Amidst a growing global regulatory recognition that more needs to be done, including by the private sector, to combat modern forms of slavery and human trafficking, Australia is considering further legislation that may affect your compliance obligations. Whilst there has been a lot of discussion around how existing UK legislation may affect businesses in Asia today, including how businesses can prepare for compliance with supply chain transparency reporting requirements, you should be aware of existing Australian laws that apply today. Failure to comply with these laws may lead to significant penalties and reputational damage.
These existing laws include your obligations under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) (AML/CTF Act), the possibility of forfeiture of money or interests (including as mortgagee) under the Proceeds of Crime Act 2002 (Cth) (POCA), and the possibility of committing offences in connection with slavery, slavery-like conditions, financing a business involving slavery or slavery like conditions, human trafficking, and money laundering, either directly or by being complicit in your customer’s offence.
Anti-money laundering risk assessment and reporting requirements
Financial institutions that are reporting entities under the AML/CTF Act should carefully consider whether their risk assessments, KYC and reporting red flags adequately address slavery.
As we previously reported, AUSTRAC expects financial institutions to undertake an appropriate risk assessment that comprehensively identifies and evaluates the money laundering risks posed to your business and to adapt your AML/CTF program to those risks as a precondition to doing business. The term “money laundering” is broadly defined and includes dealing in money or property that is either proceeds, or an instrument, of another Australian crime. As slavery, slavery-like conditions, and human trafficking are all crimes on which the money laundering offences may be based, reporting entities must consider the risks that their customers pose in carrying out their assessment.
Financial institutions also have an obligation to report to AUSTRAC information which they reasonably suspect may be relevant to the investigation or prosecution of a person for the crimes of slavery, slavery-like conditions, or human trafficking (known as “suspicious matter reports” or a “SMR”). In this respect, the public-private response in Australia seems to be lagging behind other jurisdictions, with the UK and the US agencies both having developed partnerships, and guidance, with industry, in relation to appropriate “red flags” for slavery and human trafficking for their equivalent SMR requirements.
Getting ahead of this issue in Australia will assist in rebuilding trust and confidence in the integrity of Australia’s financial institutions. Failure to properly address this issue in the AML/CTF program could have significant consequences. As we previously reported, AUSTRAC takes compliance with these obligations seriously, with Tabcorp being fined $45 million earlier this year for failing to report fraud and not having an adequate risk assessment.
Risk of forfeiture of security under the POCA
The POCA allows the police to seize money or property which are the proceeds, or an instrument, of crime in certain circumstances, without regard to the interests of a financial institution in that property. This could, for example, lead to forfeiture of your interest as mortgagee over a property, with no compensation. With a significant rise in the number of POCA actions in the last 6 months, financial institutions must have a robust anti-slavery program to ensure their security is not at risk.
Risk of criminal liability under the Commonwealth Criminal Code Act 1995
In light of the existing UK reporting requirements in relation to the transparency of your supply chain and the current Australian inquiry, we encourage financial institutions to consider taking steps today to put them in the best position for any hard-coded Australian reporting requirements. This will also address the risk of breaking existing criminal laws.
As slavery, slavery-like conditions or human trafficking are all crimes under Australia’s current criminal code, financial institutions that finance or otherwise facilitate slavery or receive the proceeds of those that engage in such practices may be found guilty. To this end, a court may look to your “corporate culture” to see whether that culture directs, encourages, tolerates, or leads to these offences. To mitigate this risk, financial institutions need to take active steps to ensure that the right corporate culture, demonstrated through policies and procedures, is in place.
Giving thought to and implementing risk management strategies today may help to mitigate the potential for having modern slavery in your supply chain or providing finance to businesses that do. Doing so will assist you to mitigate the risk of liability under Australia’s anti-slavery laws, prepare for existing and incoming hard-coded reporting obligations, avoid reputational damage and engender public confidence that Australia’s financial institutions are market leaders in respect of compliance.