The Financial Action Task Force (FATF) conducted a mutual evaluation of Australia's Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) regime against its own 40+9 recommendations and special recommendations in 2005. In its assessment, the FATF concludes that Australia is fully compliant with 12, largely complaint with 15, partially compliant with 13, and non-compliant with 9 recommendations and special recommendations. The report observes that although Australia's legal framework for AML/CFT is comprehensive, its effective implementation needs enhancement. More specifically, the report identifies several shortcomings in the preventive measures currently in place in Australia's financial institutions, the most significant of them being non-compliance with FATF requirements on customer due diligence (CDD). Further, Australia is non compliant with most FATF recommendations relating to Designated non-Financial Business and Professions (DNFBPs). However, according to the FATF's mutual evaluation and a 2008 report by the U.S Department of State (DoS), the Australian authorities are aware of these shortcomings and are committed to remedying them. The 2008 DoS report also points to the Australian authorities' intent in implementing the revised FATF 40+9 recommendations and thus bringing the country's AML/CFT regime in line with international standards. The report notes that Australia introduced the Anti-Money Laundering and Counter-Terrorism Financing Act in 2006 as part of a legislative package that implements reforms in the regulatory regime over a period of two-years concluding in December 2008. Some of the weaknesses with regard to CDD and DNFBPs pointed out by the FATF are being addressed by the new reforms.

General Overview

The Financial Action Task Force (FATF) conducted a mutual evaluation assessing Australia's anti-money laundering (AML) and combating the financing of terrorism (CFT) regime against the FATF's 40+9 recommendations and special recommendations (SR). The findings of this mutual evaluation were released in a 2005 FATF report (hereafter referred to as the 2005 FATF report or the FATF mutual evaluation). According to this report, in general, Australia's legal regime to combat money laundering and terrorist financing is comprehensive and the system for freezing terrorist-related funds and confiscation is effective. Nonetheless, the FATF still finds some serious shortcomings in Australia's AML/CFT regime and notes that although Australia has a comprehensive money laundering offense, there is a lack of effective implementation of AML/CFT measures in the country. According to the 2005 FATF report "the key issue in terms of effective implementation of the money laundering offense is the low number of money laundering prosecutions at the Commonwealth level (ten dealt with summarily and three on indictment since 2003, with five convictions), indicating that the regime is not being effectively implemented" (p. 6)

The report identifies several shortcomings in the preventive measures currently in place in Australia's financial institutions, the most serious of them being non-compliance with FATF requirements on customer due diligence (CDD). Also, the report assesses Australia as being generally non-compliant with regard to preventive measures in Designated non-Financial Business and Professions (DNFBPs). However, according to the 2008 U.S Department of State (DoS) report, Australia introduced the Anti-Money Laundering and Counter-Terrorism Financing Act (AML/CFT Act) in 2006 as part of a legislative package that implements reforms in the regulatory regime over a period of two-years concluding in December 2008. During the first phase of reforms the Act introduced a number of obligations on entities that provide designated services, including CDD, reporting obligations, record keeping obligations, and the requirement to establish and maintain an AML/CFT program. Other than the financial sector, the new Act also covers DNFBPs such as the gambling sector, bullion dealers and any other professionals or businesses that provide particular 'designated services'. In 2007, the Australian government embarked upon the second tranche of reforms extending regulatory obligations to services provided by real estate agents, dealers in precious stones and metals, and specified legal, accounting, trust and company services. The AML/CFT Act will gradually replace the Financial Transactions Reports Act of 1988 which at the time of the FATF assessment covered CDD and other AML requirements for financial and the non financial sector. The FATF mutual evaluation observed that Australia is compliant with 12, largely complaint with 15, partially compliant with 13, and non-compliant with 9 recommendations and special recommendations.

Money laundering in Australia is criminalized pursuant to Division (revised) 400 of the Criminal Code Act of 1995, which came into effect in January 2003. However, as explained in the 2005 FATF report, Australia generally pursues money laundering under the Proceeds of Crime Act (POCA) of 2002. The FATF points out that the low number of money laundering prosecutions indicates the lack of effective implementation of the AML regime. Although POCA provides for conviction and civil-based forfeiture of proceeds, the amounts forfeited at the commonwealth level seemed low, the FATF notes. The Suppression of the Financing of Terrorism Act (SoFTA) of 2002 amended a number of Acts to implement Australia's obligations under the UN Suppression of the Financing of Terrorism Conventions and relevant UN Security Council Resolutions. The report notes that as amended, the Criminal Code Act of 1995 now contains several offenses related to the financing of terrorism, however, "while broadly satisfactory, this offense does not specifically cover the collection of funds for a terrorist organization or provision/collection of funds for an individual terrorist" (p. 6). At the time of the assessment, there had also not been any financing of terrorism-related prosecutions. However, the 2008 U.S. DoS report indicates that the Anti-Terrorism Act of 2005 was implemented in December 2006 which amends offenses related to the funding of a terrorist organization in the Criminal Code so that they also cover collection of funds for or on behalf of a terrorist organization. This Act also inserted a new offense of financing a terrorist.

The Australian Transactions Reports Analysis Center (AUSTRAC) is the Financial Intelligence Unit (FIU) and was established in 1989 as an independent authority within the Attorney General's office. It plays a dual role of an FIU and an AML/CFT regulator with supervisory, monitoring and enforcement functions over a wide range of business sectors. The FATF notes that the AUSTRAC is an effective FIU and has been an active member of the Egmont Group since 1995. AUSTRAC collects, analyzes and disseminates financial transaction reports (FTRs). It also issues guidelines to regulated entities regarding their obligations under the law enforcement agencies, and issues guidelines to regulated entities regarding their obligations under the Financial Transaction Reports (FTR) Act, AML/CFT Act, and other regulations. The 2008 U.S. DoS report notes that the AML/CFT Act gives AUSTRAC "a wide range of enhanced enforcement powers to complement the criminal sanctions that were available under the FTR Act." Therefore, AUSTRAC has a civil penalty framework and other intermediate sanctions, such as enforceable undertakings, remedial directions and external audits for noncompliance. According to the 2008 U.S. DoS report, in 2006-2007, AUSTRAC received 15,740,744 financial transaction reports and 24,440 suspicious transaction reports (STRs). Other law enforcement agencies tasked with supervising and implementing AML/CFT measures in Australia include the Australian Federal Police (AFP), Australian Customs Service (ACS) and the Australian Crime Commission (ACC). According to the DoS, the AFP is the main agency tasked with the investigation of money laundering and terrorist financing offenses in Australia.

According to the 2008 U.S. DoS report, Australia is a party to the 1988 UN Drug Convention, the UN Convention for the Suppression of the Financing of Terrorism, and the UN Convention against Transnational Organized Crime and its protocol on migrant smuggling. Furthermore, in September 1999, a Mutual Legal Assistance Treaty between Australia and the United States entered into force and Australia also participates in the initiatives undertaken by the FATF, the Pacific Islands Forum, and the Commonwealth Secretariat. Through its funding and hosting of the Secretariat of the Asia/Pacific Group on Money Laundering (APG), of which it serves as permanent co-chair, the government of Australia has helped prioritize issues concerning money laundering and terrorist financing among countries in the Asia/Pacific region. As mentioned earlier, AUSTRAC is an active member of the Egmont Group of Financial Intelligence Units (FIUs). AUSTRAC has signed Exchange Instruments, mostly in the form of Memoranda of Understanding (MoUs) allowing the exchange of financial intelligence, with the U.S. Financial Crimes Enforcement Network (FinCEN) and the FIUs of 48 other countries.

The Principles

1. Legal Systems and Related Institutional Measures

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The 2005 FATF report finds Australia "largely compliant" with Recommendation (R) 1 and R 2, regarding the money laundering offense and mental element and corporate liability. The report observes that Australia has a comprehensive money laundering offense which is criminalized under the revised Division 400 of the Criminal Code Act 1995, effective January 2003. Australia pursues money laundering via proceeds of crime action under the 2002 POCA . A less than (full) compliant rating is assigned to Australia for R1 because of the low number of money laundering prosecutions indicating that the regime is not being effectively implemented. Similarly, concerning R 2, the FATF finds that although the regime for sanctions is comprehensive the implementation is not effective.

As the 2005 FATF report indicates, Australia is "largely compliant" with Special Recommendation (SR) II on the criminalization of terrorist financing. In general, the FATF finds the range of offenses to be broad; however, certain requirements under this recommendation are not covered by the 2002 SoFTA. For instance, collection of funds for a terrorist organization and the collection or provision of funds for an individual terrorist are not covered. With regard to R 3 on confiscation and provisional measures, the FATF finds Australia "compliant" and in terms of SR III on the freezing and confiscation of terrorist assets, Australia is rated as "largely compliant" by the FATF report. Just as is the case with SR II, the report finds that Australian law does not explicitly cover all the requirements stipulated by the FATF for SR III.

In terms of its FIU and its functions, the 2005 FATF report classified Australia as "compliant" on R 26; "largely compliant" on R 30 about resources, integrity and training; and R 32 on statistics keeping. The evaluation attributes the R 30 assessment to the limited number of supervisory and compliance staff and the assessment finds that the AUSTRAC requires additional resources in order to effectively fulfill its roles as AML/CFT regulator under the revised FATF standards. Furthermore, the FATF also finds that the enhancement of supervisory skills and training pertaining to the conduct of on-site inspections and enforcement related activities is also required. The R 32 rating, according to the 2005 FATF report, is justified due to the following reasons: (1) lack of clarity on whether the reviews initiated by the Australian government have resulted in any specific action or not; (2) lack of State/territory statistics on prosecutions and convictions for money laundering; (3) lack of clear statistics on ML/FT investigations; and (4) inadequate statistics on ML/FT investigations at the State/territory level.

The FATF's mutual evaluation observes that Australia is "largely compliant" with R 27 on law enforcement authorities and "compliant" with R 28 on the powers of competent authorities. On R 27, the FATF finds the legal measures comprehensive but not fully effective since investigators do not investigate and refer money laundering as a separate charge at either the Commonwealth or State level. As noted by the FATF's mutual evaluation, Australia is "partially compliant" with SR IX on cross border declaration and disclosure since there is no system for declaration/disclosure of bearer negotiable instruments.

2. Preventive Measures - Financial Institutions

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According to the 2005 FATF report, Australia's preventive measures in terms of financial institutions is based on the FTR Act of 1998 and is lacking when assessed against the revised FATF recommendations. The report states that "Australia's legislative framework does not distinguish between financial institutions or specify AML/CFT obligations for financial institutions on the basis of risk" (p. 7). The FATF, however, notes that the Australian authorities are aware of these shortcomings and (at the time of the assessment) were drafting legislation to rectify these deficiencies and comply with the revised FATF recommendations. Similarly, the 2008 U.S. DoS report also observes that most of the shortcomings are being addressed by the Australian government with the passage of the Anti-Money Laundering and Counter-Terrorism Financing Act in December 2006. This Act is, however, being implemented in tranches and is expected to eventually replace the FTR Act.

The 2005 FATF report finds Australia "non-compliant" with R 5 relating to customer due diligence, R 6 concerning politically exposed persons, R 7 on correspondent banking, and R 8 on new technologies and non face-to-face business. The evaluation attributes its "non-compliant" rating for R 5 to numerous failings including the limited scope of CDD obligations on cash dealers, which does not cover the full range of financial institutions. Also, there is a complex and indirect obligation to identify and verify customer identity on opening an account, and certain loans are excluded from customer identification requirements. In general, the FATF finds customer identification/verification during account opening, cash transactions and other non-cash transactions to be inadequate. According to the 2008 U.S. DoS report the 2006 AML/CFT Act is expected to deal with the shortcomings in Australia's CDD requirements. Regarding its R 6 assessment, the 2005 mutual evaluation finds Australia had no specific legislative or enforceable requirements addressing the identification and verification of politically exposed persons (PEPs). Similarly, in explaining its R 7 rating, the FATF cited Australia's lack of legislative and other enforceable obligations for financial institutions regarding correspondent banking. Non-compliance with R 8 is attributed to similar reasons as no effective CDD procedures for non-face to face customers exist.

According to the 2005 FATF report, Australia is "non-compliant" with R 9 regarding third parties and introducers. The evaluation found Australia to be "compliant" with R 4 regarding financial institution secrecy or confidentiality. The FATF's mutual evaluation assessed Australia "partially compliant" with R 10 on record keeping and "non-compliant" with SR-VII on wire transfer rules. The 2005 FATF report notes that Australia is "partially compliant" with R 10 since the requirement on maintenance of records 7 years after the day the account closed or the transaction takes place is limited to "financial institutions - a smaller category of cash dealers - and in the context of accounts as defined in the FTR Act" (p. 147). The FTR Act does not mandate this requirement for securities or insurance entities, foreign exchange dealers, or money remitters. The report also observes that provisions on record keeping need clarification. Non-compliance with SR VII is attributed to a number of reasons ranging from lack of obligations to verify that the sender's information is accurate and meaningful or to require that the account number be included, to absence of measures to include the full originator information with wire transfer instructions.

The 2005 FATF report rates Australia "partially compliant" with R 11 relating to the monitoring of unusual transactions and "partially compliant" with R 21 pertaining to special attention for higher risk countries. The report rates Australia "largely compliant" with R 13 relating to suspicious transaction reporting and "compliant" with R 14 about protection and no tipping-off. The evaluation cited two main weaknesses regarding STRs: (1) limitation of "cash dealer" definition which does not apply to all financial institutions and (2) inadequacies in the scope of the terrorist financing offense and the consequent limitation on the reporting obligation. On R 19 regarding other forms of reporting, the mutual evaluation assesses Australia "compliant" and as "partially compliant" with R 25 on guidelines and feedback. While the FATF finds that the reporting and basic STR guidelines are adequate, issues relating to CDD and internal controls are not covered. In general, feedback on STRs is also observed to be poor. The evaluation assesses Australia as "largely compliant" with SR IV relating to suspicious transactions reporting, citing similar reasons listed for R 13 for the less than compliant rating.

The 2005 mutual evaluation finds Australia "non compliant" with R 15 relating to internal controls, compliance and audit. The main weaknesses cited include lack of obligations on financial institutions to have in place institutionalized AML/CFT internal controls, policies, an adequately resourced and independent audit function, ongoing employee training, and screening procedures. On R 22 addressing foreign branches and subsidiaries, Australia is rated "non-compliant" largely because local laws prohibit full implementation of the Australian standards due to local secrecy provisions. Also, there is no requirement for branches and subsidiaries in countries that do not adhere to FATF recommendations to observe this principle. With regards to R 18 pertaining to shell banks Australia is rated "partially compliant" by the FATF.

According to the 2005 FATF report, Australia is classified "partially compliant" with R 17 regarding sanctions and with R 23 relating to regulation, supervision and monitoring. The main factors underlying the R 17 rating include: (1) sanction for AUSTRAC are criminal sanctions and there is a lack of intermediate sanctions, (2) lack of clarity on APRA and ASIC powers on the application of sanctions, and (3) "AUSTRAC does not have corresponding powers to revoke the license of cash dealers or to disqualify persons from being a manager, director, or employee due to serious non-compliance with [the] FTR Act" (p. 148). Regarding R 23, the FATF notes that compliance gaps arise due to the lack of an effective AML/CFT supervisory system and the AUSTRAC's on-site supervision activities under the FTR Act. Furthermore, the FATF also finds that, at the time of the assessment the AUSTRAC had conducted only two compliance inspection audits of banks and remittance dealers, bureaux de change, lease financing companies, finance companies and issuers of travelers checks, be licensed or registered. On R 29 on supervisors, Australia is rated "partially compliant," since the FATF finds the FTR Act deficient in many areas. With regard to R 30 on resources, integrity and training and R 32 on Statistics, Australia is rated "largely compliant." On SR VI covering AML requirements for money/value transfer services, the 2005 mutual evaluation rates Australia "largely compliant."

3. Preventive Measures - Designated non-Financial Business and Professions

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As with financial institutions, DNFBPs also suffer from the same shortcomings in CDD and STR requirements and fail to comply with FATF recommendations on these issues. Similarly, as with financial institutions, per the 2008 U.S. DoS report, the 2006 AML/CFT Act is expected to gradually replace the 1998 FTR Act and thereby bring Australia in line with international. However, unlike financial institutions, there is no explicit statement of intent to comply by Australian authorities either in the FATF report or in the U.S. DoS report with the FATF's recommendations pertaining to this principle.

The 2005 FATF report finds Australia "non-compliant" with R 12 on CDD and record keeping obligations for DNFBPs. This rating was attributed to the fact that Australia's CDD and record-keeping requirements (as set out in R 5, R 6, R 8, and R 11) are not sufficiently applicable to some DNFBPs. Also, there are no specific requirements for DNFBPs to pay attention to complex and unusual transactions. However, the 2008 U.S. DoS report notes that as part of its second tranche of AML/CFT reforms the Australian authorities "will extend regulatory obligations to designated services provided by real estate agents, dealers in precious stones and metals, and specified legal, accounting, trust and company services (lawyers and accountants were included in the first tranche, but only where they compete with the financial sector and not for general services)."

Concerning R 16 on STRs related to DNFBPs, Australia is assessed "non-compliant" by the 2005 FATF report since DNFBPs are not legally required to report suspicious transactions to AUSTRAC. Also, these entities are not required to develop internal policies, procedures, internal controls, ongoing employee training and compliance with AML/CFT. The FATF report observes that the FTR Act only includes criminal sanctions for non compliance and administrative sanctions are not available. Australia is "compliant" with R 20 concerning other Non-Financial Business and Professions (NFBP) and secure transaction techniques. On R 24 about DNFBP regulation, supervision, and monitoring, and R 25 on guidelines and feedback the 2005 mutual evaluation rates Australia "partially compliant." The evaluation attributed this R 24 rating to certain weaknesses in the AML/CFT requirements and the effectiveness of supervisory regime with regard to casinos. Furthermore, the assessment notes that certain DNFBPs are not covered by the FTR Act and also sanctions under the FTR do not extend to most DNFBPs. Similarly, with regard to R 25 AUSTRAC's Guidelines do not cover most DNFBPs, the FATF report notes.

4. Legal Person and Arrangements & Non-Profit Organizations

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The 2005 FATF report finds Australia "largely compliant" with R 33 on legal persons - beneficial owners. The FATF observes that the mechanism to provide timely and accurate information and beneficial ownership and control for the majority of Australia's legal persons can be improved. According to the report "Australia has a national system to record and make available useful information on the ownership and control of its corporations, which constitute the vast majority of legal persons in Australia, although there is no requirement to disclose beneficial ownership. Information on these companies is publicly available" (p. 11).

With regard to R 34 on legal arrangements, the FATF finds Australia "partially compliant" since overall mechanisms concerning information on beneficial information and control of certain legal arrangements are inadequate. "Tax information from certain trusts and law enforcement powers provide the means to access certain information on beneficial ownership and control of certain trusts. However, overall, these mechanisms to obtain and have access in a timely manner to beneficial ownership and control of legal arrangements... are not sufficient" (p. 11).

The 2005 FATF report rates Australia "partially compliant" on SR VIII on non-profit organizations (NPOs) since there is lack of clarity on whether Australia has implemented measures across the not for profit sector ensuring that terrorist organizations do not pose as non-profit organizations. According to the report "Australia has reviewed its non-profit organization sector and has taken some measures to ensure that these entities are not used to facilitate the financing of terrorism; however, the reviews have not resulted in the actual implementation of any additional measures" (p. 12). As such, the FATF report recommends that the Australian authorities consider reviewing more thoroughly the laws governing NPOs so as to ensure that terrorist organizations do not shield themselves under the cover of being NPOs.

5. National and International Co-operation

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According to the 2005 FATF report Australia is rated as "largely compliant" on R 31 and R 32 on national co-operation and coordination. With regard to R 31, the FATF finds that Australia needs to improve cooperation and coordination between AUSTRAC, ASIC and APRA and also recommended enhancing co-operation at the policy level. As for R 35 and SR 1 on the conventions and UN special resolutions, the FATF report finds Australia "largely compliant" since the country (at the time of the assessment) had not implemented the CFT convention. However, subsequently, according to the 2008 U.S. DoS report, Australia is a party to UN Convention for the Suppression of the Financing of Terrorism. Similarly, Australia is a party to the 1988 UN Drug Convention and the UN Convention against Transnational Organized Crime and its protocol on migrant smuggling.

Australia is compliant with the FATF's recommendations on mutual legal assistance (MLA, R 36), dual criminality (R 37), and R 38 on MLA on confiscation and freezing. The U.S. DoS explains that in September 1999, a MLA Treaty between Australia and the United States entered into force. According to the 2005 FATF report "Australia has a comprehensive system for providing mutual legal assistance and co-operating fully with other jurisdictions. The obligations for mutual assistance apply to terrorist financing and terrorist acts in the same way that they apply to other offenses and situations" (p. 12). Australia's mutual legal assistance mechanisms are set out in the Mutual Assistance in Criminal Matters Act of 1987

The FATF also finds Australia "compliant" with R 39 on extradition, and "largely compliant" with SR V on international cooperation. On SR V the report notes that Australian requirements do not specifically cover collection of funds for terrorist organizations or individual terrorists and owing to the dual criminality requirement, this could lead to the precluding of extradition for these acts. Australia is compliant with R 32 on statistics and R 40 on other forms of cooperation. Australia participates in the initiatives undertaken by the FATF, the Pacific Islands Forum, and the Commonwealth Secretariat. Through its funding and hosting of the Secretariat of the Asia/Pacific Group on Money Laundering (APG), of which it serves as permanent co-chair, the government of Australia has elevated money laundering and terrorist financing issues to a priority concern among countries in the Asia/Pacific region. AUSTRAC is an active member of the Egmont Group of Financial Intelligence Units (FIUs). AUSTRAC has signed Exchange Instruments, mostly in the form of Memoranda of Understanding (MoUs) allowing the exchange of financial intelligence, with FinCEN and the FIUs of 48 other countries.