AML/CTF Tranche 2: The light’s at the end of the tunnel, and is not a train

Everyone saw it coming. Australia is one of only five jurisdictions globally (including China, Haiti, Madagascar and the United States) which do not regulate ‘Tranche 2’ entities, i.e. professional services firms who act as the ‘gatekeepers’ to the financial system, namely lawyers, accountants and real estate agents.

The embarrassing release of the Pandora Papers back in 2021 exposed a shadow financial system entangling hundreds of Australians. Critically, the Papers also highlighted the role of gatekeepers; the lawyers, accountants and real estate agencies who at worst, purposefully enabled bad actors, and at best turned a blind eye.

And so here we are. Australia's proposed AML/CTF Tranche 2 legislation aims to increase the scope of current money laundering regulations to include and bring them into closer contact with AUSTRAC, Australia’s financial crime agency.

Known as AML/CTF Tranche 2, the proposed legislation is anticipated to receive approval via the Senate in February 2024, at the earliest. Its amendments to the existing Anti-Money Laundering and Counter-Terrorism Financing Act 2006 will significantly expand its remit beyond its current target of financial services, covering approximately 115,000 organisations in total - a substantial increase from the current 15,000.

As with other countries, industry bodies have lobbied hard against these rules, but that time has passed. Instead, it’s time to move beyond anger and denial, and start the process of acceptance in order to get to ‘business as usual’ as quickly as possible while meeting obligations.

As always, we are the ‘lucky country.’ We can learn from other countries, such as New Zealand and the UK, who have been through the AML anxiety and emerged somewhat unscathed on the other side.

Preparation for this transition is key and the more you know the better you’ll be positioned. With that in mind, here are the top four reasons the Australian government is choosing to move on Tranche 2 now.

1. The political irony 

Recent headlines have shed light on Australia's slow adaptation of gatekeeper anti-money laundering (AML) regulations. The hypocrisy of imposing sanctions against countries like Russia for their unacceptable behaviour while lacking robust AML measures within its own borders has become glaringly apparent. Until the changes come into effect, criminals can exploit the services of Australian lawyers, accountants and real estate agents to move illicit funds without proper identity verification, rendering sanctions ineffective.

2. Economic & social harm

Money laundering through gatekeeper professions inflicts significant damage on the Australian economy. Exploitative practices, such as ghost apartments purchased under false company names, contribute to skyrocketing house prices, exacerbating wealth disparity and limiting access to the property market for everyday Australians. Moreover, the lack of stringent regulations in setting up companies further enabled criminals to exploit the system, perpetuating economic harm and widening social inequities.

3. Tech crime and cybersecurity threats

The evolving landscape of cybercrime poses yet another challenge. Notorious ransomware gangs like Conti favour cryptocurrency to clean their illicit gains, not to mention everyday criminals. With its complex ecosystem, anonymity and cross border reach, they easily bamboozle gatekeeper professions who, until now, have not needed to verify it as a legitimate source of funds. If dirty crypto can’t be used to buy Australian properties, exotics or businesses, the gangs have to go somewhere else to do their laundry.

4. The grey list

In June 2022 AUSTRAC’s chief executive officer, Nicole Rose, warned enforcement agencies that if they did not start prosecuting more money laundering violations, the country faced the threat of being greylisted by the Financial Action Task Force (FATF.)

If the threat of joining the likes of Uganda, Cayman Islands, Burkina Faso and South Sudan wasn’t enough, the associated economic impact was. According to official data from the International Monetary Fund, the average impact is 7.6% of GDP as well as reputational damage as an untrustworthy country.

Sure enough, in late 2022, prosecutions started to drop; Crown Casino, Star Casino, Perth Mint and the blockbuster $10b catch in February 2023 ensnaring accountants, lawyers and real estate. AUSTRAC’s on a roll.

The Imperative for Tranche 2

And with all that in mind, as we said, here we are. With Australia's delayed implementation of AML regulations spanning 15 years, the consequences of inaction have become embarrassingly apparent. Tranche 2 is a positive light at the end of the tunnel. It’s strengthening the country's anti-money laundering efforts, protecting everyday Australians and bringing Australia up to international standards, ensuring we’re no longer the laughing stock of the international community.

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