Source document: https://docs-lawep.s3.us-east-2.amazonaws.com/1697637826316.pdf (Australia)
A Department of Home Affairs Submission to the Senate Inquiry into the Adequacy and Efficacy of Australia’s Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) Regime 10 September 2021 The adequacy and efficacy of Australia’s anti-money laundering and counter-terrorism financing (AML/CTF) regimeSubmission 32 Contents Table of Acronyms Introduction Australia’s AML/CTF regime Balancing efficient and effective regulation Key obligations Foundations for success Review and reform Reforms to Strengthen the AML/CTF Regime Phase 1 Phase 1.5 Ongoing reform Regulation of designated non-financial businesses and professions Conclusion Attachment A Attachment B Department of Home Affairs Submission to the Senate Inquiry into the Adequacy and Efficacy of Australia’s anti -money laundering Page 2 of 14 The adequacy and efficacy of Australia’s anti-money laundering and counter-terrorism financing (AML/CTF) regimeSubmission 32 Table of Acronyms Acronym AM U CTF Meaning A nti-Money Laundering and Counter-Terrorism Financing AM U CTFAct The Anti-Money Laundering and Counter-Ten-orism Financing Act 2006 AM U CTF Regulations The Anti-Money Laundering and Counter-Ten-orism Financing (Prescribed Foreign Countries) Regulations 2018 AM U CTF Rules The Anti-Money Laundering and Counter-Ten-orism Financing Rules Instrument 2007 (No.
1) AUD A ustralian Dollar AUSTRAC A ustralian Transaction Reports and Analysis Cent re AUSTRACCEO Chief Executi-.e Officer of A USTRAC (statutorily appointed agency head) CTRAct DCE DNFBPs The Cash Transaction Reports Act 1988 Digital Currency Exchange Designated Non-Financial B usinesses and Professions (Casinos, lawyers, accountants, real estate agents, dealers in precious stones, dealers in precious metals, and trust and company ser\1ce pro\1ders) FATF Financial Action Task Force FATF Standards Internationally accepted standards for AMUCTF comprising 40 recommendations and 11 'immediate outcomes' against which count ries regimes are assessed based on their technical ccmplianceand effecti-.eness, respecti-.ely .
FTRAct The Financial Transaction Reports Act 1988 G7 ME.R TSOC Group of Se-.en Mutual Evaluation Report - report of peer assessment conducted by the FA TF membership Transnational , Serious and Organised Cri me Department of Hom e AffairsSubmission to the Senate Inquiry into the Adequacy a nd Efficacy of Au!tralia'santi -money lallldering Page 3 of14 The adequacy and efficacy of Australia’s anti-money laundering and counter-terrorism financing (AML/CTF) regimeSubmission 32 Department of Home Affairs Submission to the Senate Legal and Constitutional Affairs Committee Inquiry into the Adequacy and Efficiency of Australia’s Anti-Money Laundering and Counter-Terrorism Financing Regime Introduction The Department of Home Affairs (the Department) thanks the Senate Legal and Constitutional Affairs Committee (the Committee) for the opportunity to make a submission to the Committee’s inquiry into the adequacy and efficacy of Australia’s Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) regime.
Australia has put in place broad-ranging and comprehensive responses to Transnational, Serious and Organised Crime (TSOC) and terrorism.

Strong powers for law enforcement, quality intelligence production, effective international cooperation, and active proceeds of crime recovery are capabilities that are applicable across the spectrum of TSOC and counter-terrorism responses.

The response to AML/CTF is multifaceted and leverages those capabilities.
It is a cooperative effort between law enforcement, regulatory, intelligence and policy agencies, as well as industry, international partners and the broader community.
The AML/CTF response encompasses national security, criminal and financial intelligence gathering and sharing, criminal investigations, operations, prosecutions, proceeds of crime confiscation, targeted sanctions, community and business education, corporate transparency, powers of competent authorities, international cooperation, and the obligations and regulation of business with high money laundering and terrorist financing risks.
The legislative framework that sets the basis for the obligations and regulation of business with high money laundering and terrorist financing risks is part of that response, and what is typically meant by the ‘AML/CTF regime’.

It consists of:    the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act) the Anti-Money Laundering and Counter-Terrorism Financing Rules Instrument 2007 (No.
1) (AML/CTF Rules) the Anti-Money Laundering and Counter-Terrorism Financing (Prescribed Foreign Countries) Regulations 2018 (AML/CTF Regulations), and  the Financial Transaction Reports Act 1988 (FTR Act).

This regime is a key pillar in the AML/CTF response and is designed to deter, detect and disrupt money laundering and terrorism financing.

The regime:  Provides a disincentive to crime by reducing its profitability.
o Robust systems and controls make it difficult for criminals to introduce their ill-gotten gains into the financial system, and permit the detection, interception and confiscation of criminal funds which makes it harder for individuals or groups to profit from their crimes.

 Reduces the pool of money available to finance future criminal activity.

o Robust systems and controls to detect, intercept and confiscate criminal funds making it harder for individuals or groups to fund their next crime.
Department of Home Affairs Submission to the Senate Inquiry into the Adequacy and Efficacy of Australia’s anti -money laundering Page 4 of 14 The adequacy and efficacy of Australia’s anti-money laundering and counter-terrorism financing (AML/CTF) regimeSubmission 32  Aids the detection and prosecution of crime.
o Intelligence gained from money laundering and terrorist financing controls provide leads, which can be crucial in disrupting terrorism, money laundering and linked offences, in convicting criminals and in identifying assets to assist confiscation of proceeds and instruments of crime.

 Protects the integrity of the financial system and reputation of Australian business.
o The internationally competitive position of Australian business depends upon its reputation for integrity, good governance and honest dealing.

 Avoids economic and competitive distortions.

o Legitimate businesses are disadvantaged when competing against businesses controlled by criminals who may be willing to accept lower rates of return or even losses to maintain the appearance of being legitimate investments.

The Department leads AML/CTF policy generally and administers the AML/CTF Act.
In addition, the Department and the Attorney General’s Department share policy and administrative responsibility for Divisions 103 and 400 of the Criminal Code Act 1995 (the Criminal Code) – containing terrorist financing and money laundering offences respectively.

The Department also leads Australia’s engagement with the Financial Action Task Force (FATF)1 and plays an active role in that forum to influence any changes in standards, interpretation and criteria for remedial action.
This means that Australia can shape the global standards in a way that meet our domestic settings, context and interests.

As the policy lead and head of the FATF delegation, the Department’s submission is focussed on the policy, and legislative and international framework of the AML/CTF regime.

This submission does not cover operational, regulatory or intelligence issues, which are more appropriately dealt with by other agencies.
Attachment A sets out the roles of relevant agencies with which the Department works closely.

Australia’s AML/CTF regime TSOC and terrorism threaten the safety, security and trust of citizens – undermining our sovereignty, democracy and economy.

The monetary cost of TSOC alone is estimated at over AUD47 billion annually 2, however the broader social and economic impacts are immeasurable.
To combat TSOC and terrorism, Australian policy, law enforcement, social security and intelligence agencies work in concert with the private sector, academia and the broader community to:  Prevent these crimes – eliminating or reducing their likelihood or effects  Protect Australians – containing, controlling or minimising the impacts  Disrupt criminal activity – deterring, hindering and depleting criminal and terrorist networks’ ability to operate  Respond directly – targeting, investigating and prosecuting networks and criminal actors, and  Help recover – minimising the disruption and recovery time of these crimes.
1 FATF is an inter-governmental body and standard setter established in 1989 to combat money laundering and the financing of terrorism and proliferation at the international level.
Department of Home Affairs Submission to the Senate Inquiry into the Adequacy and Efficacy of Australia’s anti -money laundering Page 5 of 14 The adequacy and efficacy of Australia’s anti-money laundering and counter-terrorism financing (AML/CTF) regimeSubmission 32 The AML/CTF regime is a crucial part of the broader AML/CTF response, and Australia’s criminal justice and counter terrorism ecosystem more generally.
An effective AML/CTF regime is unique in its ability to tackle money laundering and terrorism as crime types specifically, however also restricts the profitability and financing of TSOC and other serious crime more broadly.

In 2006 the AML/CTF Act was introduced– this forms the core of Australia’s current AML/CTF legislative regime.
 The AML/CTF Act – administered by the Department, sets out the key obligations for regulated entities’, establishes the powers of the AUSTRAC CEO, and the framework for sharing financial intelligence.

 The AML/CTF Rules – administered by AUSTRAC and made by the AUSTRAC CEO, support the AML/CTF Act by providing the detail underpinning the key obligations in the Act.

Australia’s AML/CTF regime has never been static.


The AML/CTF Act largely replaced the earlier FTR Act, (although it remains in force and imposes some regulatory requirements for ‘cash dealers’ 3 and solicitors which are not regulated under the AML/CTF Act).

The FTR Act in turn overhauled its predecessor the Cash Transaction Reports Act 1988.
While criminals constantly adapt and develop new ways typologies, and technology creates new vulnerabilities, government has ensured that the regime is continually evolving to manage those risks at a whole-of-system level and balances the regulatory burden of AML/CTF regulation.

Striking the right balance has become even more critical in light of the COVID-19 pandemic, which has had a deep impact on many businesses.
Balancing efficient and effective regulation The AML/CTF regime represents a significant partnership between Government and industry.

Those businesses regulated under the AML/CTF regime have a unique collective insight into the hundreds of millions of transactions that flow through Australia’s financial system.

The reporting provided by industry feeds the criminal justice outcomes that follow – intelligence, investigation, disruption, confiscation and prosecution.
The partnership with industry was central to the design and implementation of the AML/CTF legislative regime.

Australia’s approach to AML/CTF regulation has, at its centre, the goal of balancing criminal justice outcomes with the regulatory impact on those businesses that are regulated.

Achieving that balance was and is always a critical consideration in designing or amending the regime.
To ensure balance, the regime has two key concepts built in:  Risk-based approach - The regime adopts a risk-based approach where principal obligations are set out in the AML/CTFAct, but businesses have some flexibility to develop procedures according to different risks, which they identify using their own AML/CTF programs.

This ensures regulated entities’ systems and controls are proportionate, reduce regulatory burden and increase efficiency.

3 ‘Cash dealers’ are defined in section 3(1) of the FTR Act.
However, because FTR Act obligations have largely been replaced by obligations under the AML/CTF Act, it now mostly covers motor vehicle dealers who act as insurers or insurance intermediaries who sell insurance, act as an agent for one or more insurers, act as an agent of people seeking insurance and/or are an insurance broker.
Department of Home Affairs Submission to the Senate Inquiry into the Adequacy and Efficacy of Australia’s anti -money laundering Page 6 of 14 The adequacy and efficacy of Australia’s anti-money laundering and counter-terrorism financing (AML/CTF) regimeSubmission 32  Designated services – Unlike most other AML/CTF regulation globally, the AML/CTF Act applies AML/CTF regulation to services that carry a risk of exploitation for money laundering or terrorism financing, without applying blanket regulation to entire sectors.
The ‘designated services’ are listed in section 6 of the AML/CTF Act.

The regulatory capture of businesses is therefore dependant on whether they provide any of the designated services.
Key obligations Currently, the designated services include those provided by financial institutions (including banks, credit unions, and other authorised deposit-taking institutions), money remitters, digital currency exchanges, gambling service providers (including casinos and totalisator agency boards), and gold bullion dealers.

Businesses that provide designated services are regulated under the AML/CTF Act and have five key obligations that they must comply with: 1.
Conducting customer due diligence: Regulated entities must identify and verify a customer’s identity before providing a designated service, and carry out ongoing due diligence over time.

Enhanced customer due diligence obligations apply to high-risk customers.

2.

Reporting: Regulated entities must report ‘suspicious matters’, cash transactions of AUD10,000 or more, and any instruction to transfer funds internationally to AUSTRAC.

3.
3.

Developing and maintaining an AML/CTF Program: Regulated entities must develop and maintain an AML/CTF program that identifies, mitigates and manages the money laundering and terrorism financing risks faced by that business.

4.

Record keeping: Regulated entities must make and retain certain records for seven years and ensure they are available to law enforcement, if required.

5.

Enrolment and registration with AUSTRAC: Regulated entities must enrol with AUSTRAC if they provide a designated service.
In addition, remittance service providers and digital currency (cryptocurrency) exchange providers must enrol and register with AUSTRAC.

Under the FTR Act, cash dealers and solicitors must report to AUSTRAC significant cash transaction of AUD10,000 or more.

Cash dealers must also report suspect transaction reports (which are similar to suspicious matter reports under the AML/CTF Act).
AUSTRAC is both Australia’s Financial Intelligence Unit and AML/CTF regulator overseeing businesses that provide designated services.

It has significant powers to enforce compliance with the obligations above, including obtaining enforceable undertakings, issuing infringement notices, and for more serious or systemic non-compliance, seeking substantial civil penalties.
Foundations for success There are a number of pillars that support the regime to effectively deter and disrupt serious crime, provide financial intelligence to support investigation and prosecution.

Chief among them is collaboration between government and industry.

The intelligence derived from the regime has become a critical piece of investigation and prosecutions, not only for money laundering and terrorism financing, but across the spectrum of criminal conduct.
Reporting from business provides critical intelligence and allows law enforcement to ‘follow the money’.

This process can have a dual benefit of informing investigations, but once identified, the money can then be restrained and confiscated, depriving criminals of the fruits of their labour and putting money back into the community – for example through crime prevention programs.
Australia is an influential member of the international AML/CTF community and has used this position to understand new and emerging threats and typologies, advocate for strong global AML/CTF standards that are in Australia’s interests, and contribute to global policy reform (most recently in relation to virtual assets and virtual asset service providers, and transparency of beneficial ownership).
Department of Home Affairs Submission to the Senate Inquiry into the Adequacy and Efficacy of Australia’s anti -money laundering Page 7 of 14 The adequacy and efficacy of Australia’s anti-money laundering and counter-terrorism financing (AML/CTF) regimeSubmission 32 Australia also works bilaterally and multilaterally to provide a program of comprehensive technical assistance – in the Asia-Pacific and previously Africa – providing policy, legislative, law enforcement, prosecution and regulatory expertise.
These efforts both improve the integrity of the global financial system, and seek to keep our region safer.

Australia’s AML/CTF capacity building work has lifted capability and capacity, and built knowledge and skills to empower individuals, agencies and countries in our region to develop and effectively implement their own AML/CTF systems.
Review and reform As the AML/CTF policy lead, the Department works closely with law enforcement, industry, intelligence, taxation and regulatory agencies, as well as international partners and intergovernmental agencies to ensure the AML/CTF response as a whole continues to be effective.

This engagement helps the Department and its partners to identify and assess risks, and prioritise enhancements that improve criminal justice outcomes.
The Government has progressed significant reforms outside the AML/CTF regime, which contribute to the broader response to money laundering and terrorist financing, including:  strengthening money laundering offences to target professional money laundering syndicates that deliberately deal with illicit property at an arm’s length to frustrate prosecution efforts 4,  establishing a framework for law enforcement agencies to work with industry to more effectively deal with encrypted communication when investigating serious crime (including money laundering and terrorism financing)5  a new framework for international production orders to create a modern international crime cooperation regime6, and  Updated risk guidance and crime guides to assist industry to understand, detect and report criminal threats.
Reform of the AML/CTF regime specifically has been informed by the findings of two key reviews:  The FATF Mutual Evaluation Report of Australia (the Mutual Evaluation Report [MER]) – the independent report was published in April 2015, and  The Statutory Review of the AML/CTF Act and Associated Rules and Regulations (the Statutory Review), the final report of which was published in April 2016.
Australia’s FATF MER, published in April 2015, noted that Australia has a strong institutional framework for combatting money laundering and terrorism financing and a good understanding of its risks.

It recognised that Australia has good quality financial intelligence, coordinates well domestically to address risks, and has highly effective mechanisms for international cooperation.
Law enforcement efforts to combat terrorism financing were also commended, and the review highlighted Australia’s implementation of targeted financial sanctions for entities designated by the United Nations for terrorism-related activities as global best practice.
The Statutory review involved extensive consultation with industry and government agencies on all aspects of the regime’s operation, and sought to balance creating a hostile environment for illicit financing, enhancing compliance with international obligations and reducing regulatory burden on industry created by the regime.
The Statutory Review Report published in 2016, overall found that the AML/CTF regime remains relevant and appropriate, but there was scope to strengthen the regime and achieve greater efficiencies.

The Report provided Government with 84 recommendations for reform to improve the effectiveness of the regime (Attachment B).

4 Crimes Legislation Amendment (Economic Disruption) Act 2021.

5 Telecommunications and Other Legislation Amendment (Assistance and Access) Act 2018.
6 The Telecommunications Legislation Amendment (International Production Orders).
Department of Home Affairs Submission to the Senate Inquiry into the Adequacy and Efficacy of Australia’s anti -money laundering Page 8 of 14 The adequacy and efficacy of Australia’s anti-money laundering and counter-terrorism financing (AML/CTF) regimeSubmission 32 In terms of enhancements to the regime, the FATF MER and the Statutory Review both found that Australia’s regime was overly complex, which affected all businesses’ (but particularly medium and smaller-sized entities) ability to understand, mitigate and manage their money laundering and terrorism financing risks.7 Consequently, a large number of Statutory Review recommendations were aimed at simplifying and streamlining the regime.
The MER also made a number of recommendations to further enhance Australia’s regime largely related to improved formal risk assessments, continued confiscation focus and supervision regarding sanct ions and the not-for-profit sector.
The review recommended regulating ‘gatekeeper professions’ known by the FATF as ‘designated non-financial businesses and professions’ (DNFBPs)8 and improving Australia’s measures to ensure the availability of accurate and up-to-date information on the beneficial owners of companies and trusts in a timely manner needed improvement.
Reforms to Strengthen the AML/CTF Regime The AML/CTF regime is continually reviewed to proactively manage emerging risks, better align with international standards and best practice, and enhance the operational effectiveness of the framework.
Notable amendments include:  reducing the risk of money transfers by remittance dealers being used to fund people smuggling ventures and other serious crimes by introducing a more comprehensive regulatory regime for the remittance sector9  enhancing the flow of AUSTRAC information to deal with the threat of foreign terrorist fighters 10  providing tax officers access to AUSTRAC information to support a strong foreign investment framework11  allowing the Australian Charities and Not-For-Profits Commission to access AUSTRAC financial intelligence to better manage the money laundering and terrorist financing risks emanating from that sector12  mandating enhanced due diligence for transactions involving countries listed by the FATF as having ongoing and substantial money laundering and financing of terrorism13, and  measures to provide greater options to business to conduct Customer Due Diligence in a cost effective manner.
Since the publication of the MER, Australia has undertaken a number of activities to assist the FATF’s understanding of Australia’s regime and address their recommendations.
Australia’s latest and final follow-up report, which was adopted in November 2018, recognised Australia had made sufficient progress to address the technical compliance deficiencies identified in the MER in relation to Recommendations 15 (new technologies), 19 (higher-risk countries), 30 (responsibilities of law enforcement and investigative authorities), 32 (cash couriers), and 36 (international cooperation instruments) and that Australia be re-rated to either ‘compliant’ or ‘largely compliant’ for those Recommendations.
The Government has also progressed reforms to address 37 of the 84 recommendations of the Statutory Review.

Two phases of legislative reform have been progressed to date.

7 Report of the Statutory Review, p.14; FATF MER 2015 paragraphs 1.15, 5.18.
8 Casinos, lawyers, accountants, real estate agents, dealers in precious stones, dealers in precious metals, and trust and company service providers 9 Combating the Financing of People Smuggling and Other Measures Act 2011 10 Counter-Terrorism Legislation Amendment (Foreign Fi ghters) Act 2014 11 Foreign Acquisitions and Takeovers Legislation Amendment Act 2015 12 Crimes Legislation Amendment (International Crime Cooperation and Other Measures) Act 2018 13 Anti-Money Laundering and Counter-Terrorism Financing (Prescribed Foreign Countries) Regulations 2018 Department of Home Affairs Submission to the Senate Inquiry into the Adequacy and Efficacy of Australia’s anti -money laundering Page 9 of 14 The adequacy and efficacy of Australia’s anti-money laundering and counter-terrorism financing (AML/CTF) regimeSubmission 32 Phase 1 The first phase of reform was completed with the passage of the Anti-Money Laundering and Counter-Terrorism Financing Amendment Act 2017 (the 2017 Amendment Act), which commenced in 2018.
These amendments expanded the regime to regulate digital currency exchanges (DCEs) in response to the high money laundering and terrorism financing risks inherent to the sector.

Australia was one of the first countries to take steps to regulate this sector for AML/CTF purposes.

Reform also provided increased regulatory certainty for DCEs and their customers in Australia.

As with the initial development of the AML/CTF Act, regulation of DCEs required close engagement with industry.
It was vital, particularly with a relatively nascent industry to appropriately balance criminal justice objectives, regulatory burden and market access issues.

Phase 1 reform also reduced unnecessary regulation by de-regulating the cash-in-transit sector, insurance intermediaries and general insurance providers.

It also strengthened AUSTRAC’s investigation and enforcement powers including giving the AUSTRAC CEO the power to issue infringement notices for a greater range of regulatory offences.
The regulatory savings from Phase 1 were estimated at AUD36.1 million over ten years.

14 Phase 1.5 The next phase of reform was undertaken through the Anti-Money Laundering and Counter-Terrorism Financing and Other Legislation Amendment Act 2020 (the 2020 Amendment Act), which commenced in June 2021.
This phase addressed several outstanding technical compliance deficiencies identified by the FATF in the 2015 MER with respect to correspondent banking, shell banks, and reliance on third parties for customer identification and verification procedures.15 Specifically, the 2020 Amendment Act:  introduced requirements for financial institutions to undertake due diligence assessments of correspondent banking relationships both upon entry and throughout the life of the relationship  prohibits a financial institution from entering a correspondent banking relationship with a financial institution that permits its accounts to be used by a shell bank  explicitly prohibits reporting entities from providing a designated service if customer identification procedures cannot be performed  noted that a reporting entity should consider making a suspicious matter report to AUSTRAC in circumstances where a service is not provided because the necessary Customer Due Diligence cannot be performed, and  clarified that a reporting entity that relies on an agent or other third party to perform Customer Due Diligence on their behalf retains ultimate responsibility for any compliance breaches.
The 2020 Amendment Act also progressed priority reforms from the Statutory Review:  amending how regulated entities’ can rely on customer identity checks conducted by a third party – resulting in regulatory savings of about $3.1 billion16 in compliance costs over the next ten years.

www.aph.gov.au.
www.aph.gov.au.

14 Final Assessment Regulatory Impact Statement, Anti-Money Laundering and Counter-Terrorism Financing Amendment Bill 2017, 15 Noting Australia’s technical compliance is yet to be formally re -assessed by the FATF.

16 Final Assessment Regulatory Impact Statement, Anti-Money Laundering and Counter-Terrorism Financing and Other Legislation Amendment Bill 2020, www.aph.gov.au.
Department of Home Affairs Submission to the Senate Inquiry into the Adequacy and Efficacy of Australia’s anti -money laundering Page 10 of 14 The adequacy and efficacy of Australia’s anti-money laundering and counter-terrorism financing (AML/CTF) regimeSubmission 32  Enhancing the value of AUSTRAC information by: o expanding which agencies can access the information, allowing for new and more collaborative approaches to investigation, for example, in partnership with the private sector and through multi-agency taskforces, and o substantially streamlining the provisions governing the use and disclosure of AUSTRAC information which were generally acknowledged by law enforcement and other government agencies to be overly complex,  Modernising the reporting requirement for the cross-border movement of monetary instruments to consolidate cash, bearer negotiable instruments (e.g.
money orders) and future forms monetary instruments (this measure will commence in June 2022).

Ongoing reform As outlined above Government has taken significant steps to strengthen the AML/CTF regime, including in response to the FATF MER and the Statutory Review.

While there remains work to be done, AML/CTF is an inherently complex space and reform is not an easy task.
The AML/CTF Act and Rules represent a significant partnership between Government and industry which is central to the design and implementation of the AML/CTF legislative regime.

Balancing the regulatory burden on industry (particularly small business) while maintaining an effective regime to achieve criminal justice outcomes and compliance with international standards remains an key consideration, particularly in light of the ongoing impacts of COVID-19.
Some of the particular challenges in the AML/CTF space include:  Level of prescription: The significant variance in size and sophistication between the businesses regulated under the regime can create tension between businesses wanting a regime that is flexible, risk-based and outcomes focused, and one that clearly prescribes the precise obligations that businesses must comply with.

The regime must also have sufficient specificity to satisfy the international standards set by FATF.
 Effectiveness vs Efficiency: Any reforms to the AML/CTF regime must effectively balance the burden of regulation with the criminal justice outcomes sought.
While reducing regulatory costs for businesses is desirable and would lead to a more efficient regulatory regime, this cannot be done at the expense of diminishing the effectiveness of the regime, which would expose the Australian community and financial system to exploitation by criminals, and enable terrorists to finance violent acts perpetrated both at home and abroad.

 Emerging threats: The criminal landscape is always shifting.
As regulation is tightened, criminals search for loopholes to exploit and adapt their methodologies accordingly.

Due to the persistence of emerging threats, Australia’s AML/CTF regime must continually evolve not only to meet current challenges, but to stay one step ahead of groups that seek to harm Australia’s security and prosperity.
 Regulatory impost: Due to the complex, multi-faceted threats it is designed to combat, AML/CTF regulation imposes an inherently complex regime on businesses that provide designated services.

This is particularly apparent where new services are designated, requiring newly-regulated entities to invest significant resources into understanding and complying with the regime.
Further, even small amendments to the regime can have a significant impact on existing regulated entities’ which need to be considered (for example IT system changes and staff training required across large corporate entities).
Department of Home Affairs Submission to the Senate Inquiry into the Adequacy and Efficacy of Australia’s anti -money laundering Page 11 of 14 The adequacy and efficacy of Australia’s anti-money laundering and counter-terrorism financing (AML/CTF) regimeSubmission 32 Regulation of designated non-financial businesses and professions Designated non-financial businesses and professions17 are globally and domestically recognised as providing services presenting higher risks of money laundering and terrorist financing.
As such their regulation forms part of the international AML/CTF standards set by the FATF.

While the current AML/CTF regime covers some DNFBPs such as casinos and bullion dealers, it does not cover real estate agents, trust and company service providers, accountants or solicitors (baring significant cash transaction reporting obligations under the FTR Act).

Many DNFBP sectors are subject to a range of existing regulation and laws which provides, to some extent, oversight in detecting criminal activity.
For example, real estate professionals, lawyers, conveyancers and accountants are subject to regulatory or professional licensing or registration requirements under state and territory legislation.

These typically involve passing a ‘fit and proper person’ test and a requirement to hold prescribed, minimum qualifications.

Licensing and registration requirements can also impose rules of conduct or obligations.
There are also requirements for these professions to retain records under tax and corporations law.

Many real estate transactions involve the use of financial institutions meaning AUSTRAC and consequently law enforcement also have some visibility of these transactions (to the extent that reporting entities are involved).

However, despite this intersection, existing regulation of DNFBPs is not specific to mitigating the risks posed by money laundering or terrorist financing.
For example there are no obligations on the real estate sector to understand their money laundering or terrorist financing risks and implement specific money laundering or terrorist financing risk mitigation policies that include Customer Due Diligence (including identifying beneficial owners) and AUSTRAC reporting obligations.

The same is true for the services of other DNFBP sectors that are not subject to specific AML/CTF regulation.
The regulation of designated non-financial businesses and professions to directly mitigate the risks posed by money laundering or terrorist financing represents a significant expansion of the AML/CTF regime:  Regulation would capture as many as 100,000 additional businesses, the majority of which are small businesses or sole traders and practitioners.

 The size of the expansion would lead to unavoidable significant regulatory cost for a number of industries.
 Any expansion would have a significant resourcing impact on the regulator, AUSTRAC, which would need to educate, advise and oversee compliance of many thousands of new businesses.

Any expansion of the regime would need to be co-designed with industry and ensure that an appropriate balance could be reached between mitigating the risk of money laundering or terrorist financing and not unnecessarily increasing the regulatory burden on industry.
Conclusion Australia has a multifaceted and comprehensive approach to counter TSOC and terrorism of which the AML/CTF response, and within that the AML/CTF regime, are critical components.

Reforming the AML/CTF regime presents a number of challenges given its complexity and the wide spectrum of sectors, sizes and risks faced by the businesses which it regulates.
Reforms to the regime need to always be evaluated and prioritised against the current risk environment, outcomes for Australia’s criminal justice response, the impact on regulated entities’ and the benefits for the Australian community.

17 ‘DNFBPs’ include casinos, lawyers, accountants, real estate agents, dealers in precious stone s, dealers in precious metals, and trust and company service providers.
Department of Home Affairs Submission to the Senate Inquiry into the Adequacy and Efficacy of Australia’s anti -money laundering Page 12 of 14 The adequacy and efficacy of Australia’s anti-money laundering and counter-terrorism financing (AML/CTF) regimeSubmission 32 Australia has as strong track record of consistently ensuring that Australia’s AML/CTF response can effectively manage current and future threats, protect the domestic and international financial system and detect, deter and disrupt money laundering terrorism financing and other serious crimes.
Department of Home Affairs Submission to the Senate Inquiry into the Adequacy and Efficacy of Australia’s anti -money laundering Page 13 of 14 The adequacy and efficacy of Australia’s anti-money laundering and counter-terrorism financing (AML/CTF) regimeSubmission 32 Attachment A Roles and Responsibilities Department of Home Affairs The Department has broad policy responsibility for AML/CTF and administers the AML/CTF Act and the AML/CTF Regulations.
The regime is the mechanism by which Australia regulates businesses that provide services that carry a risk of exploitation for money laundering, terrorism financing, or other serious crime.

The Department and the Attorney-General’s Department share policy and administrative responsibility for the money laundering offences contained in Division 400 of the Criminal Code Act 1995 (the Criminal Code).

The Department also leads Australia’s engagement with the FATF.
The Australian Transaction Reports and Analysis Centre (AUSTRAC) AUSTRAC has a dual role as Australia’s AML/CTF regulator and financial intelligence agency.

AUSTRAC supervises the compliance of entities that provide designated services with their obligations under Australia’s AML/CTF regime, and collects and analyses reports of financial transactions and suspicious activity to generate financial intelligence.

AUSTRAC also has policy and administrative responsibility for the AML/CTF Rules.
Australian Federal Police (AFP) Money laundering and terrorism financing are criminal offences in Australia, as set out in the Criminal Code.

The AFP is the key law enforcement agency responsible for investigating these offences, which are then prosecuted by the Commonwealth Director of Public Prosecutions.
Additionally, the AFP houses the multi-agency Criminal Assets Confiscation Taskforce and the Criminal Assets Litigation team, which are responsible for undertaking asset restraint and confiscation action under the Proceeds of Crime Act 2002.

Australian Criminal Intelligence Commission (ACIC) The ACIC is Australia’s national criminal intelligence agency, and is focused on understanding and combating serious and organised crime of national significance, including money laundering.
Department of Home Affairs Submission to the Senate Inquiry into the Adequacy and Efficacy of Australia’s anti -money laundering Page 14 of 14 The adequacy and efficacy of Australia’s anti-money laundering and counter-terrorism financing (AML/CTF) regimeSubmission 32