Money laundering reform to ‘raise stakes’ for accounting firms

Reforms to the anti-money laundering regime will require businesses to be more active in deterring, detecting and reporting contraventions, says Grant Thornton, and put accountants in the front line. 

The changes proposed by Attorney-General Mark Dreyfus represent “a once-in-a-generation revision of Australia’s AML regime” which will bite in 2024, said partner Neil Jeans. 

“This will put pressure on already scare recourses and create additional regulatory non-compliance risk,” said Mr Jeans. 

Part 2 of the reform will extend the anti-money laundering and counter-terrorism financing (AML/CTF) regime to certain high-risk professions, known as tranche two entities, including lawyers, accountants, trust and company service providers and real estate agents, bringing Australia’s regime in line with global standards. 

Professionals in these industries who provide one or more designated services will be required to implement risk management programs, conduct client due diligence, and monitor client behaviour and transactions for suspicious activity.

Mr Jeans said businesses will need to come up to scratch in a relatively short time frame with the implementation of the reforms likely to be in 2024 or 2025. 

A wide range of services provided by accountants and bookkeepers are expected to be included as designated services under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act), based on the international standards and equivalent activity in other countries.

These activities include managing client funds, accounts, securities or other assets or engaging in a transaction on behalf of any person in relation to the buying, transferring, or selling of a business or any other legal arrangement.

It can also include engaging in a transaction on behalf of a customer in relation to creating, operating, and managing a legal person and any other legal arrangement.

“The services offered by accountants and bookkeepers are vulnerable to money laundering activities due to their link to financial transactions, such as money transfers and trust account deposits, as well as the establishment of legal entities to hold assets,” said Mr Jeans.

Some services provided by accountants and bookkeepers may be attractive to criminals seeking to avoid detection and may raise red flags when accessing the financial system, he added. 

“The services offered by accountants and bookkeepers may also have become more attractive to criminals over the past few years as the financial sector has implemented comprehensive AML/CTF measures,” he stated. 

Under the proposed reforms, accounting firms will be required to enrol with AUSTRAC if they provide one of the designated services.

“One of the most prominent changes will be the conduction of customer due diligence, reporting suspicious activities, and complying with recordkeeping requirements,” said outsourcing firm Momenta.

The consultation paper released last week outlines that tranche 2 entities will be required report to AUSTRAC all “suspicious matters”, cash transactions of $10,000 or more, all instructions for the transfer of value sent into or out of Australia and annual compliance reports.

Based on the current Financial Action Task Force recommendations for accounting professions, professional services firm Momenta said accountants will also be required conduct an AML/CTF risk assessment which includes firmwide operations and accompanies continual updates and reviews. 

Accounting professionals will also need to undertake ongoing customer due diligence to find out about the ultimate beneficial owner and other customer information that can help indicate red flags.

“Having adequate internal controls and systems will be vital for monitoring, identifying, reviewing, and reporting any surfacing risks,” said Momenta.

Mr Dreyfus said the reforms to the AML/CTF regime were critical for responding to the changing threat environment and evolving international standards.

“Significant regulatory gaps and vulnerabilities have made Australia an increasingly attractive destination for laundering illicit funds,” said Mr Dreyfus. 

“Left unaddressed, Australia’s financial system would remain vulnerable to criminal exploitation through the use of professional services, weakening the overall integrity of Australia’s AML/CTF regime. As the rest of the international community strengthens their regulation of these sectors, Australia would continue to fall further behind.”

The proposed reforms have already generated backlash from the real estate industry with the Real Estate Institute of Australia stating that the measures would increase regulation and cost, for very little community benefit. 

“Home buyers will have to go through additional identity checks and have their real estate transactions supervised by both the AFP and AUSTRAC to prove that they are not money launderers,” said REIA president Hayden Groves.

“This will increase affordability challenges for Australians by increasing transaction costs; we need less red tape, not more.”

Mr Groves said there was already a range of identity checks undertaken through the conveyancing and financing of real estate purchases.

“These should be utilised before imposing unnecessary costs on buyers, sellers and the agents that represent them,” he said.