Review of the AML/CTF Regime Issues Paper

28 February 2014

Promoting positive public policy outcomes in auditing and accounting in Australia

GPO Box 2464

Sydney NSW 2001

Issues Paper - AML/CTF Act Review Legislative Review and Mutual Evaluation Criminal Law and Law Enforcement Branch Attorney General’s Department

4 National Circuit

Barton ACT 2600

By email:

Dear Sir/Madam,

Re: Review of the AML/CTF Regime Issues Paper

Introduction

On behalf of the Anti-Money Laundering Tranche 2 Working Group (the AMLT2 Working Group) of the accounting profession's Australian Auditing and Accounting Public Policy Committee (APPC), we welcome the opportunity to respond to the Government’s December

2013 Issues Paper regarding the Review of the AML/CTF Regime (the Issues Paper).

The APPC is an initiative of the professional accounting bodies and the large professional services firms, which was established in 2009 to be a key policy vehicle for the Australian accounting profession. The AMLT2 Working Group is a working group of the APPC, which includes representatives from BDO, CPA Australia, Deloitte, EY, Grant Thornton, KPMG, PricewaterhouseCoopers and the Institute of Chartered Accountants Australia.

Background

The APPC acknowledges that Australia has established an AML/CTF regime that has been developed in response to recommendations by the Financial Action Taskforce (FATF), to support global efforts to combat money laundering and terrorism financing (ML/TF) activities, which are often transnational in scope and nature. We also acknowledge the need for Australia to keep pace with international trends and developments in this regard.

We also note that an international evaluation of Australia’s AML/CTF regime is to be conducted in 2014 by FATF and that this ‘mutual evaluation’ review is expected to provide valuable information to assist the Government in its current review of Australia’s existing AML/CTF regime.

Focus of this submission

The AMLT2 working group wishes to focus its comments on the Issues Paper on the potential extended operation of the AML/CTF regime to those businesses originally envisaged to be covered by the so-called second tranche of the AML/CTF reforms, including lawyers, accountants, real estate agents, trust and company service providers, and high

value dealers. Collectively, FATF defines these businesses as designated non-financial businesses and professions (DNFBPs).

The AMLT2 group fully supports the objectives of the Australia’s AML/CTF regime. Accordingly, in principle we also support extension of the regime to DNFBPs as envisaged under the FATF recommendations to address:

· any demonstrated shortcomings or failings in Australia’s current regime that are actual or high risk ML/TF threats; or

· clear shortcomings in Australia’s regulation of DNFBPs vis our international counterparts.

Our in-principle support for extension of the AML/CTF regime to DNFBPs is contingent on there being genuine and thorough consultation with stakeholders on this subject, on appropriate and reasonable transitional timetables being agreed, and on the proposals for extending the regime being effective, practical and cost-effective.

Specific comments

In relation to whether there are any demonstrated shortcomings or failings in Australia’s current AML/CTF regime that pose actual or high risk ML/TF threats, clearly the accounting profession is not privy to such security matters. However, we trust that should Australia’s relevant security authorities be aware of current or high risk ML/TF threats arising from current DNFBP activities, appropriate risk-based intervention measures would be utilised, with prior consultation undertaken with relevant professional bodies and stakeholders to determine the optimum intervention measures.

In relation to the second point above, whether there are clear shortcomings in Australia’s regulation of DNFBPs vis our international counterparts, the Issues Paper notes that “Extension of the regime [i.e. Australia’s AML/CTF regime] to these sectors [i.e. DNFBPs] would bring Australia into line with international standards and help to address recognised ML/TF risks affecting these sectors”.

In this context we note that the 2005 FATF mutual assessment of Australia’s AML/CFT regime noted numerous shortcomings between Australia’s regime and the FATF recommendations with respect to DNFBPs, largely due to the fact that our DNFBPs are largely not subject to the AML/CTF regime (with some exceptions, and with some Customer Due Diligence matters potentially being addressed by pending reforms in this context to the Australian regime).

With that said, it is not clear that Australia is out of step with regard to DNFBP regulation vis our international counterparts. We refer specifically to the OECD’s 2013 report “Measuring OECD Responses to Illicit Financial Flows from Developing Countries”. This report suggests that relative to other FATF recommendations, those pertaining to DNFBPs have had slower take-up and acceptance internationally.

Recommendations

With these matters in mind, the AMLT2 Working Group would recommend that Australia await the outcome of the upcoming 2014 FATF Mutual Review before committing to either a timetable or a specific course of action for extending the AML/CTF regime to DNFBPs, including accountants.

In relation to accounting professionals specifically, we would recommend that extension of the AML/CTF regime to accountants generally be further deferred for reasons of regulatory burden on the profession, including recent introduction of significant changes resulting from

the FoFA (Future of Financial Advice) reforms and in consideration of prospective changes that could potentially flow from the implementation of recommendations from the Financial System Inquiry (final report expected to the delivered to the Government in November 2014).

We note that the Government is cognisant of the issue of regulatory burden on business generally and that measures to mitigate any additional burden on business caused by the extension of the AML/CTF regime to DNFBPs would be consistent with broader government objectives in this regard.

We would further recommend that prior to any decisions regarding extension of the AML/CTF regime to accountants generally as DNFBPs, discussions are held with the accountancy profession to investigate the availability of cost effective regulatory measures. The accountancy profession is one of the most highly regulated professions in Australia, with established and highly regarded regulatory and co-regulatory regimes administered by bodies such as ASIC, the ATO, the Tax Practitioners Board, the Accounting Professional

and Ethical Standards Board (APESB), and the accounting professional bodies. As one

potential example, investigation of how a low cost route to compliance might be achieved through the introduction of appropriate professional standards and/or professional guidance ought to be considered. There would also be merit in investigating such mechanisms as an interim step with a view to a staged approach towards full implementation (if full implementation is still considered appropriate) of the FATF recommendations re: DNFBPs.

As a final comment, whilst noting that the current review is specifically not to consider the cost-recovery mechanisms that currently apply under the AML/CTF regime, the AMLT2

Working Group does not consider the current mechanism to be appropriate if the regime is to be extended to DNFBPs. Any additional costs borne by regulators ought to be met under general consolidated revenue, not by a levy on regulated DNFBP businesses.

Of course, the need for cost-recovery mechanisms on the part of regulators would be greatly reduced should extension of the AML/CTF regime to DNFBPs be achieved through appropriate self-regulatory mechanisms, particularly with regard to professions such as the accountancy profession that have successfully demonstrated their capacity in this area.

Concluding comments

The APPC, through its AMLT2 Working Group, looks forward to the opportunity of working with the Government, AUSTRAC and the Attorney General’s Department on these matters going forward.

Yours sincerely,

Rob Walsh

Chairman, Anti-Money Laundering Tranche 2 Working Group

APPC

(p) 02 9248 4861 (e)