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Money and Matters: A lawyer's guide to AML. Part 2.

Money and matters: An Australian lawyer’s guide to navigating Tranche 2.

In our last article we looked at what is money laundering, how it’s done, the significant cost to the Australian economy and how it affects individuals, businesses, industries, economies, and the world at large. 

In this article we take a look at the global landscape of AML and dive deep into why it’s coming to Australia.

Part 2: The global landscape of AML and why it’s coming to Australia.

First, a quick primer.

The original act - Tranche 1

Introduced in 2006, the Australian Anti-Money Laundering and Counter-Terrorism Financing Act (AML/CTF Act) is designed to prevent money laundering and terrorist financing by limiting the ability of criminals to use Australian financial services to hide proceeds from illicit activities. It currently mandates financial institutions and some non-financial professions (e.g. tax practitioners) conduct customer due diligence, report suspicious transactions, and maintain auditable records. 

AUSTRAC oversees compliance, emphasising prevention and protection of Australia’s financial system's integrity, and international collaboration. 

The proposal - Tranche 2

In 2007, Tranche 2 was proposed, but it was only in late 2022 that the Australian government made serious moves towards it. The motivation for the move, after so many years of inactivity, seems to be the sheer amount of pressure coming from all angles:

  • The global AML/CTF organisation, Financial Action Task Force (FATF), has scheduled their mutual evaluation of Australia for December 2026. If deemed to have “strategic deficiencies in their regimes” FATF could place Australia under increased monitoring, or as it’s more commonly referred to, put Australia on the Grey List. This classification brings with it severe reputational damage and heightened compliance requirements leading to economic damage in the form of significantly reduced direct foreign investment and transactions.
  • The Attorney General’s office identified organised financial crime in Australia as costing the country an estimated $60 billion a year.
  • The Australian brand is already being tarnished due to several high-profile money laundering court cases and research finding that we’re an increasingly attractive destination for laundering illicit funds.

What’s happening globally?

Global trends are affecting government attitudes and commitment towards AML/CTF.

Geopolitical turmoil (Ukraine and Gaza)

In February 2022, at the onset of the Russian invasion of Ukraine, countries vigorously began applying sanctions with the aim of devastating the Russian economy and halting their ability to wage war. By February 2023, 46 countries or territories had imposed sanctions on Russia with more than 11,327 sanctions imposed on Russia, making it the most sanctioned country in the world.


Then in October 2023, as Hamas launched a surprise attack on Israel, the world again imposed sanctions to inflict financial pain and limit the funding of war.

This is on top of existing sanctions against Iran, Syria, North Korea and others. The sheer number and continually changing list of sanctioned individuals and entities is driving a renewed focus on AML and the often forgotten other half of the Act, CTF (counter-terrorism financing).

Increasing autocracy

As countries move harder to the right and autocratic tendencies are expressed, more and more high net worth individuals (HNWIs) are moving themselves and / or their money out of their autocratic-inclined country and into open economies such as Australia. 

In fact, data released in November 2023, from Henley & Partners’ annual Private Wealth Migration Report showed that 122,000 HNWIs will move countries this year alone, with the top destinations (by size of movers) being Australia, UAE, Singapore, USA and Switzerland. The top two countries losing the most HNWIs? China and India.

We can’t say that each of these 122,000 HNWIs obtained their wealth from illegal means, but there’s a reason they’re choosing to move now and not later.

Organised crime 

INTERPOL’s annual Global Crime Trend Report notes that in 2022, “​​Organized crime was among the top ten crime trends most frequently perceived to pose a ‘high’ or ‘very high’ threat by all member countries. Organized crime groups and criminal networks appear to be as resourceful and resilient as ever, having proven their ability to rapidly adapt and seize new opportunities.”

Then add to this, in March 2023, the Australian Federal Police announced that “The AFP is unleashing a highly-skilled, multi-agency task force to target criminals who are laundering tens of millions of dollars in Australia every day to bankroll lavish lifestyles and further crime.

Revealed today, Taskforce Avarus is the next targeted offensive against Australian and offshore organised criminals, who are laundering money through the nation’s financial system and property market at an alarming scale.”

Increasing sophistication of money laundering

Criminals are smart and getting smarter. Fake Spotify streams, TikTok donations, fake countries, American-style candy shops…the list is long and unique. The upshot being that criminals will do almost anything to keep their ill-gotten gains and no matter how bizarre a money laundering scheme sounds, they’ll give it a go.

Add AI and synthetic data to the mix and the digital arms race against illicit activities, and related money laundering, becomes fierce. 

In November 2023 it was reported that a ZURU Toy Company co-founder fell victim to a deep fake video impersonating him, intended to deceive the company’s chief financial officer.

The use of generative AI to spoof biometrics is increasingly being exploited and getting ever more convincing.

Crypto makes a comeback (again)

With the spectacular fall from grace of Sam Bankman-Fried and his FTX cryptocurrency exchange, detractors gleefully heralded the death of crypto. But it rallied. And even when Binance and its founder, Changpeng Zhao, were found guilty of money laundering violations, it still rallied and adding insult to injury, the aptly named Fear & Greed Index moved further towards greed. 

This indomitable spirit of cryptocurrency is significantly driven by money launderers.  Chainalysis, a cryptocurrency investigation and compliance solution provider to global law enforcement agencies, regulators, and businesses reported that in 2022 illicit addresses sent nearly $23.8 billion worth of cryptocurrency, a 68% increase over 2021. 

Governments and law enforcement agencies are well aware that crypto is a favoured laundromat for criminals due to its anonymity, decentralisation, global accessibility, relatively lax oversight and its ease to create complex transaction chains.

Conclusion

Understanding global trends and the motivating context of AML legislation is significant for law firms as they consider how best to protect their brand and reputation. 

In part 3 of this series, we review the submission on Tranche 2 from the Law Council of Australia (LCA) and use real-life examples from other countries to speak to each point.


About First AML

First AML is an AML technology provider, and the maker of Source, an all-in-one AML platform. Source powers thousands of compliance experts around the globe to reduce the time and cost burden of complex and international entity KYC. Its enterprise-wide, long term approach to the KYC / CDD data lifecycle addresses time and cost challenges while minimising compliance, reputational and security risks.

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