AUSTRAC CEO Brendan Thomas - Speaking notes at ACAMS Conference, The Assembly Australasia

Thank you very much, Kieran and thank you Nick for your opening remarks. Good morning, ladies and gentlemen. As Kieran said, I'm a Wiradjuri man and in the Wiradjuri language we say "marang ngarin - good morning”. Good morning, everyone. 

And a particular good morning to all the AUSTRACers that are here this morning. I can see a lot of very friendly, very knowledgeable AUSTRAC faces in the audience. Welcome this morning.

As Kieran said, I've come to the role of AUSTRAC CEO at a momentous time for AML/CTF regulation, and for professionals like you here today.

As you're well aware, effective AML/CTF regulation has real life implications, preventing serious crime, protecting the integrity of our financial system, and safeguarding our communities from the devastating effects of money laundering and terrorism financing.

Australia is one of the few remaining countries to act on regulating professional service providers, including lawyers, accountants and real estate agents. 

As Kieran said, the government has now undertaken a second round of consultation, the so-called Tranche 2 reforms, to address this. 

The consultations are also looking at simplifying and modernising the current AML/CTF Act. This Act was passed in 2006 and ACAMS Australasian chapter was established in 2007. So, between us we have close to two decades worth of experience of implementing this current legislation. And in that time we've learned a few lessons about how we can more effectively achieve our goal of combating financial crime, while also reducing the impacts on legitimate businesses. 

These lessons have formed the basis of the consultation and for the proposed legislative reforms.

While the reforms play a vital role in improving the regime and further protecting our community, we cannot overlook the significance of our efforts in combating money laundering, terrorism financing and other serious financial crime. Preventing these illicit activities lies at the heart of the daily responsibilities of many of you in this room - a commitment shared by my colleagues at AUSTRAC, our partner agencies and of course by myself.

Since commencing in this role in January, I've engaged in discussions with many regulatory and industry partners. While there's still much to do, I've been impressed with their active commitment to managing financial crime risks and in particular, the need to understand and mitigate money laundering and terrorism financing risks.

I've already seen the valuable impact of AUSTRAC’s financial data and intelligence analysis in supporting law enforcement and our national security operations.

This support is essential in addressing a range of serious threats and other unspeakable crimes, including child sexual exploitation, drug trafficking, fraud against the NDIS and our ability to maintain the integrity of our electoral system.

Our work with both domestic and international partners focuses on detecting these threats and providing our law enforcement and national security partners with a comprehensive threat picture.

Equally important is using this information to shape our regulatory approach and educating our reporting entities about the risks they need to be vigilant against.

This reinforces the fundamental principle of Australia's AML/CTF regime - that is, the role of industry as the front line of defence in mitigating these risks. 

Today, my objective is to remind you all of the need to take heed of these risks and the threats that we do face and to take a risk-based and risk-informed approach to AML/CTF.

I want to speak more about how AUSTRAC takes that risk-based approach and more importantly, how our insights and our advice should inform you and your business in identifying and managing your own risks.

Briefly, this morning I'll touch on our national risk assessments, which we'll be launching next month, our regulatory priorities, and a little about those legislative reforms.

Our risk assessment capability at AUSTRAC is vital for identifying the key areas of focus for our regulatory efforts and for our intelligence priorities. It is also one of the key ways we can offer valuable and comprehensive insights into risks for business and our government partners. 

Recently, we've developed several national risk assessments that provide a strategic overview of the threats and vulnerabilities associated with money laundering, proliferation financing, and terrorism financing in Australia.

These risk assessments will guide the efforts of various law enforcement, regulatory, investigative and policy agencies to combat money laundering and other related crimes.

These assessments are also intended to:

  • Provide financial institutions and other industry sectors with guidance on the scale and impact of the risks that your businesses face;
  • Inform the development of your own risk assessments and transaction monitoring programs; and
  • Offer the latest insights needed to help protect your business against exploitation by serious and organised criminals.

We'll use the insights from these risk assessments to set the agenda for our public-private partnership with Fintel Alliance using a comprehensive threat analysis that is informed and clearly understood by industry and government partners.

Furthermore, the Financial Action Task Force, as the global standard-setting body, will closely consider how our risks are understood by government and business across the entirety of the Australian community.

And while I look forward to publicly releasing those risk assessments in July, let me share a couple of the findings with you here today.

The terrorism financing national risk assessment recognises terrorism remains a continuing and pervasive threat.

Australia's domestic terrorism financing environment is though small scale and of low value. 

In terms of funding terrorist activities, traditional methods such as retail banking products, remittance services and cash exchanges continue to be the preferred methods of moving illicit funds.

The money laundering national risk assessment found that despite sustained focus and effort across Australia's public and private sectors, money laundering remains an intractable issue.

The challenges in disrupting money laundering are not unique to Australia. 

Lawful domestic financial channels remain fundamentally important pathways for money launderers to place, layer and integrate funds domestically and internationally.

Our assessments confirm that criminals continue to use traditional channels such as cash, the purchase and exchange of luxury goods, in particular, real estate in Australia, domestic banks, casinos and remitters to launder funds in Australia. In our mind, this confirms the international experience of the risks associated with those Tranche 2 sectors.

Opaque legal structures can be created in Australia and used by criminals to help conceal their identity and their illicit activity. 

These structures can limit or obscure visibility of the ultimate beneficial owners of corporate entities, assets and financial infrastructure, and they create significant money laundering vulnerability for Australian authorities and for our industry.

The use of intermediaries to establish or operate corporate and financial infrastructure exacerbates this risk. 

Financial institutions that have been linked to significant money laundering activity have suffered significant reputational and economic damage, and it's in all of our best interests to mitigate those risks.

Australia's global reputation as a robust, stable economy makes us an attractive destination for foreign proceeds of crime.

For example, asset classes that attract high volume of international investments, such as real estate, are also highly desirable as a means to transfer and store wealth from illegitimate sources. 

Money laundering enables criminals to fund illicit activities like drugs and weapons trafficking, allows criminal organisations to grow and expand. Both outcomes increase the potential to endanger Australians, facilitating high-harm crimes such as human trafficking and people smuggling.

And although we assess the overall consequences of terrorism financing in Australia as low to moderate, when financing does lead to direct terrorist attacks the levels of impact and harm are visible and almost always extreme.

As I said, these assessments inform AUSTRAC’s risk-based approach, just as they should inform your own practices. 

In articulating our regulatory priorities in areas for focus publicly for the first time, we've had these findings in mind. In terms of our regulatory efforts, we've intended to hold a continued focus on four enduring priorities:

  1. Managing money laundering and terrorism financing risk and ensuring entities understand the nature of that risk;
  2. Enabling high quality reporting from our industry partners;
  3. Ensuring reporting entities have effective AML/CTF programs; and 
  4. Focusing our regulatory efforts on what we consider to be high risk sectors. That is, the enduring high-risk sectors: banking, gambling and remittance sectors.

Informed by our analysis, this year we have also been focusing on particular sectors, being digital currency exchanges, payment platforms, bullion dealers, corporate bookmakers and the non-bank lending sectors.

These priority areas are driven by the rapid and significant growth we're seeing in these sectors, concerns about AML compliance and significant variation in compliance levels between reporting entities in these sectors, and our intelligence arm’s concerns and concerns expressed by our law enforcement partners. This doesn't mean that AUSTRAC won't be looking at sectors outside that scope.

We’ll continue to use a variety of tools and concentrate our efforts on those areas where we have identified serious and recurring issues. 

I'll now touch briefly on a couple of those areas.

One of the first areas we're looking at is strong and highly visible commitments from boards and senior management to robust and effective AML/CTF compliance frameworks.

For example, through our recent supervision and enforcement work, a key failure that we've observed is when boards take a ‘tick and flick’ approach their own responsibilities and aren't asking their senior executives employee questions.

The boards must recognise the important role they have to play in ensuring the business is hardened against criminal misuse by taking ownership and challenging their executives.

Another focus area is effective risk escalation frameworks, assurance processes and adequate resourcing.

We've observed failures in business that result in ineffective management of high-risk customers, products and services.

Businesses should be taking a positive productive approach to their risk. In examples of good practices, businesses clearly document and understand their money laundering and terrorism financing risk and their ability to identify, mitigate and manage that risk. 

I want to stress that assurance is also critical. One of AUSTRAC’s most high-profile enforcement actions, and one that resulted in a billion dollar fine, came about in part due to inappropriate end to end assurance and reconciliation processes.

Transaction monitoring will also remain a key focus of AUSTRAC’s supervisory function across 2024 and remains an area that many businesses just aren't getting right just yet.

AUSTRAC has observed many instances of business having a set and forget transaction monitoring program, while criminals are constantly adapting their behaviours and methodologies. Without tailored transaction monitoring programs, capable of detecting contemporaneous risk, the business will be exposed to the risk of criminal exploitation.

And where we see robust transaction monitoring, it's evident that these businesses know, understand and document their risks and are able to detect what distinguishes regular behaviour from suspicious behaviour.

For smaller businesses. I’d also state it's important that if you are looking to purchase and adopt ‘off the shelf’ type AML/CTF programs, it's crucial that you make sure this program is appropriately tailored to your business and to your specific money laundering and terrorism financing risks. This will be a key focus for AUSTRAC’s supervision over the coming period.

You can outsource parts of your program, but you cannot outsource legal liability.

Reporting entities need to be vigilant for evolving risks and trends, and we issue guidance and provide education on emerging crime types and it's vital that your businesses are reviewing these and adapting your monitoring systems as needed.

As I mentioned earlier, the need to respond to the vulnerabilities posed by certain high-risk professional services is now more critical than ever. 

Experience globally continues to demonstrate that significant risks posed by professional service providers who can facilitate money laundering through criminals exploiting their legitimate professional activities. In Australia's case, this is a particular vulnerability given these, professional service providers are not covered by our legislative framework.

Regulatory gaps create risks of displacement.

The recent consultation process, therefore, is timely. It aims to address these vulnerabilities and implement Australia's international commitments as a founding member of the Financial Action Task Force.

Failure to address the vulnerabilities in our regime could also cause increasing reputational damage for Australia, not the least being economic harm and increasing attractiveness as a destination to launder illicit funds.

I think most of the AML/CTF professionals in this room today would appreciate the current legislation and rules are complicated. The current reforms are also an opportunity to make use of the lessons learned over the last 18 years of implementing our current Act. They allow us to focus businesses’, and AUSTRAC’s, attention even more so on combating those risks.

Government will rely heavily on industry feedback to calibrate the proposed measures and ensure that there is an appropriate balance between regulatory burden and reducing harm to the community through money laundering and terrorism financing. 

At AUSTRAC, we're working closely with the Attorney General's Department, which is currently reviewing that industry feedback, to refine the proposed reform measures and ensure that they continue to protect the community and support legitimate businesses for the foreseeable future.

But the reality is we can't do this with our industry and without business help.

We simply can't get this intelligence without your knowledge of your customers and your clients. You know them. You know what transactions look normal and what don't, and as such are the first ones to spot something suspicious. You are the canary in the coal mine for all of us.

However, without these proposed changes and constantly looking and asking questions about what we can do to improve the system, we are effectively turning a blind eye to indicators of potential criminal activity. And this means that criminals continue to win.

The value of financial intelligence and protecting the Australian community cannot be understated, and everything you and your colleagues bring to the table here and through your reporting is a vital part of this system.

At its core, the AML/CTF regime is a partnership between government authorities and industry.

This legislative change will ensure these industries will now have to look, and as the saying goes – look and you will find.

Thank you for your time this morning. I hope you enjoy your conference.