Article:

Tranche Two ushers in a new era for anti-money laundering and counter-terrorist financing

25 June 2018

Adam Simms , Partner, Forensic Services |

Money laundering is changing. The digital age has afforded criminals greater anonymity, and governments around the world have had to find new ways to legislate against money laundering and terrorism financing.

Australia behind the curve in anti-money laundering

While the US has seen success in its investigations against HSBC, which was found to be knowingly allowing South American drug cartels to launder money, Australia is behind the curve when it comes to both legislation and action. The recent judgement against the CBA in Sydney recently further signifies the seriousness of anti-money laundering and counter terrorism financing (AML/CTF) legislation breaches with a $700 million fine handed down in the Federal Court. Whilst it is the largest civil penalty imposed in Australian history, there are sceptics saying that it wasn’t enough and questioned the deterrence effect on the big end of town. The one thing it does say is that Australia needs to play catch-up and fast with such an elaborate breach of AML/CTF legislation.

In fact, the country has been under criticism for some time by the international Financial Action Task Force (FATF), which has chastised the government for its reluctance to implement legislation in relation to gatekeeper entities, such as accountants, lawyers and real estate businesses.

Recently, however, the Australian government has announced plans to update the current Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act). Known as Tranche Two, it is unclear when this legislation will be rolled out, but now that New Zealand has implemented its new AML/CFT Act, it's unlikely that Australia will wish to remain behind for much longer.

Tranche Two: What you need to know

The current AML/CTF Act applies to the businesses traditionally associated with AML, such as financial services institutions and gambling companies. Tranche Two, which will hopefully be implemented some time in 2018, would extent the obligations of the AML/CTF to what's known as the gatekeeper professions. These include accountants, lawyers, real-estate businesses, and high-value item dealers.

While these are industries that are susceptible to criminal money laundering activity, they currently have no obligation to report suspicious transactions. Tranche Two would change this, legally requiring them to be registered with AUSTRAC as a reporting entity (RE). Once they become an RE, businesses are legally, amongst other obligations, obliged to report any suspicious or threshold transactions (those worth over $10,000) to AUSTRAC.

Tranche Two would also introduce due diligence requirements on these sectors. For example, businesses must be able to identify whether a client is a politically exposed person (PEP), and conduct enhanced due diligence if this is the case.

If introduced, Tranche Two would take the number of REs from around 14,000 to over 100,000. With up to $5 million in drug cash laundered a day (and that's just through our four biggest banks), according to confidential briefings by the federal and state policing agencies, it's paramount that the Australian government introduces this legislation sooner rather than later.

To find out more about BDO's anti-money laundering services, contact our team of experts.

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This document has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only and not considered advice or legal advice. The document cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice.

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