The main issue is Australia’s failure to enact the so called ‘Tranche 2’ anti-money laundering laws, which would compel real estate agents, lawyers and accountants to report suspicious transactions.
The proposed laws have been fiercely resisted and the subject of intense lobbying by the real estate sector and law firms, leading to a 13-year delay in delivering a tougher compliance regime.
The real estate sector has often been identified as a large compliance hole, with financial intelligence agency AUSTRAC estimating $1 billion in suspicious transactions came into the Australian property market from China in the 2016 financial year.
The Financial Action Taskforce, which sits under the G7 major world economies, said: “Large amounts [of money] are suspected to be laundered out of China into the Australian real estate market.“
The taskforce found Australia was non-compliant or only partially compliant with 14 of its 40 recommendations.
AFR Weekend has been told the federal government will by Christmas receive a submission from the Department of Home Affairs, which would outline options to toughen Australia’s anti-money laundering regime.
However, Home Affairs has in recent statements indicated that while it is “committed to continually improving Australia’s anti-money laundering and counter-terrorism financing laws”, it is worried about “placing undue burden on industry”.
Another government source said there were concerns any tougher rules would be seen as “re-regulation” or adding more “red tape”.
The government needs to explain what their plans are to tighten money laundering laws, said Labor member Daniel Mulino.
“We know the Morrison government has dragged their heels on anti-money laundering and counter-terrorism financing reforms,” said Dr Mulino, a member of the House of Representatives Economics Committee.
“Other countries like the UK, Canada, New Zealand and Singapore have leapfrogged Australia with more extensive and effective laws to prevent money laundering and counter terrorism financing.
“It’s right that Westpac is being held to account for their shocking failings, but we shouldn’t ignore the fact that the Morrison government’s failure to act is leaving Australia exposed as a weak link.
“The Liberal Party is in government and Peter Dutton needs to explain what he will do to ensure that Australia’s anti-money laundering and counter-terrorism financing laws are working, and that we’re keeping ahead of criminals.”
The Australian Financial Review has highlighted glaring weaknesses in Australia’s anti-money laundering regime over recent weeks in its Huang Files series on disgraced Chinese billionaire Huang Xiangmo.
It revealed that a 32-year-old Chinese-born man, Zhang Bo, had six houses in Sydney’s Mosman worth $37 million, but lived in none of them. Mr Zhang was also a business partner of Mr Huang and an owner of $1.2 billion worth of commercial developments.
The Financial Review also revealed that political fixer Sevag Chalabian used the bank account of his 81-year-old mother to receive an $11 million payment associated with the purchase of a commercial property by Mr Huang’s Yuhu Group.
That payment was described as “highly unusual” and having “many red flags”.
Tougher anti-money laundering laws may have forced those involved in these transactions to flag them with authorities.
Over the past five years, as Australia baulked at introducing stricter compliance, New Zealand has implemented Tranche 1 and 2 of the anti-money laundering laws.
This followed the embarrassment of it being named as a key player in the Panama Papers.
Mr Dutton used question time on Monday to say Westpac’s bosses had “given a free pass to paedophiles” and should pay the price.
“It is clear … that the Westpac banking bosses, through their negligence, have given a free pass to paedophiles, and there is a price to pay for that and that price will be paid and we have been very clear about it,” he said.
Westpac has been accused by the anti-money laundering regulator AUSTRAC of 23 million breaches of the laws, including failing to notify the regulator of suspicious transaction by people involved in child exploitation.
The Prime Minister was equally critical of Westpac and indicated senior management and members of the board should consider standing aside.
“These are some very disturbing, very disturbing transactions involving despicable behaviour,” Mr Morrison said.
On Tuesday, Westpac chief executive Brian Hartzer resigned and chairman Lindsay Maxsted said he would leave the bank early next year.
Digital blind spot
Another weak spot is in the emerging area of digital currencies, where authorities face an uphill task in staying ahead of the options available for those looking to send virtual money around the globe.
Figures released on Thursday by US-based crypto-intelligence firm CipherTrace found that two-thirds of the world’s top 120 digital currency exchanges have weak Know Your Customer (KYC) policies, and that so far in 2019 $US4.4 billion ($6.5 billion) has been attributed to cryptocurrency-related frauds and thefts.
Digital currency exchanges allow for the trade of Bitcoin and other virtual currencies, allowing their holders to realise real world value. They have fallen under the authority of AUSTRAC since April 2018, but Australian cyber-security expert Troy Hunt said it remains notoriously easy for crooks to remain anonymous.
“Exchanges tend to be a little more formal in how they operate because they are dealing with real money as well, but there are plenty of other services where you can convert cryptocurrency back into cash, which don’t undergo the same regulation,” he said.
CipherTrace CEO Dave Jevans said new global Financial Action Task Force (FATF) guidance on policing the increasing use of virtual assets for money laundering and terrorist financing would help regulators around the world better co-ordinate their efforts.
“Cryptocurrency is a significant problem for AML/CTF [anti-money laundering /counter-terrorism financing] around the world and AUSTRAC in particular. Regulation and enforcement around identity, know your customer, sanctions scanning and exchange of data about transactions is in the early stages,” Mr Jevans said.
“We expect Australia and other countries to adopt the FATF guidelines in 2020, which will help align cryptocurrency operations with those of banks and their payment network requirements.
Trust accounts flagged
The payments expert Mr Halvorsen, CEO of consulting firm McLean Roche, said the federal government must take money laundering more seriously.
“They need to give the laws in this area more priority and give AUSTRAC more resources to show they are taking it seriously,” he said.
Mr Halvorsen said the government should look at the trust accounts operated by lawyers.
“That’s a way to move illegitimate cash into a legitimate account. It’s a way of laundering money,” he said.
“To enforce you need data. And data comes from transactions. If you don’t have that you are relying on whistleblowing or self-reporting.”
He said AUSTRAC needs more resources and tougher laws covering accountants, lawyers and real estate agents so it can counter the broad lack of compliance with anti-money laundering laws.