Weak Money Laundering Laws Put Australia at Risk of Becoming a Haven for Russian Cash

Australia’s lax money laundering laws mean the nation is at risk of becoming a haven for Russian cash belonging to oligarchs who are seeking to avoid sanctions over the war in Ukraine, experts say.

The country is one of only three – along with Haiti and Madagascar – yet to commit to bringing lawyers, accountants and real estate agents under the umbrella of anti-money laundering and counter-terrorism finance laws (AML-CTF).

Having failed to act on a promise it made eight years ago to bring the professions into the AML-CTF system, the government now faces a race against time to take action before global authorities put Australia on a “grey list” of countries that don’t meet international standards – a move experts say would embarrass the nation, damage its banks and make it harder for companies to raise money overseas.

“We have just in the last couple of weeks, through the processes we follow, managed to identify a few Russian entities with money in this space,” says Andrew Jackson, who is the Australian head of First AML, a company that provides customer screening and other anti-money laundering services.

“Now whether they are legitimate or not, I don’t know,” he says.

“It is an appealing area for someone from Russia right now. I think some of the sanctions that have been put in place are making it harder, but yes, if we don’t have wider legislation, we are always going to be running the risk that people who need to move illegal funds around look at Australia, because it’s just an easier target.”

The head of the AML-CTF compliance group Initialism, Neil Jeans, says Australia is “absolutely” vulnerable to exploitation by sanctions-busters “because you have, effectively, a significant proportion of the gatekeepers or enablers basically, not required to know who their customers are”.

“It’s pretty easy to create a complex layered structure that would be pretty difficult to penetrate by any one country,” Jeans says.

“That’s the whole modus operandi of this activity – and I’ve been investigating it since the early 1990s.”

Jackson says money laundering has real consequences for ordinary Australians.

People could be “sitting in a pub out in western Sydney and the pokies room behind them could have a group of people running $50,000 through the pokies in one evening, laundering their money”, he says.

“How do they draw the line between money laundering and the fact they can’t afford a house in Australia because the prices have gone up?”

Russia’s war on Ukraine has rung alarm bells at the Paris headquarters of the global body that sets AML-CTF standards, the Financial Action Task Force (FATF), where member nations – including Australia – met last week.

It called for a new register of beneficial ownership to penetrate the jumble of companies and trusts used to prevent authorities from knowing who owns what.

Under Australian law, businesses including financial institutions and gambling operators are required to report large or suspicious transactions to Austrac, the country’s financial intelligence agency, and perform “know your customer” checks to make sure they know the real source of client money.

Failure to meet these obligations can be very expensive – Westpac paid a record $1.3bn fine in 2020 to settle Austrac allegations it breached reporting laws more than 23m times, including by failing to conduct proper due diligence on customers sending money to south-east Asia in a way consistent with child exploitation. While Crown Resorts is currently in court facing allegations by the regulator that it breached the law 547 times.

In 2014, Australia promised to meet the FATF’s recommendation to bring lawyers, accountants and real estate agents into the AML-CTF regime. It is now the only developed country that has failed to do so.

The failure is “a neon sign flashing above the continent of Australia saying ‘haven for criminal money laundering’,” says Deborah O’Neill, a Labor senator who has been active in a Senate committee inquiry into the adequacy of Australia’s AML-CTF laws.

She says in 2015 Australia learned that Chinese nationals were “very actively engaged in moving money in ways that were sight unseen through Australia”.

“We didn’t find out for ourselves,” she says. “We found out from the Chinese, they told us we were a laundry. We do not have vision of this because of the government’s failure to do it.”

Recent submissions from accountants and real estate agents to the inquiry indicate they are resigned to having to do some sort of reporting.

But lawyers have consistently maintained their blanket opposition, saying the rules regulating their profession are adequate.

Bringing lawyers into the scheme, “would impermissibly undermine fundamental tenets of the law, such as legal professional privilege and confidentiality,” and, “impose disproportionate costs on the profession and clients at large which in turn would likely restrict the provision of, and access to, legal services,” the Law Council of Australia said in a submission.

Jackson says law firms “shouldn’t want to work with anybody who is potentially laundering money”.

“Yes, there will be a little bit of extra due diligence that they have to do, but that’s something they should be proud to do,” he says.

“Is it going to be a cost for some people? Yes. But this is a cost of doing good.”

Jeans says other countries with similar rules about the relationship between lawyers and clients have brought lawyers into AML-CTF laws and “the sky hasn’t fallen in”.

“Quite frankly, the arguments being offered by the Law Council of Australia are probably the same arguments that I’ve heard in the US, I’ve heard in the UK, and Europe and virtually everywhere else in the world, for the last 20 years,” he says.

There have been industry rumours that the home affairs minister, Karen Andrews, might rush to put legislation before parliament in the handful of sitting days available before the election that is due before 21 May, but government sources say that is unlikely because the changes required are complex and need proper industry consultation.

“The government has been clear in condemning the actions of the Russian government and is committed to a strong and effective sanctions regime, including ensuring that ill-gotten gains and other sanctioned wealth is effectively targeted by Austrac,” a spokesperson for Andrews said.

“As our economy recovers from the pandemic it’s important we consult with stakeholders and take the time to get further reforms right.”

However, if FATF evaluators aren’t convinced Australia is moving in the right direction, the country could end up on the grey list, with jurisdictions including the Cayman Islands, the United Arab Emirates and Yemen, that have “strategic deficiencies in their regimes to counter money laundering, terrorist financing and proliferation financing”.

“This would push all the Australian banks into the high risk category of banks that you’re doing business with, which would mean there’ll be heightened due diligence on providing correspondent banking relationships for them, so therefore, there’ll be a lot more work for the Australian banks,” Jeans says.

He says it would also hurt investment into Australia, which has long relied on streams of foreign capital.

“I’m an investor in a fund, do I really want to put money into a country that’s on the grey list?” Jeans asks.

“Do I want to invest in that enterprise?”

Article credit: https://www.theguardian.com/australia-news/2022/mar/13/weak-money-laundering-laws-put-australia-at-risk-of-becoming-a-haven-for-russian-cash