Speed read: The new Australian - Chinese deal on AML intelligence sharing follows the Australia government’s release in October of a draft roadmap to reform of its domestic AML framework. The roadmap identifies the expansion of the AML suspicion reporting regime to lawyers as a priority, but strong industry resistance and a lengthy timeframe for developing regime proposals means that it is uncertain if and when a large gap in Australia’s AML armoury will be closed.
On 1 November 2016, Australia and China entered into an unprecedented agreement to share money laundering and financial crime intelligence. The pact comes after a year of negotiation and forms part of China’s public effort to crack down on illicit money, particularly in connection with its gambling industry. The absence of a bilateral extradition treaty and formal intelligence cooperation between China and Australia has, until now, made it difficult for investigators to touch Chinese money launderers channelling their money into Australia.
The agreement is a welcome development. But, there are further problems with Australia’s anti-money laundering (AML) framework to be addressed domestically. In April 2015, the Financial Action Task Force (FATF) delivered an unflattering assessment of Australia’s AML efforts. The intergovernmental body charged with coordinating the international AML effort commended Australia’s international cooperation but concluded that there was much more to be done. One identified priority area was the implementation of enhanced Customer Due Diligence (CDD) obligations and the expansion of the suspicious activity reporting regime beyond the financial sector to Designated Non-financial Businesses and Professions which is FATF-speak for lawyers.
In the context of money laundering, the application of a suspicion reporting regime to lawyers is, of course, nothing new. One was proposed in the EU’s first AML Directive in 1991. Requirements on lawyers to report a money laundering suspicion and undertake enhanced CDD were introduced in the UK in 2007. But down under, it has been a different story. Efforts in Australia to introduce a similar regime were abandoned nearly a decade ago owing to industry opposition and political instability. The Australian government now plans to revive the reporting regime proposal. On 25 October 2016 it released a draft Project Plan to strengthen its AML and counter-terrorism financing (CTF) framework. Labelled by the Australian government as a ‘roadmap’ to reform, a key feature will be to to “develop options” for expanding the reporting regime to lawyers, conveyancers, accountants, real estate agents and trust and company service providers. The deadline for public and industry submissions is 31 January 2017. Beyond this, the timeframe for the expansion of the regime is somewhat elastic. Non-committedly, the plan sets out that a “modern AML/CTF regime…which complies with international standards for combating ML and TF”, which presumably refers to FATF compliance, will be the subject of a draft Bill released for public comment in the first half of 2018. The timescale for the legislative development of a regime proposal will be the second half of 2018.
Accordingly, the path to reform is long. Along the way the Australian government can also expect steadfast opposition. Pre-emptively, in January 2016 the Law Council of Australia updated its AML guidance for legal practitioners, making clear that a reporting regime was fundamentally incompatible with the role of lawyers and the concept of privilege, and that there was a “lack of empirical evidence…of involvement of legal practitioners in facilitating (unwitting or otherwise) money laundering.” Existing criminal offences capturing money laundering were considered sufficient to ensure that lawyers were not mixed up in facilitating money laundering.
The potential infringement of legal privilege is a valid concern about the reporting regime, and one articulated on several occasions in the European courts and more recently, in Canada. It is essential for any reporting obligation on lawyers to be tightly framed so as to not unjustly interfere with the lawyer-client relationship. However, a blanket opposition to a reporting obligation based on a perceived lack of evidence that Australian lawyers are involved in money laundering is, at the least, curious.
After all, it surely cannot be presumed that the lack of data on the role of Australian lawyers in money laundering is because Australian lawyers do not play a role. Arguably, a reason for the data absence is that, until now, Australia has done little to strengthen its AML efforts since AML legislation was introduced in 2006, such as commission research into industries vulnerable to exploitation by money launderers. With a weakening natural resources sector and slowing global economy, the priority has instead been to stimulate growth, support the professional sectors and encourage foreign and corporate investment. Accordingly, there has long been a tension between the Australian government’s ‘open for business’ approach and the international expectation that it will strengthen its AML efforts.
The Australian Institute of Criminology estimates that $4.5 billion is laundered through Australia each year. Certainly, much of this money flows into Australia in the form of high-value residential and commercial property development as well as commercial acquisitions. In the Asia/Pacific region, Australia is a financial and legal hub. Sydney skyscrapers house global banks and law firms and in 2015, Australia was second only to China in terms of Asia/Pacific market share of transactional legal work. To not recognise that Australian lawyers risk unwitting involvement in the laundering of illicit proceeds, whether from tax evasion, corruption or other forms of criminal activity taking place in Australia or relatively nearby in Indonesia or Thailand, seems far-fetched.
On the contrary, Australian lawyers, alongside other select professions, are gatekeepers to money laundering in the Asia/Pacific because their professional skills are required to effect transactions and develop complex trust and corporate structures. Doing business down under is therefore only more attractive to the money launderer because it has an advanced financial and legal infrastructure yet its lawyers are not subject to the rigorous AML obligations imposed in the northern hemisphere. A wrinkle might only arise if an Australian lawyer happened to also be qualified in the UK or elsewhere in the EU. Whilst there is a strong argument that she would still have to abide by the reporting regime in force in her alternative jurisdiction, the inconsistent requirements means it is uncertain.
Accordingly, until the AML reporting regime in Australia is expanded, it is questionable whether Australia really is an international team player in the fight against money laundering. Whilst the recently released Project Plan heralds a new approach, effecting change will take considerable time. In the meantime, a significant gap in Australia’s AML armoury will persist and the gate will remain open to those wishing to launder their money through Australian channels.