Australia’s financial reputation at risk globally

Rachel Waldren, the financial crime partner at KordaMentha.

Australia’s international reputation as a good global anti-money-laundering and crime-fighting citizen is at a crossroad, and the ramifications for failing to step up are considerable.

The Anti-Money Laundering and Counter-Terrorism Financing Amendment (AML/CTF) Bill 2024, which is before federal parliament, seeks to modernise our AML regulatory framework and extend regulations to lawyers, accountants, trust and company service providers, real estate agents and dealers in precious metals and stones, commonly referred to as “tranche-two entities”.

The proposed reforms would bring Australia in line with accepted international standards met by all but a small handful of countries.

Failure to pass these long overdue reforms poses an additional cost burden on corporate Australia – which will ultimately be passed on to consumers – while significantly affecting foreign investment. More concerning, the failure to act exposes Australians to sophisticated international criminals who choose Australia as their preferred destination to launder the proceeds of their illegal activities.

Successive governments have been aware of the need to simplify our existing AML laws and extend them to tranche-two entities. The bill has been introduced in anticipation of Australia’s mutual evaluation against international standards by the Financial Action Task Force, of which Australia is a founding member.

The FATF is expected to assess Australia’s compliance in late 2026 and the prevailing thinking is we risk being “grey-listed” following that process. This would see us included alongside the likes of Haiti, Nigeria, Syria and Yemen on a short list of countries that have not met the minimum standards.

The financial implications of being grey-listed are real and significant. They include increased costs of doing business with banking and corporate sectors. Foreign banks will have to spend more time and resources to ensure they and their customers are not exposed to increased risk due to Australia’s lower AML standards.

The International Monetary Fund estimates the fall in overseas capital inflows to grey-listed countries at as much as 7.6 per cent of GDP with the potential for foreign investment to decline by up to 3 per cent. This would have an obvious impact on our economy and living standards.

It is therefore crucial that the bill receives bipartisan support and that the AML/CTF Regulator, Austrac, is given adequate funding to provide guidance to new and existing regulated entities.

Of course, increased regulation will lead to increased costs. However, smaller businesses, particularly tranche-two entities, will be able to take a risk-based approach.

That is, it is not a “one size fits all” regulatory regime. Compliance costs (and the work needed to meet the new regulations) will be proportionate to the risks involved.

For a small family-owned real estate agency in regional Australia servicing the local market, the cost will be less than for a national business with exposure to domestic and foreign buyers.

However, it should not be considered a tranche “too hard”. Existing business processes can be relied on to comply, and smaller tranche-two entities should be able to rely on their respective industry associations that are exploring shared solutions to reduce costs and meet compliance. Specialist managed services businesses with expertise in AML are another way to reduce compliance costs and avoid the need for additional resources.

For those entities already used to complying with AML/CTF laws, considerable changes will also be required – and now is not the time for complacency. The lead time to assess the changes, ­secure budgets, skill up and plan for necessary technology changes takes time.

Austrac’s patience for noncompliance with existing laws is short and there is an expectation that existing entities should by now have the fundamentals right. Further enforcement action from one of Australia’s smallest but fiercest regulators should be no surprise.

Australia is one of a small number of leading world economies that do not meet international AML standards.

This is not just about increased regulation. It is about ensuring that our country is protected from financial crimes. Crimes that cost us money, inflate our property ­prices and leave the most vulnerable exposed to exploitation.

In the last 12 months alone, the Australian Federal Police confiscated $352m of assets from organised crime – 65 per cent of this was made up of forfeited real ­estate, double the previous year, highlighting the importance of extending regulation to tranche-two sectors.

The current reforms won’t stop organised crime and money laundering, but without them Australia will continue to be a destination of choice for money launderers and worse. The reforms are necessary for Australia to retain its global standing as being tough on crime, provide law enforcement with intelligence from those sectors known to be exposed to money laundering, prevent an unnecessary hit to the economy and to protect communities.

Let’s hope that in the final sitting weeks of parliament this year we will see the progress needed to pass the AML/CTF Bill.

Rachel Waldren is a partner in financial crime at KordaMentha