on money laundering law enforcement priorities. Money laundering prosecutions levels increased over the past few years but corruption, especially foreign corruption, struggles to receive appropriate attention.
If Australia wants to hold an international integrity leadership position and improve its ranking on the Transparency International Corruption Perception Index, it will need to join its international counterparts by taking firm action against foreign corruption, including the laundering of the proceeds of foreign corruption.