Source document: https://docs-lawep.s3.us-east-2.amazonaws.com/1697638101493.pdf (Australia)
Malkara Consulting Money in the Wrong Hands is a Weapon 27 August 2021 Ms Sophie Dunstone Committee Secretary Senate Legal and Constitutional Affairs References Committee Canberra ACT 2600 Submission: Adequacy and Efficacy of Australia's Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) Regime I refer to your email of 2 July 2021 inviting Malkara Consulting to make a submission to the Senate Legal and Constitutional Affa irs References Committee (Committee) inquiring into the adequacy and efficacy of Australia's anti-money laundering and counter-terrorism financing (AML/CTF) regime.
Attached is the submission by Malkara Consult ing.

I founded Malkara Consulting upon retiring from the AFP after 31 years of service, where primarily I was engaged in the investigation of f inancial crime, including money laundering, fraud upon the Commonwealth, and corruption.

I have extensive experience in the investigation and recovery of proceeds of crime using conviction based and non-conviction based forfeiture laws.
My experience in relation to the investigation of money laundering techniques predates the introduction of criminal money laundering laws in Australia in 1987.

During the past 6 years Malkara Consulting has operated in Asia and Africa delivering financial crime consultancy services and training to clients from the Government and private sector.
During t his time, I have also been engaged as a consultant by the United Nations Office on Drugs and Crime in Nigeria to train and mentor the National Drug Law Enforcement Agency on money laundering and proceeds of crime investigations.

I thank the Committee for allowing Malkara Consulting to make a submission to this important inquiry.
Yours faithfully Chris Douglas, APM, BBUS, CAMS Director Malkara Consulting Pty Ltd Perth, Western Australia Email: The adequacy and efficacy of Australia’s anti-money laundering and counter-terrorism financing (AML/CTF) regimeSubmission 28 Malkara Consulting Money in the Wrong Hands is a Weapon Adequacy and efficacy of Australia's anti-money laundering and counter-terrorism financing (AML/CTF) regime 1.
The Extent to Which AUSTRAC Responds to Reporting by Designated Services The Senate Legal and Constitutional Affairs References Committee has asked for information on "the extent to which the Australian Transaction Reports and Analysis Centre ("AUSTRAC") responds to and relies upon reporting by designated services, and identifies emerging problems based on this reporting".
Perhaps what the Committee should be asking is what impact, if any, has the imposition of the efficiency dividend had and will continue to have on AUSTRAC operations.

The term efficiency dividend is a misnomer for small organisations such as AUSTRAC, as it tends to make agencies less effective and less efficient.

It is not surprising that the recent AUSTRAC annual report makes no reference of the impact of the efficiency dividend on its operations.
CEOs who push back against Government policy tend not to survive too long in public service.

The information required by the Committee is probably best provided by AUSTRAC.

But the effective use of the information by AUSTRAC provided by reporting entities is impacted by how it is dealt with by partner agencies.

AUSTRAC is not an investigative agency.

It is a financial intelligence agency.

The value of intelligence can only be determined by the results it obtains.

And herein lies a problem.


A major user and beneficiary of financial intelligence provided by AUSTRAC is the Australian Federal Police ("AFP").

While there are many other agencies who receive financial intelligence, the AFP is in a similar position to the ATO, it receives all financial intelligence reports sent to AUSTRAC by reporting entities.

The AFP is singled out here because it is the primary law enforcement agency of the Commonwealth responsible for the investigation of federal crime.
Yet, the AFP is under no obligation to investigate offences committed against the AML/CTF Act1.

Part 12 contains various offences including providing false and misleading information to AUSTRAC, producing false documents; providing or receiving a designated service using a false customer name, conducting transactions to avoid reporting requirements etc ("AML/CTF Offences").

Some of these offences contain penalties of up to 10 years imprisonment.
Many of these offences are identified in Suspicious Matter Reports (SMRs) sent to AUSTRAC by reporting entities.

Others are uncovered by the AFP or the Australian Criminal Intelligence Commission (AC IC) during their investigations.

The AFP does not treat information captured in an SMR advising of a suspected offence against the AML/CTF Act as a "referral" from a Government agency.
As a result, these SMRs are not subject to an initial review under the AFP Case Categorisation and Prioritisation Model (CCPM) to determine if they should be investigated2 • This results in the AFP rarely investigating AML/CTF offences primarily due to the low rating they receive under the CCPM.

What is not taken into consideration by the AFP is the impact not investigating has on compliance by reporting entities of the AML/CTF Act in Australia.
This has flow on effects for AUSTRAC too, as it impacts on its performance and what it is trying to achieve strategically.

Motivating AML/CTF compliance staff is a major challenge.
Unless AML/CTF staff and other employees of reporting entities, particularly frontline staff, and very senior managers, receive feedback on the outcome of reports they file, then they quickly lose interest in the work they are doing3 • This has an impact on the quality of the SMRs filed, something which only recently AUSTRAC has raised with major reporting entities.

While AUSTRAC does produce annual typologies reports, 1 Part 12 of the AML/CTF Act 2006 refers.
2 Case Categorisation and Prioritisation Model.

https://www.afp.gov.au/what-we- do/operational priorities/case-cat egorisation- and-prioritisation-model 3 AML/CTF compliance operatives in Australia and offshore realise that very few of the SMRs filed are selected for investigation and of those that are, even fewer result in a successful prosecution specifically linked to any report.
1 The adequacy and efficacy of Australia’s anti-money laundering and counter-terrorism financing (AML/CTF) regimeSubmission 28 Malkara Consulting Money in the Wrong Hands is a Weapon these are highly sanitised and while useful, lack the impact knowing that a prosecution has resulted from information that was provided by a reporting entity.
Failing to investigate offences committed against the AML/CTF Act is like having motor traffic laws but no police officers available or interested in enforcing the laws because they are regarded as minor.

If that happened in Australia there would be chaos on our road systems.
Currently, the AFP has staff who troll the AUSTRAC database to identify and examine SMRs and other reports that are relevant to current investigations or could form the basis for a new investigation of major relevance to the AFP (for example drug trafficking or terrorism).

The AFP rarely isolates for separate investigation SMRs reporting the commission of offences against the AML/CTF Act (for example suspected false name account, making of a false statement to a reporting entity).
For Australia's AML/CTF framework to be effective, the AFP must investigate offences committed against the AML/CTF Act.

The resources committed to the task would not have to be extensive, a small team in each major city would suffice.

The benefits of investigating AML/CTF Act offences regardless of their rating which are multiple and mutually supporting include: a.
Enable inexperienced AFP officers new to investigations to gain basic investigative experience by handling relatively simple or less complex financial investigations.

b.

Will identify ot her serious criminality.

The investigation of minor AML/CTF Act offences has led to the identification of major criminality for example drug importations.

c. d. e. f. All the AML/CTF offences are indictable with some of them being classified as serious offences under the Proceeds of Crime Act 2002.
The investigation of these offence would lead to an increase in restraint and forfeiture action.

All intelligence is part of a feedback loop.

Information gained by the AFP by investigating the SMRs sent by AUSTRAC would improve the quality of the intelligence held by AUSTRAC and the reports its files in the future.

Public knowledge that the AML/CTF Act is being enforced will drive the enhancement of compliance by reporting entities.
Feedback reported by AUSTRAC to reporting entities on the results of information provided will improve the quality of future reports and increase motivation and the skill of AML/CTF compliance officers, further enhancing Australia's AML/CTF framework.

It is recommended that: Recommendation 1: The Committee examine the handling by the AFP of offences against the AML/CTF Act that are identified in SMRs received by the agency.
Recommendation 2: The Commit tee advise the Minister for Home Affairs, the Hon Karen Andrews MP, to issue to the AFP Commissioner a direction under subsection 37(2) of the Australian Federal Police Act 1979 (the AFP Act) to investigate offences report ed to AUSTRAC that have been committed against the AML/CTF Act.

2.
Extent to Which Regulatory Arrangements Could be Strengthened The terms of reference request information on "the extent to which Australia's AMLICTF regulatory arrangements could be strengthened to: (i) address governance and risk-management weaknesses 2 The adequacy and efficacy of Australia’s anti-money laundering and counter-terrorism financing (AML/CTF) regimeSubmission 28 Malkara Consulting Money in the Wrong Hands is a Weapon within designated services, and {ii) identify weaknesses before systemic or large-scale AfvfL/CTF breaches occur".
In 2012 when the Financial Action Task Force revised the 40 Recommendations, it introduced the adoption of a risk-based approach (RBA) to anti-money laundering & counter-terrorism financing as the first recommendation.

RBA has since been extended to countering the financing of weapons of mass destruction 4 Inserting the RBA requirements in Recommendation 1 demonstrated the importance that process has in AML/CTF frameworks.
• Adopting a risk-based approach enables reporting entities to allocate resources to areas of higher risk, ensuring that scare resources are not consumed on low risks and priority is allocated to higher risks faced by an organisation.

An RBA drives the development of subsequent AML/CTF policy, AML/CTF procedures and AML/CTF controls.
If the RBA does not address the financial crime risks an entity could reasonably face, then the other policies, procedures and controls could end up being deficient and ineffective.

In relation to an RBA, there is no one size fits all model.
However, AUSTRAC has identified from the AML/CTF compliance reports received from reporting entities5 and inspections it has conducted of reporting entities6 , that many entities are using template documents that have not been adapted to identify and address the risks they may reasonably face 7 .

These RBA templates are supplied by AML/CTF service providers to clients who complete them or are used by the service provider to prepare the RBA for their client.
The RBAs do not address the risks posed to an organisation because of the customers it deals with, the products or services provided and the jurisdictional risk they operate in.

Templates are useful as a guide but should not the end product.

Unmodified to address the money laundering, terrorism financing and proliferation financing risks an organisation may reasonably face, they could cause more harm than good.
And where theses unmodified templates are used that do not address risks or implement appropriate policies and controls, it is a very good indicator of the culture that exists within the organisation towards its AML/CTF responsibilities.

In Australia, many reporting entities view their AML/CTF obligations as a financial and resource burden.

Something they have to do because the law mandates it.
They do not see the benefit a sound AML/CTF programme provides in protecting their organisation, the financial system and society generally from financial crime and other criminal risks8 • 4 Now referred to in some countries as AML/CTF-P (Anti-Money Laundering, Counter-Terrorism Financing & Proliferation Financing).
5 An organisation that provides a designated service must submit a compliance report to AUSTRAC explaining how it has met its anti-money laundering and counter-terrorism financing (AML/CTF) obligations.

The report is submitted between 1 January and 31 March each year using an online portal provided by AUSTRAC and covers business activities for the previous calendar year.

A minor penalty can be incurred by any organisation that fails to submit a compliance report.

6 Insights From Compliance Assessments.


https://www.austrac.qov.au/sites/default/files/2019-07 /insights from-compliance-report.pdf 7 Risk based assessments and documents specifying AML/CTF policies, procedures, and controls.

8 Many criminals and criminal groups are involved in polycrime.
They undertake a range of criminal activities for example fraud and drug trafficking (and within that crime type - also provide different types & quantities of narcotics), or human trafficking (and within that crime type perform many different and highly specialised roles) and people smuggling.
While others will specialise in providing unique money laundering services, which due to their level of sophistication, resources, and contacts, pose significant challenges for law enforcement to counter and higher r isk to reporting entities and non-reporting entities in Australia.

And too often an entity will treat financial crime risks in silos.
For example, money laundering risk is treated separately from bribery and corruption risk, including foreign bribery, when in fact they are connected and often mutually support each other.

A competent and experienced AML/CTF service provider will not only assess money laundering & terrorism financing risk but also all criminal risks that a reporting entity could reasonably face due to the customers it has, products or services it delivers and jurisdictions it operates in.
3 The adequacy and efficacy of Australia’s anti-money laundering and counter-terrorism financing (AML/CTF) regimeSubmission 28 Malkara Consulting Money in the Wrong Hands is a Weapon To understand criminal risk, a reporting entity or an AML/CTF provider assisting an entity with its AML/CTF obligations, must have a thorough understanding of how criminals commit crime and what they do with their money.
The former is important because Commonwealth Criminal Money Laundering law also applies to instruments of crime9• While the latter involves knowing in detail the money laundering methods used to conceal and move the proceeds of crime.

Due to an absence of experience and/or training, some AML/CTF providers might not be equipped with the necessary knowledge or skills to competently advise their clients 1°.
Poorly designed and implemented AML/CTF programmes including an appalling approach to AML/CTF obligations by chief executive officers and board members of some of Australia's largest financial institutions, have been the causes of major AML/CTF failures in Australia.
It is surprising that some CEOs and other senior managers of these organisations have not been charged with criminal offences involving aiding and abetting money laundering with a knowledge element of recklessness or negligence11 • Over coming this poor culture of compliance or misunderstood view of the benefits of an effective AML/CTF framework is a major issue that must be overcome for Australia to have an effective AML/CTF framework.
It is therefore recommended that: Recommendation 3: Reporting entities in Australia be required to supply a copy of their RBA and AML/CTF policy, procedures, and controls at the time they lodge their AML/CTF compliance report.

AUSTRAC would then be able to assess the extent of the use of "cookie cutter AML/CTF templates"; the quality of the RBA conducted and subsequent policies and procedures implemented.
Should deficiencies be identified, then AUSTRAC could undertake remedial action12 • Recommendation 4: Remedial action by AUSTRAC should involve notifying any reporting entity that has been found to have undertaken an inadequate RBA and/or subsequently implemented ineffective AML/CTF policies, procedures and controls and listing those entities on the AUSTRAC website as entities with deficiencies in their AML/CTF programmes.

Any listed entity should then be subject to ongoing monitoring by AUSTRAC.
This process is consistent with action by the FATF which lists countries with strategic deficiencies with their AML/CTF frameworks and has been found to be effective in gaining cooperation from those countries in working towards compliance with the 40 Recommendations.

Where a reported entity is listed as having deficiencies, any AML/CTF service provider involved in their development and/or implementation of the AML/CTF framework should also be listed along with the reporting entity.
Public listing of reporting entities in Australia for having def icient AML/CTF systems would: 9 Division 400 Criminal Code Act 1995.

1° Completion of an accredited AML/CTF [internationally referred to as AML/CFT) training programmes might not provide the detailed level of knowledge and skill required and some internationally accredited programmes do not address instruments of crime or how organised crime and criminals generally operate.
11 It is an issue for the Australian Federal Police which appears not to have shown any interest in pursuing.

12 For a large reporting entity for example a bank, these documents would be very extensive and relevant aspects of their AML/CTF procedures would be outlined in multiple documents.

To reduce the time and cost to those entities and to AUSTRAC, reporting entities whose turnover exceeds a prescribed limit (e.g., $10 million) would be exempt from lodging and only have to submit a compliance report.
Current onsite inspections by AUSTRAC would apply to those large entities.
4 The adequacy and efficacy of Australia’s anti-money laundering and counter-terrorism financing (AML/CTF) regimeSubmission 28 Malkara Consulting Money in the Wrong Hands is a Weapon • • Increase compliance with the AML/CTF law by encouraging boards, CEOs, and employees to take seriously their responsibilities to protect their organisation and society from financial crime Enable other reporting entities to more accurately assess the AML/CTF risks posed to them by entit ies that have been listed13 • 3.
The effectiveness of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (the Act) to prevent money laundering outside the banking sector A major method used to hi de and move the proceeds of crime is Trade Based Money Laundering (TBML).

TBML is not a separate criminal offence but a major money laundering typology.

Prevention of TBML is not captured specifically by the Financial Action Task Force 40 Recommendations or by Australia's AML/CTF framework.
Activity associated with TBML can potentially be identified and reported when it interacts with a reporting entity, for example when funds are sent or received by telegraphic transfer to pay for goods or services or in relation to a trade financing event.

TBML can be complex with many components often located offshore and/or involving entities which have concealed their beneficial owner by using nominees, private companies and secrecy jurisdictions.
The alteration of the price and/or quantity of goods and services are elements of TBML are also elements of other substantive offences for example: income tax evasion, GST fraud and customs duty fraud.
TBML involves several techniques which can be used together or separately and in some circumstances, where a reporting entity is not involved, can be used to completely bypass Australia's AML/CTF framework to move the proceeds of crime, to pay an instrument of crime or to generate, conceal and move terrorist funds.

The extent to which criminals use TBML in Australia to launder money is unknown.

Though based on the author's experience, it is suspected to be significant.
TBML in addition to being effective in hiding the proceeds of crime and terrorist funds, also provides any criminal associated with it, an alibi for their unlawful activities.

Non-capture of TBM L in Australia's AML/CTF framework leaves a significant gap in its financial intelligence collection capability which is exploited by local and int ernational criminal groups.

It is beyond this submission to explain TBML techniques in any detail.
Though the Committee would benefit from a thorough understanding of the methods used as it would guide them during this current inquiry.

The author has delivered TBML training to Australian Border Force and has included TBML training in workshops delivered to the AFP, AUSTRAC, ATO, ACIC and almost all State Police forces of Australia.

The author has also taught and advised on TBML to clients offshore.

The author is prepared to deliver to Committee members a TBML information session pro bono via webinar.
That session would only take 2 hours of the Committee's time.

Recommendation 5: The Committee accept the offer by Malkara Consulting to receive an information session via webinar on TBML.

13 This is merely an extension of what currently occurs internationally.

Countries and reporting entities around the world adjust their risk profile as required in response to t he listing of any country having a strategic deficient AML/CTF system.
5 The adequacy and efficacy of Australia’s anti-money laundering and counter-terrorism financing (AML/CTF) regimeSubmission 28 Malkara Consulting Money in the Wrong Hands is a Weapon Recommendation 6: The Committee source from AUSTRAC and other relevant law enforcement agencies information on what they are doing to identify and prevent TBML in Australia.
Recommendation 7: Upon examining the evidence of the threat posed by TBML, the Committee recommend the expansion of Australia's AML/CTF framework to include initially, the incorporation of entities involved in international trade and later, entities that service the Australian market.

4.
4.

Australia's compliance with the Financial Action Task Force (FATF) Recommendations During the 1980s, the author was employed for a short time in the AFPs Organised Crime Unit in Sydney and later with a Joint AFP/ ATO Task Force also operating in Sydney at that time.

During those assignments, extensive money laundering activity engaged in by criminals, police officers, business people and professionals was witnessed, but nothing could be done to prevent it and bring to justice those involved.
As a professional federal police officer, it was with great relief when the Cash Transaction Reports Act 198814.

Australia's first AML/CTF legislation and the Proceeds of Crime Act 1987 containing Australia's first money laundering offences were implemented.

Finally, police could take action against those who benefited from crime, especially those employed in public service who were corrupt and in some cases, dangerous to the community and to their fellow members.
Back then, Australia was a world leader in the development of AML/CTF frameworks including regulation (with the creation of AUSTRAC) and enforcement.

But now, in 2021 Australia is no longer a leader in AML/CTF governance.
Political weakness and strong lobbying by organisations with no understanding of the threat posed by organised crime, not just in Australia but by offshore crime groups15 or who have a view that organisations should be allowed to operate with minimum interference from government, have left Australia exposed to organised crime.

And to potentially being listed as a non-cooperative country by the FATF.
Listing would be a political disaster for Australia and have some economic ramifications for the country but also mainly for businesses who engage in international trade in goods and services.

As a FATF founding member, Australia has a responsibility, and it is expected to comply with ALL FATF 40 Recommendations.

It does not.

The AML/CTF Act does not extend to: • • • • Lawyers Accountants Real Estate sector Jewellers 14 Later renamed the Financial Transaction Reports Act 1988.
15 The Cuckoo Smurfing technique used by corrupt offshore money remitters working for organised crime is an example.

Cuckoo Smurfing was identified by t he AFP Perth Office in the late 1990s and has recently come to public attention in the CBA money laundering scandal and now the Crown Casino inquiries.
There are thousands of other examples involving cuckoo smurfing, but these two cases alone demonstrate the impact organised crime can have on major organisations in Australia and how a poor culture of compliance combined with a limited understanding of how organised crime works can result in substantive criminal funds entering the Australian financial system and by default the international financial system.
6 The adequacy and efficacy of Australia’s anti-money laundering and counter-terrorism financing (AML/CTF) regimeSubmission 28 Malkara Consulting Money in the Wrong Hands is a Weapon The AML/CTF Act also does not cover motor vehicle dealers and other providers of high value assets (e.g.

boats, aircraft, horses, motor cycles etc).


During the author's 31 years' experience in the AFP, he was primarily engaged in the investigation of money laundering and asset recovery or fraud upon the Commonwealth particularly tax fraud.

During these investigations each of the designated non-financial businesses and professions (DNFBPs) referred to above were involved in crime or used to conceal the proceeds of crime.
Though, in relation to lawyers and accountants, their knowingly being involved in crime was low given the size of their professions, with accountants featuring more often than lawyers.
The money laundering risk relating to the legal and accounting professions was usually due to their ignorance of how criminals operate or their willingness to turn a blind eye to what was going on by not undertaking extensive background checks on the source of any funds involved and/or the intended use of funds or any structures or arrangements their clients demanded.
Consequently, the involvement of these professionals, particularly lawyers, added another layer of secrecy to any transaction or structures and provided a degree of legitimacy to the activity the criminals were engaging in.

The techniques used to launder money through the non-financial business and professional sector are extensive and beyond explanation in this submission.
The author is prepared to deliver via webinar to the Committee an intensive session lasting up to 3 hours, on how the DNFBP sector is used to launder money.

The Commit tee would benefit from that insight before engaging or hearing submissions from representatives of those professions and industry.
Forewarned about the techniques involved and the vulnerability of the various industries, the Committee would then be able to canvas in detail with industry representatives, their views on money laundering, terrorism financing and proliferation financing and how they intend to mitigate the risks, if the AML/CTF Act is not applied to them [point (h) of the terms of reference refers: "the extent to which:(i)DNFBPs take account of money laundering and terrorism financing risks, and (ii) the existing professional obligations on DNFBPs are compatible with AMLICTF reporting obligations"].
The Committee must also be alerted to att empts by indust ry and professional groups to "dumb down" the AML/CTF requirements, who are driven by a profit motive and/or an attitude of defiance against any form of regulation applying to them.

Their ignorance of the threat posed by criminal elements (and countries when WMD is factored in) and/or their attitude to what some regard as excessive government interference, poses serious risk to their members and their industries and professions.
Ignoring the signs of cancer or applying irrelevant ineffective alternative treatments when cancer is identified, provides no protection, or nor leads to a successful treatment.

By doing so, sooner of later, the cancer will kill the victim.

Only a fool would do so.

But sadly, it occurs in Australia in relation to the prevention of many financial crimes.

Recommendation 8: The Committee should accept the offer by Malkara Consulting of a webinar on how criminals launder money in the DNFBP sector.
Recommendation 9: Australia must extend the AML/CTF Act to cover services provided by lawyers, accountants, jewellers, and the real estate sector.

5.

The regulatory impact, costs and benefits of extending AML/CTF reporting obligations to designated non-financial businesses and professions (DNFBPs or 'gatekeeper professions'), often referred to as 'Tranche two' legislation There is one major misconception about AML/CTF compliance in Australia.

And that is it is costly and there are no tangible benefits.
Implementing an effective AML/CTF framework does cost time, money and resources.

But by adopting a risk-based approach to its implementation, resources are utilised according to risk, with identified higher risks being allocated a larger proportion of resources.

All crime prevention measures cost money.


But they are implemented by a business to protect it 7 The adequacy and efficacy of Australia’s anti-money laundering and counter-terrorism financing (AML/CTF) regimeSubmission 28 Malkara Consulting Money in the Wrong Hands is a Weapon from criminal activity.
Alarms and security guards to prevent theft; employee due diligence to reduce internal fraud and misappropriation; monitoring of customers and tagging of attractive and expensive items to prevent theft by customers.

But those measures have benefits too.

A reduction in theft and fraud, enhanced security for employees and customers and lower insurance costs.
There are benefits to any organisation that implements an AML/CTF compliance programme provided it is designed with a broad view of financial crime prevention and implemented with a supportive culture.

A broad view of financial crime involves an organisation considering all financial crime risks, not just money laundering, terrorism financing and proliferation financing.
Criminals involved in those activities engage in more than just those crimes (and noting that where a country is involved in proliferation financing it is ruled by a criminal elite, for example North Korea and engages in criminal activity for example drug trafficking, counterfeiting of money and human trafficking).

For example, corruption is a money laundering technique and a predicate offence.
Too often an organisation will implement an AML/CTF compliance programme and then an Anti-Bribery & Corruption Programme totally independent of each other.

Or other programmes such as anti slavery.

And rarely a day goes by where one hears of an Australian business falling victim to a scam, fraud or cyber-attack (e.g.

ransomware).

And why?


Because the understanding by Australian businesses generally of the risk posed by organised crime, particularly those based offshore that perpetrate many of these crimes is poor, their management culture to enable an effective response to the risks inappropriate or dangerous and/or their anti-crime measures ineffective or non-existent.

While all compliance programmes are important and required to address the law, the flagship programme should be the AML/CTF compliance programme.
Because if undertaken by a competent AML/CTF advisor, it would address risks from all financial crimes or at a minimum during the review of an organisations risks and existing systems, draw the client's attention to other risks that exist not covered by his/her skill level or mandate.

The approach is no different to how other professionals work for example in medicine and law.

They refer clients onto other professionals who specialise in particular fields.
Once a holistic approach to AML/CTF implementation is adopted, the programme can provide significant benefits to the organisation including: a. b. c. Reduction in financial crime incidents, particularly serious incidents impacting on the organisation16 • Organisations captured by the AML/CTF Act and who lodge a suspicious matter report, threshold report or international funds transfer instruction are deemed not to have been in possession of that information at any time.
This means the fault element in relation to Division 400 offences (money laundering) and offences listed in Chapter 5 (terrorism financing etc) of the Criminal Code Act cannot be established17 • In relation to customer due diligence requirements (or know your customer) many reporting entities only undertake the very minimum identification requirements.

The COD processes are usually not based on risk or their risk assessment is flawed.
This is evident with many banks offering online bank accounts and conduct verification of identity using electron ic verification with a new customer required to present themselves in a branch to finalise the process.

This is not "know your customer" and 16 RBA is not a zero sum game.

Money Laundering and other financial crimes will occur.
But with an RBA approach, the organisation will have in place systems to detect it, prevent further damage or infiltration of the organisation, or use of its services/products and enable it to remedy the situation.

17 Section 51 AML/CTF Act 2006 refers.

8 The adequacy and efficacy of Australia’s anti-money laundering and counter-terrorism financing (AML/CTF) regimeSubmission 28 Malkara Consulting Money in the Wrong Hands is a Weapon is a high risk method.
A minimalist approach to COD not only increases risk but also denies the organisation an opportunity to fully understand its relationship with the customer, including identifying any future potential sales opport unities.

Information is the new gold.

Those organisations that capture a lot of information and know how to use it, gain a competitive advantage over other organisations that do not.
It is sound business sense to capture as much information about a customer from them at the time of onboarding as possible or shortly thereafter.

Not less.

For example, a lawyer or an accountant onboarding a pot ential client, should collect information not only about their identity, but their source of funds, spouse, family members, business interests or occupations, membership of professional or community organisations etc.
From that information, a lawyer or an accountant for example could then look at marketing a wider range of services to their client or if data indicates his/her clients have connections with certain organisations or areas, market services to them.
Once information is captured, the potential benefits are endless18 • d. If the AML/CTF Act provisions are not applied to DNFBPs in Australia, there is a risk that t hey will be denied entering business relationships with other entities in countries where the AML/CTF law applies to professional organisations or prevented from undertaking transactions via corresponding bank arrangement s or remittance arrangements due to the perceived high ML/TF risk they pose.

6.
6.

Other Related Matters Three issues are raised for discussion that do not appear to be specifically captured by the terms of reference.

They are: a. b. c. Extension of AML/CTF framework to high risk businesses Section 49 AML/CTF Act Implement ation of a criminal offence for failing to implement an effective AML/CTF framework.
Extension of AML/CTF framework to high-risk businesses Cash based businesses and predominantly cash based businesses are high risk to money laundering and terrorism financing because they can be used to co-mingle the proceeds of crime, can be a source of terrorism funds and provide an alibi and a cover story for criminals and terrorists working for them.
Typical high-risk cash based or predominantly cash based businesses that can be used to co-mingle funds or used for other criminal purposes are referred to in the tables below19 : Small Business Examples Tattoo parlours Convenience stores Bakeries Restaurants & cafes Fast food outlets (pizza shoos kebab Car parks Vehicle repairers, tow Clothing stores truck operators, 18 A similar concept to how doctors and dentists onboard a patient.
They provide a questionnaire and gather all relevant information about that person's medical history, current health issues and any medication they are on.

And proceed to provide a service to treat that person.

19 Based on international and Australian experience.

Not an exhaustive list as any cash based business can be used to co-mingle funds and for other criminal activities.
9 The adequacy and efficacy of Australia’s anti-money laundering and counter-terrorism financing (AML/CTF) regimeSubmission 28 Malkara Consulting Money in the Wrong Hands is a Weapon Small Business Examples outlets, fish & chip shops etc) second hand spare part suppliers Fitness & gym centres Weekend market stalls Florists & nurseries Nail & hair salons Tanning salons Fruit farms Car wash business Home decorating/ furnishing businesses Gaming venues Exploration & mining concessions Medium to Large Business Examples Casinos Money remitting businesses Golf clubs Football clubs Building/Construction companies Timber merchants Accommodation Providers (hotels and mot els) Nightclubs Jewellery stores (especially those with international connections) Import and Export Furniture stores Businesses Wineries & Agricultural operations Australia should consider extending the reach of the AML/CTF Act to incorporate high-risk businesses.
This occurs for example in Nigeria.

While in Botswana, which has only just been removed from FATFs grey list, in addition to reporting entities having to comply2°, all companies and trusts are required to comply with the AML/CTF framework there21• The other option, to reduce the risk of money laundering occurring in high risk cash based businesses would be to implement measures requiring the reporting of cash transactions above a prescribed amount.
For example: • • The European Union 4th Money Laundering Directive requires natural or legal persons trading in goods to the extent that they make or receive cash payments of EUR 10,000 or more to undertake COO and report those transactions.

The EU 5th Money Laundering Directive extends the range of high-value goods that will be subject to reporting requirements to include art, oil, arms, precious metals, tobacco, historical, cultural, and archaeological artefacts.
Traders in these high- 20 Reporting entities are known as Specified Parties and Accountable Institutions.

21 As prescribed in the Financial Intelligence Act 2019 and Financial Intelligence Regulations 2019.
10 The adequacy and efficacy of Australia’s anti-money laundering and counter-terrorism financing (AML/CTF) regimeSubmission 28 Malkara Consulting Money in the Wrong Hands is a Weapon • value goods, are now subject to AML/CFT reporting obligations and COD measures when engaging in transactions of €10,000 or more.
In the United States, federal law requires a person to report cash transactions of more than $10,000 received in the course of trade or business to the Internal Revenue Service22• Cash not only includes coins and currency, but is defined to include a bank cheque, bank draft, traveller's cheque, or money order with a face amount of $10,000 or less that a person receives.
Therefore, if a person purchases a boat for $25,000 and pays for it using $8,000 in physical cash and the balance w ith a bank cheque, the boat dealer must file a Form 8300 "Report of Cash Payments Over $10,000 Received in a Trade or Business" w ith the IRS.

Common businesses that report transactions to the IRS include dealers in jewellery, furniture, boats, aircraft, motor vehicles, pawnbrokers, attorneys 23 , real estate brokers, insurance companies and travel agencies.
The sale of collectibles, such as a work of art, rug, antique, metal, stamp or coin is also included as is the sale of travel and entertainment, if the total price of all items for the same trip or entertainment event is more than $10,000.

A casino must file a Form 8300 for nongaming activities for example: transactions exceeding $10,000 in restaurants and shops24.
Similar reporting arrangements exist in other countries for example in Nigeria25 and Botswana26 • What the above examples demonstrate is the extent other jurisdictions are now going to, to combat money laundering and terrorism financing in their non-financial sector.

Australia w ith an attractive economy for criminals to invest in, a high drug consuming population, and growing corruption, is highly vulnerable to organised crime and to money laundering.
Australia is too complacent in relation to the risks posed by organised crime and their money laundering activities, which jeopardises its future way of life and internal security.

Recommendation 10: The Committee examine whether the AML/CTF framework of Australia should be extended to cover high risk businesses.
State/Territory Police Use of Section 49 One reason a reporting entity might submit an SMR to AUSTRAC is because the information may be relevant to the investigation of, or prosecution of a person for an offence against a law of a State or Territory; or may be of assistance in the enforcement of a law of a State or a Territory that 22 A "person" is defined to be an individual, company, corporation, partnership, association, trust, or estate.

23 AML/CTF Law does not apply to lawyers in the United States.
In Australia, a lawyer is required to file a Cash Transaction Report under the Financial Transaction Reports Act 1988, if he/she has engaged in a transaction involving AUD 10,000 cash or more.

24 For cash transactions of or above $10,000 received or paid as part of the gaming business a casino must file Report 112 with FinCEN.
The filing of reports by a casino relating to the receipt of cash for non-gaming activity, is recognition of the risk posed by criminals (and employees aiding them) to launder money by co mingling it with revenue from restaurants, cafes and shops operated by a casino.
25 In addition, in Nigeria construction companies, consultants and consulting companies, dealers in mechanised farming equipment and machinery and practitioners of mechanized farming (in Australia referred to as farmers) must comply w ith local AML/CFT law.

Laundering of the proceeds of crime in the farming sector is also common in Western countries but it goes largely ignored.
26 As advised previously, all specified parties, accountable institutions and every company and trust must comply with local AML/CFT law in Botswana regardless of the business they are involved in.

This means that mines, private schools, private universities, and places of religious worship must comply and report transactions and suspicious behaviour to the Financial Intelligence Agency of Botswana.
The occurrence of money laundering and terrorism financing activity using private schools and churches also occurs in Western countries and probably in all countries, but except for terrorism financing it is also ignored.

Though the UK Government has issued warnings about the potential for money laundering in private schools.
11 The adequacy and efficacy of Australia’s anti-money laundering and counter-terrorism financing (AML/CTF) regimeSubmission 28 Malkara Consulting Money in the Wrong Hands is a Weapon corresponds to the Commonwealth Proceeds of Crime Act 2002.

As a result, State and Territory Police in Australia are major uses of information forwarded by AUSTRAC.

They regard it is a vital tool in the fight against organised crime and money laundering.
When an investigating officer requires further information from a reporting entity, that has filed with AUSTRAC an SMR, Threshold Report of International Funds Transfer Instruction, he/she may pursuant to Section 49 of the AML/CTF Act 2006, submit a request to that reporting entity seeking further information about the persons or information contained in those reports.
This financial information can then be used and often is, to ground other investigation powers for example search warrants, telephone intercepts and listening devices to name a few.

However, despite the intention of the AML/CTF Act to support State and Territory taxation, criminal and forfeiture law, a State or Territory Police Officer is not included in the definition of an investigating officer in the Act and therefore is unable to utilise Section 49.
The result is, those state and territory agencies are not able to obtain additional financial information from the reporting entity to advance their investigations, as their federal colleagues are able to do.

Clearly this omission is a drafting oversight.

Recommendation 11: The Committee recommend to the Commonwealth Government that the definition of Investigating Official in the AML/CTF Act 2006 be amended to include State and Territory Police Officers.
Criminal Offence for failing to implement an effective AML/CTF framework Recent corporate experience in Australia has demonstrated that current compliance programmes fail due to the existence of a culture at the board and senior executive level that places profits ahead of a corporation meeting its legal and ethical responsibilities.
Commonly referred to as the "tone at the top", the messages and attitudes of board members and managers of all levels in an organisation guide employees on how they should attend to their duties and legal and ethical responsibilities.

A poor attitude towards any form of compliance can have a significant impact on the operations of an organisation, its reputation and/or the health and safety of employees.
Poor AML/CTF compliance by a financial and non-financial business and profession increases the risk that the products and services provided by the organisation will be used in money laundering, terrorism financing or to finance the production of weapons of mass destruction 27 and expose employees to criminal elements, who can then be corrupted.

Penetration of weak internal controls and/or corruption of employees then significantly increases the risk that an organisation will fall victim to crime.
These are issues not fully understood by many who oppose AML/CTF reform in Australia.

And professional bodies such as lawyers and accountants, in addition to their services which are valued by criminals, hold a treasure trove of personal and corporate data of significant interest to them as well.

As the saying goes: "a rising tide lifts all boats".

So, it is with compliance.


A highly compliant AML/CTF system driven from the top of the organisation raises the standard of compliance in relation to all other issues as well.

Money laundering, terrorism financing and weapons of mass destruction are very serious issues confronting every country in the world.
Those who manage organisations who have a legal responsibility to achieve AML/CTF compliance or those compliance officers who support or undertake the work on behalf of a board and senior managers, simply cannot be allowed to walk away without penalty from a money laundering/terrorism financing scandal to start a new career and leave others to clean up the mess and wear the cost28 • The latter is usually indirectly funded by shareholders where a public company is involved.
There are criminal offences of money laundering 27 Timely reminder to all, that most of the material acquired by Aum Sect members who developed and tested Sarin Gas in Western Australia and later used it in the Tokyo Subway attack, were purchased in Australia.

28 As has happened in the CBA, Westpac Bank, and Crown Casino money laundering cases.
12 The adequacy and efficacy of Australia’s anti-money laundering and counter-terrorism financing (AML/CTF) regimeSubmission 28 Malkara Consulting Money in the Wrong Hands is a Weapon that could be applied if the circumstances warrant it to board members, managers, and compliance officers etc.

But to date in Australia, that has not happened.


Therefore, what is needed is a criminal penalty provision that can be applied to any person involved in an organisation that has AML/CTF compliance obligations and who does not fulfil them on behalf of the organisation.
The penalty must be capable of being applied to all who have a role, not just to AML/CTF compliance officers, where if it was, they could end up being the "fall guy" for the non-compliant organisation29 • An example of a provision where those with responsibility for AML/CTF implementation being penalised criminally, can be found in Botswana.
Section 43 of the Financial Intelligence Act 2019 prescribes: "Any person responsible for ensuring compliance by a specified party or accountable institution who negligently fails to take such measures as are reasonably necessary to ensure such compliance, commits of an offence and is liable to a fine not exceeding P250 000, or imprisonment for a term not exceeding five years, or to both" And Regulation 35 of the Financial Intelligence Regulations 2019 prescribes: "Any person who contravenes these Regulations shall be guilty of an offence and liable to a fine not exceeding P100 000 or to imprisonment for a term not exceeding five years, or to both".
The Financial Intelligence Act & Regulations 2019 when introduced, created one of the broadest AML/CTF frameworks in the world.

In addition to financial institutions and non-financial businesses and professions, it applies to every single company and trust registered in Botswana.

It provides a framework for the prevention and reporting not only of money laundering, terrorism financing and weapons of mass destruction but also every financial crime.
It also places a limit on the amount of cash that can you used in a transaction; a measure that only recently failed to be introduced in Australia.

A specified party is similar to a reporting entity in Australia.

250,000 pula is equ ivalent to AUD 33,00030 • The Financial Intelligence Regulations are equivalent to the AML/CTF Rules in Australia.

100,000 Pula is equivalent to AUD13,000.


A conviction of a former board member or company director for failing to implement effective AML/CTF measures for the organisation they are responsible for managing, would lead to that person being barred from managing any other entity 31 • Such a provision would temporarily prevent the current recycling of company directors in Australia, who move from one corporate scandal to another with little or no personal repercussions.
29 Under the UK's Money Laundering Regulations 2007, all businesses w ithin the regulated financial services sector are required to appoint a Money Laundering Reporting Officer (MLRO).

The duties of the MLRO may result in a civil and criminal action being undertaken against them for AML/CTF breaches.

For example, a significant fine and a prison sentence of up to 2 years.

30 The low value of the fine compared to Australian standards, reflects the lower income earned by managers and staff in Botswana.
31 Section 206F of the Corporations Act would need to be amended incorporating a provision banning a person from managing an organisation for up to 5 years if they were convicted of failing to implement an effective AML/CTF system.

Unlike the current provision, which is weak, any ban should be automatically applied upon conviction of a person.
13 The adequacy and efficacy of Australia’s anti-money laundering and counter-terrorism financing (AML/CTF) regimeSubmission 28 Malkara Consulting Money in the Wrong Hands is a Weapon Recommendation 12: The Committee should consider recommending that a similar criminal provision for non-compliance with the AML/CTF Act 2006 and AML/CTF Rules be introduced in Australia.
Chris Douglas, APM, BBUS, CAMS Director Malkara Consulting Pty Ltd Perth, Western Australia 14 The adequacy and efficacy of Australia’s anti-money laundering and counter-terrorism financing (AML/CTF) regimeSubmission 28