All this dirty money is probably what kept banks going after the GFC with no thought
for what might happen if they who own it want it back...
Australia’s money laundering disgrace
at 8:53 am on January 22, 2016
http://www.macrobusiness.com.au/2016/01/australias-money-laundering-disgrace/
By Leith van Onselen
International pressure on Australia to tighten rules around money laundering is building once again. Under Australia’s existing anti-money laundering (AML) regime, financial institutions like banks, casinos and bullion dealers are required to report suspicious activity, whereas other gatekeepers including accountants, lawyers and real estate agents (among other non-financial businesses) are exempted.
This had led to the perverse situation whereby if somebody wants to set up an account to place a $100 bet at Sportsbet, or invest $1,000 into a managed fund, then they must provide sufficient identification under the AML Act. But if they want to launder millions of dollars through an Australian home, few questions are asked.
Last year, the Paris-based Financial Action Task Force (FATF) applied a blowtorch to Australia’s anti-money laundering (AML) regime, releasing a scathing report highlighting that Australian residential property is a haven for international money laundering, particularly from China, and recommending that Australia implement counter-measures to ensure that real estate agents, lawyers and accountants facilitating real estate transactions are captured by the regulatory net.
Today, FATF has voiced it strong disapproval once more, this time warning that the Chinese are also laundering money by snapping-up rare Australian diamonds. From Reuters:
Property has long been on Chinese buyers’ radar, but in recent months they have been snapping up Australia’s rare pink diamonds, part of an unprecedented capital outflow from China that is rattling Beijing.
The Paris-based Financial Action Task Force (FATF), which assesses the ability of countries to fight illicit financial flows, told Reuters a lack of scrutiny by Australian authorities in the property and precious stones sectors was “an increasing high risk” in the global fight against money laundering and financing of extremists. Australia’s Attorney General’s Department, responsible for the country’s law and justice framework, is reviewing its rules to address those concerns, people familiar with the plans said. The rules already cover banking, remittance and gaming. “The review is considering the potential extension to services that pose high money laundering and terrorism risks, including services provided by precious stone dealers, lawyers, accountants and real estate agents,” one of these people said. “The review report will recommend options for reform.” Under Australian regulations, foreigners can splurge millions in cash for precious stones or a prime property without having to identify themselves or the source of their funds.
I will remind readers that Australia agreed in 2003 to implement comprehensive AML regulations that captured accountants, lawyers, real estate agents and other non-financial businesses (including dealers in precious stones). However, the second tranche of the reform to the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 has remained in limbo for a decade, and has yet to be implemented by the government.
This willful neglect has posed particular issues for Australian property, with the Reuters article noting:
Australia is much more at risk from money laundering or cash smuggling in the property sector, experts say, with cash purchases rampant for most price ranges.
Among Chinese property buyers, about 70 percent pay in cash and fewer than a tenth use bank funding, said Simon Henry, co-CEO of juwai.com, the largest real estate portal that targets Chinese buyers looking abroad…
“I suspect they also use (underground banking). And I also suspect that a number of Chinese imports from Australia are over-valued, thus allowing excess payment to be made to fronts in Australia” [said John Cassara, a money laundering expert and former U.S. Treasury agent].
That the Australian Government allows money laundering to occur makes absolutely no sense, and is part of the reason why foreign funds have gushed into Australia’s property market, particularly in Melbourne and Sydney, helping to price-out young Australians and adding to financial stability risks:
As noted last year by Nathan Lynch, Head Regulatory Analyst for Australia & New Zealand at Thomson Reuters:
AUSTRAC’s surveillance efforts are… being frustrated by the fact that money launderers will often use unregulated entities as a “first point of contact” to help disguise their source of funds. If a criminal makes a suspicious cash deposit into a real estate agent or lawyer’s trust account, for example, the suspicious transaction is not required to be reported to AUSTRAC. Reporting entities, such as banks, are required to report transactions of this type within three business days of forming a suspicion. Lawyers are only required to report threshold transactions under the legacy Financial Transaction Reports Act 1988, not suspicious matters, while real estate agents have no reporting obligations.
Separately, Lynch noted that “politicians have been conspicuously evasive on their bipartisan commitment to follow through with a second tranche [of the AML legislation]… politicians are happy to turn a blind eye”. Enough is enough. It’s time to end ten years of neglect and bring Australia’s non-financial gatekeepers into the AML net, as was promised by the government in 2003 and intended when the legislation was first drafted in 2006. The politico-housing complex has protected criminals for long enough.