Update on Professional Services SMEs & Money Laundering

In a recent joint address, the Federal Attorney-General Mark Dreyfus and AUSTRAC CEO Brendan Thomas highlighted the pressing need to reform Australia’s AML laws.  AUSTRAC is the Australian Transaction Reports and Analysis Centre, a government agency.

Dreyfus and Thomas presented findings from new national risk assessments. It shows significant vulnerabilities in the country’s defences against money laundering and terrorism financing.

The global Financial Action Taskforce (FATF) report also flagged Australia’s low compliance score, stressing the urgency for reforms. It gauges the score based on 18 recommendations. The most recent rating from March shows 12 were largely compliant, six partially, and four non-compliant.

Vulnerabilities in the Professional Services Sector

Professional services, including legal practitioners, accountants, consultants, financial advisers, and real estate professionals, often considered gatekeepers, unwittingly facilitating money laundering.

Here’s how professional services firms like yours can be exploited:

• Legal Services: Lawyers may be used to create complex legal structures and transactions that hide the true ownership of assets or obscure the source of funds.
• Accounting and Auditing Services: Accountants can help create false financial statements, overvalue assets, or underreport income to disguise illicit funds. They can also assist in setting up shell companies or offshore accounts.
• Real Estate: Real estate agents can be involved in buying and selling properties at manipulated prices to clean dirty money.
• Corporate Services: Such providers can help set up shell companies, trusts, and other legal entities that can be used to launder money by obscuring the identity of the true owners.
• Consultancy Services: Consultants might be used to provide advice on how to circumvent laws and regulations, create fraudulent documentation, or facilitate transactions that help launder money.

These moves make it difficult to trace the origin of illicit funds.

Impact and Consequences

Inadequate AML regulations can lead to severe ramifications, such as higher criminal activity and savaging Australia’s international reputation.

Money laundering poses a significant threat to businesses and the economy at large, including:

• Economic instability due to the more unpredictable business environment, which legitimate businesses find it more difficult to operate and plan
• Unfair competition for honest companies, potentially driving them out of the market
• Undermining trust and integrity in the financial system as a whole
• Los of government control, which impacts economic planning and development
• International reputation damage, turning off potential foreign investment and economic opportunities, and
• Facilitates criminal activity, supporting the notion of ‘crime pays’. This could build into a cycle to destabilise societies and economies.

Proposed Reforms and Solutions

The proposed Tranche II AML reforms aim to bring professional services providers under the same regulatory umbrella as financial institutions. This move allocates funding for their implementation and ensures ongoing education and awareness for professionals in the sector.

By staying informed and taking part in training, professionals can better protect themselves and their businesses from being used for money laundering.

Keep an eye on legislative updates and make sure you’re compliant with the latest AML requirements to protect your business and its reputation. As your broker or adviser, we’ll do our best to keep you in the loop, too.