Tranche 2: Impact, relevance and why you should care

29 March, 2022

You can’t stop kids from stealing lollies when there are no adults around. Why should the Australian government expect criminals to behave any better?

Australia has recently been in headlines for its ridiculously slow adaptation of gatekeeper AML regulations. 

Weak money laundering laws put Australia at risk of becoming a haven for Russian cash

The hypocrisy of their immediate implementation of sanctions against Russia in regard to their lax AML regulations has become glaringly obvious. What’s the point of sanctions if criminals can get an Australian lawyer or accountant to spend their money for them, without any verification of identity?

Legal & Political Ramifications

Australia has slammed up a wall of sanctions against Russia, “ensure[ing] there is a cost for this violent, unacceptable and egregious behaviour”.  Prime Minister Scott Morrison has also alluded to the introduction of sanctions against his largest trading partner, China, if they make a move to openly support Putin. 

This rigid stance against the actions of Russia in Ukraine, juxtaposes the notoriously lax anti money laundering regulations on gatekeeper professions.

Gatekeeper professions have unfettered access to the financial system. And those gatekeeper professions have a financial incentive to not conduct customer due diligence on their clients. 

If a criminal based overseas, for example, wanted to buy 10 properties in Sydney, at $2 million each, that’s 10 transactions for their lawyer, which will net them close to $200,000. Boom. $20 million in dirty cash has now been hidden quietly in Australia’s property market, just like that. 

Sanctions against Russia can be completely avoided by these criminals – they can layer their illicit funds. One could simply settle a $10 million property transaction through a lawyer’s trust account, without ever having to enter the financial system themselves.

Economic & Social Damage

The damage caused by money laundering to the Australian economy through these gatekeeper professions is immense. Another example of how Australians are being exploited – there are essentially no rules around setting up companies. 

Here are the 7 simple steps, the lengthiest of which goes over how to name your company and what abbreviations you’re allowed to use. No identity verification, no compliance steps to speak of. So back to our overseas based criminals, one could easily set up 10 different companies under a false name, through an Australian based accountant. 

This loophole is exacerbated by the rapid increase in house prices around these Pacific Rim cities. Many of these cities have a massive problem with ghost apartments. A ghost apartment is property bought under a false company name, kept completely empty of people, and the most secure holding form for illicit funds. 

The overflow effect on this is the increase in house prices for everyday Australians, and especially those looking to enter the property market. This will cause more disparity between the wealthy and the poor. 

Environmental Effects

Another rampant supplier of money laundering is environmental crime. Environmental crime encompasses a diverse range of activities, from illegal extraction and trade of forestry and minerals to illegal land clearance and waste trafficking. 

The profits from these acts have to be hidden and ‘cleaned’ somewhere – and these amounts are not pocket change. The estimated profit margin for environmental crime across the globe is around USD $110 to $281 billion. So where does that money go? The Australian financial sector would be a pretty  attractive option.

Tech Crime

Cyber security authorities warn that Conti, a notorious ransomware gang, could be looking to target Australia again after aligning themselves with Russia. This group was responsible for at least 13 cyber attacks, including an attempted attack on critical infrastructure – CS Energy in Queensland

Ransomware as a service (or RaaS), is an ever-growing business model in dark web forums, essentially the criminal underworlds version of SaaS. As cybercriminals grow more and more sophisticated, their profits swell – with a predicted USD $6 trillion lost globally to cybercrime in 2021. 

These funds can then be held in crypto, the perfect unregulated and entirely digital haven, with lightning fast transactions to hide their true origin. Whilst all this criminal process is keeping pace with the technological development of our era, Australia’s AML regulations rust away as antiquities, left abandoned.

What does this mean?

The government has been holding off AML regulations for 15 years, and the ramifications will continue to worsen without Tranche 2. 

Australia is already severely on the back foot in the fight against money laundering, and yet there seems to be minimal action being taken. Tranche 2 must be implemented—and soon—or else the Australian economy and citizens will pay the price. FATF is already considering adding Australia to the Grey List, grouping it with countries like the Cayman Islands and the UAE.

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.

Keen to find out more? Book a demo today! No time for a long demo? No problem. See what First AML can do for your business in 2 minutes – watch the short demo here.