Anti-money laundering and counter-terrorism financing

Overview

The goal of most criminal acts is to generate a profit. To enjoy their ill-gotten gains, criminals commonly seek to disguise the illegal source of those profits.

The Australian Institute of Criminology (AIC) estimates that serious and organised crime cost the Australian community up to A$60.1 billion in 2020—21, with illicit financing at the centre of most crime types. It directly impacts the safety and wellbeing of Australian communities, and exploits and distorts legitimate markets and economic activity.

Money laundering is the process of dealing in, disguising or concealing the origin of illicit funds to make it appear that the funds come from a legitimate source.

Terrorism financing refers to the means and methods that terrorist organisations use to finance activities that pose a threat to national and international security. The money that enables terrorist organisations to carry out terrorist activities can come from both legitimate and criminal sources.

Proliferation financing occurs when a person makes available an asset, provides a financial service, or conducts a financial transaction that is intended to, in whole or in part, facilitate the proliferation of weapons of mass destruction, regardless of whether the activity occurs or is attempted.

Research the AIC conducted, in collaboration with the Australian Transaction Reports and Analysis Centre (AUSTRAC), has found that criminal groups involved in money laundering are responsible for more than twice as much crime-related harm as groups not involved in money laundering. The research estimates that every year a criminal group is able to launder funds increases the crime-related harm they cause to the community by 49%.

Australia has a strong regime to fight money laundering and terrorism financing. Our department is responsible for the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act).

The AML/CTF Act currently regulates financial, gambling, remittance, digital currency exchange providers and bullion sectors that provide designated services listed in the AML/CTF Act.

AUSTRAC is Australia's AML/CTF regulator and financial intelligence unit.

Reforms to Australia’s anti-money laundering and counter-terrorism financing regime

The Australian Government is committed to protecting the integrity of the Australian financial system and improving Australia's AML/CTF regime to ensure it is fit-for-purpose, responds to the evolving threat environment, and meets international standards set by the Financial Action Task Force (FATF), the global financial crime watchdog and standard-setter.

The AML/CTF regime is a central part of Australia’s efforts to prevent criminals from enjoying the profits of their illegal activity and stopping funds from falling into the hands of terrorist organisations.

On 11 September 2024, the Attorney-General introduced the Anti-Money Laundering and Counter-Terrorism Financing Amendment Bill 2024 into the Parliament. The Bill has 3 key objectives:

• Expand the AML/CTF regime to additional high-risk services provided by tranche two entities.
• Modernise the regulation of digital currency and of virtual asset and payments technology.
• Simplify and clarify the AML/CTF regime to increase flexibility, reduce regulatory impacts and support businesses to better prevent and detect financial crime.

The Bill and its explanatory materials are available on the Parliament of Australia website. For more information on the Bill, go to the AML/CTF Amendment Bill webpage.

Industry consultation

The Australian Government is working closely with industry on the reforms to the AML/CTF regime.

We held a first round of consultation between 20 April 2023 and 16 June 2023. To read the consultation paper and stakeholder feedback, visit the Modernising Australia's anti-money laundering and counter-terrorism financing regime consultation page.

We held a second round of consultation between 2 May 2024 and 13 June 2024. To read the consultation papers and stakeholder feedback, visit the Reforming Australia’s anti-money laundering and counter-terrorism financing regime consultation page.

Feedback from stakeholders over the 16 months of consultation informed government consideration of the reforms.

AUSTRAC will work closely with industry on upcoming amendments to the AML/CTF Rules. They will also collaborate with industry on fit-for-purpose, tailored industry education and guidance, particularly for new tranche two entities.

Australia's AML/CTF regime

The AML/CTF Act provides the means to help deter, detect and disrupt money laundering and terrorism financing. It also provides financial intelligence to revenue and law enforcement agencies.

The AML/CTF Act implements a risk-based approach to regulation, and sets out general principles and obligations. Details of how these obligations are to be carried out are set out in the Anti-Money Laundering and Counter-Terrorism Financing Rules Instrument 2007 (No. 1) (AML/CTF Rules).

Businesses must meet the minimum obligations set out in the AML/CTF Act and AML/CTF Rules. Beyond that, each business must assess the risks of potential money laundering or terrorism financing when providing a designated service to a customer.

Obligations for regulated businesses

The AML/CTF regime sets out a range of obligations to protect regulated entities that are at the front line in preventing serious financial crimes. These obligations build resilience against misuse by criminals within regulated sectors. Under the obligations, regulated entities must report certain transactions to government for use as financial intelligence to combat money laundering, terrorism financing and other serious financial crime. These reports are vital to understand and stop the flow of illicit funds in Australia.

The AML/CTF Act imposes 6 key obligations on regulated businesses:

• Enrolment and registration with AUSTRAC: Regulated entities must enrol with AUSTRAC if they provide a designated service. In addition, remittance service providers and digital currency exchange providers must also register with AUSTRAC to permit additional checks to ensure that criminals and their associates are kept out of these sectors.
• Developing and maintaining an AML/CTF Program: Regulated entities must identify the AML/TF risks they face in providing designated services to customers, and develop and maintain an AML/CTF program containing systems and controls to mitigate and manage those risks.
• Conducting customer due diligence (CDD): Regulated entities must verify a customer’s identity before providing a designated service and understand the customer’s risk profile.
• Conducting ongoing due diligence: Regulated entities must conduct ongoing CDD throughout the course of the business relationship, including transaction monitoring and enhanced CDD.
• Reporting: Regulated entities must report to AUSTRAC all ‘suspicious matters’, cash transactions of A$10,000 or more, all instructions for the transfer of value sent into or out of Australia and annual compliance reports, and cross border movements of monetary instruments.
• Record keeping: Regulated entities must make and retain certain records that can assist with the investigation of financial crime or that are relevant to their compliance with the AML/CTF regime for seven years, and ensure they are available to law enforcement, if required.

Reporting entities and Australian Government agencies who collect personal data are subject to the Privacy Act 1988 (Privacy Act). The Privacy Act covers the collection, use, disclosure, quality and security of personal information.

Visit the AUSTRAC website for more information

Key reviews of the regime

Statutory Review of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 and Associated Rules and Regulations

The Department of Home Affairs, in conjunction with AUSTRAC, undertook a statutory review of the AML/CTF Act, rules and regulations. This review was tabled in Parliament by the then Minister for Justice, the Hon Michael Keenan MP, on 29 April 2016. The Statutory Review made 84 recommendations to shape a modern AML/CTF regime that positions Australia to address current and future challenges.

Senate Inquiry into the adequacy and efficacy of Australia’s AML/CTF Regime

On 30 March 2022, the Legal and Constitutional Affairs References Committee handed down its report into the adequacy and efficacy of Australia’s anti-money laundering and counter-terrorism financing (AML/CTF) regime. The government agreed to the recommendations on 20 April 2023.

The committee made 4 recommendations, that the government:

• accelerate industry consultation on expanding the regime to ‘tranche-two entities’
• consider the regulatory impact, technological innovation, and existing obligations
• consider the regime’s interaction with legal professional privilege
• pursue a beneficial ownership register.

Engagement

UK-Australia joint statement from the 2024 Illicit Finance Dialogue

The Australian Government Attorney-General’s Department and the United Kingdom Home Office, in conjunction with colleagues across respective governments, have renewed our joint commitment to combat illicit financing through convening the second UK-Australia Illicit Finance Dialogue in Canberra in September 2024. The dialogue brought together senior and working level officials from our respective policy, law enforcement, intelligence and customs agencies to align our efforts and share best practice.

This dialogue delivers on the commitment of our agencies under the 2022 UK-Australia Declaration to Combat Illicit Finance and follows the inaugural Dialogue held in London in 2023.

The harms of illicit finance are felt globally. It damages our economies and erodes democratic institutions and international norms. It fuels the illicit drug trade and enables the scam factories that destroy the lives and livelihoods of individuals and families.

Australia and the UK discussed the importance of coordinating our efforts to build capacity and support the improvement of frameworks globally to counter illicit finance.

No region is immune to illicit financing, including in the Pacific, where continuing susceptibility as a pathway for illicit finance emphasises the importance of strong financial crime frameworks. We discussed the imperative of a continued presence of high-quality providers of banking services, and in particular the corresponding banking relationships that connect the region to the global financial system. These are crucial to ensure that transactions are not pushed to informal networks.

Building from discussions in 2023, we shared our continuing efforts to enhance corporate transparency in Australia and the UK to prevent the abuse of complex corporate structures by malign actors and criminal networks to disguise and fund illicit activities.

Australia also provided an update on landmark reforms to the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 introduced in Parliament on 11 September 2024. These reforms will extend Australia’s Anti-Money Laundering and Counter-Terrorism Financing regulations to cover ‘gatekeeper professions’ at high risk of exploitation for money laundering, bringing Australia into line with international standards set by the Financial Action Task Force, and will simplify, clarify and streamline the regulatory regime.

The UK shared its experience in regulating these sectors. Our agencies will continue to cooperate and share our policy and legislative responses to harden our financial systems against abuse by criminals. The 2 countries shared best practice on how to address the role of gatekeeper industries and how these reforms can be both business and security friendly.

Australia and the UK also discussed efforts to improve sanctions compliance and prevent sanctions evasion by those who seek to cause harm to our communities. Adaptability of sanctions compliance frameworks is critical to ensuring that sanctioned entities cannot access financial flows in contravention of sanctions measures. Both parties agreed the increased importance of targeting the illicit financial flows that support Russia’s illegal and immoral invasion of Ukraine.

Fraud and scams are widespread and cause significant financial and other harm for individuals, the private sector and government. Respective agencies discussed the strategic approach being taken by the UK and Australia to respond to fraud and scams, including through leveraging intelligence and activities across the private sector to inform policy and law enforcement interventions, as well as approaches to strengthen the expectations on the private sector to make individuals and businesses tougher targets for fraudsters.

Following the UK-hosted Global Fraud Summit, both parties also discussed opportunities to support global efforts to fight fraud and scams.

Australia and the United Kingdom have a long history of cooperation to counter illicit finance and related threats. Building on this successful dialogue, we will continue to work closely together at policy and operational levels to advance best-practice responses to disrupt illicit finance.

Non-profit organisations

Non-profit organisations' financial operations are at risk of being misused by other individuals or organisations to finance or support terrorist activity. The consequences of becoming involved in terrorist financing are significant, and can include loss of reputation, status and donor confidence.

Non-profit organisations are traditionally cash-intensive and regularly transmit funds from supporters between jurisdictions. They often operate under less formal regulation, which exposes the sector to an elevated risk of criminal and terrorist abuse.

As a result of these risks, the Financial Action Task Force has included non-profit organisations in its recommendations to help combat money laundering and terrorism financing.

In consultation with non-profit organisations, the Australian Government has developed guidance material on safeguarding your organisation against terrorism financing. It is designed to:

• build awareness of the risk of being misused for the purpose of terrorism financing
• outline best practice principles which non-profit organisations can undertake to reduce this risk
• assist charities to understand and comply with legal requirements in relation to terrorism financing

The Australian Charities and Not-for-profits Commission (ACNC) has also developed a checklist to assist in protecting charities and non-profit organisations against the risk of terrorism financing.

Individuals or organisations, including non-profit organisations, may face criminal penalties if they provide financial support to terrorists, terrorist organisations or acts of terrorism. There are 2 lists maintained by the Australian Government in relation to terrorism financing that non-profit organisations should be aware of.

We maintain a list of terrorist organisations under Division 102 of the Criminal Code Act 1995, available on the Australian National Security website.

The Department of Foreign Affairs and Trade maintains a consolidated list of persons and entities which are subject to a targeted financial sanction imposed by a resolution of the United Nations Security Council. Penalties apply under the Charter of the United Nations Act 1945 for making resources available to a designated individual or organisation. View the consolidated list on the Department of Foreign Affairs and Trade website.

AUSTRAC

The Australian Transaction Reports and Analysis Centre (AUSTRAC) is Australia's anti-money laundering and counter-terrorism financing regulator and specialist financial intelligence unit.

AUSTRAC is responsible for:

• supervising compliance with the requirements of Australia's anti-money laundering regime
• collecting and analysing the financial intelligence obtained through the reporting obligations
• disseminating that intelligence for investigation to law enforcement, national security, revenue and regulatory agencies, as well as international counterparts.

Visit the AUSTRAC website for more information

Financial Action Task Force

The Financial Action Task Force (FATF) is an inter-governmental body that sets the international standards on anti-money laundering and counter-terrorism financing. Through the international standards, the FATF promotes effective implementation of legal, regulatory and operational measures to combat money laundering, terrorist financing and other threats to the integrity of the international financial system.

While the FATF found some improvements in a recent interim assessment of Australia’s AML/CTF regime, major deficiencies remain in Australia’s compliance with the FATF’s global standards. The proposed reforms outlined above are essential to address key deficiencies in regulation of designated non-financial businesses and professions, and digital currency exchange providers.

Our department leads Australia’s engagement with the FATF.

Visit the FATF website for more information.

Legislation

• Anti-Money Laundering and Counter Terrorism Financing Act 2006
• Anti-Money Laundering and Counter Terrorism Financing Rules Instrument 2007 (No 1)
• Anti-Money Laundering and Counter-Terrorism Financing (Prescribed Foreign Countries) Regulation 2018