This month sees a conga line of familiar faces claiming that Australia will become a haven for international criminals unless AUSTRAC is given vast new powers to palm their financial investigation obligations off onto suburban law firms.
AUSTRAC, compliant journalists and a smattering of spear-carrying academics are trotting out a series of re-hashed articles, papers and “research” warning that Australia’s refusal to mandate the Tranche II money laundering regulation would turn us into a den of iniquity and the pariah of all virtuously administered economies everywhere.
What is lacking from this discourse is any evidence for the claim that new regulation will effectively reduce money laundering, or that the vast compliance cost (ultimately paid by clients) represents value for money.
You can always tell a regulator attempting to slip a loaded deck through the public debate when the only thing they can do is talk about the problem, and refuse to substantiate the effectiveness of the proposed solution. When challenged to produce such evidence, they go back to the talking points and a few examples of money laundering that are already prohibited by existing laws.
The so-called solution on the table – potentially a bureaucratic nightmare of regulation demanding that professional advisors such as solicitors and accountants investigate, detect and report any sinister intent by their clients has not produced any tangible benefits anywhere in the world.
The exception is to the bloated compliance industry, currently dancing with wild abandon on the sidelines of the debate. This “industry” (leaving aside for the moment that it produces nothing other than paperwork) is a multi-billion dollar beneficiary of AML/CTF regulation and an enthusiastic supporter of anyone that proposes it.
If there was proof that the usual bogey men of law enforcement; drug dealers, terrorists and paedophiles would be anything other than mildly inconvenienced there might be a point to all this. But such evidence is thin.
The story from the UK: eye watering costs, little to show for it.
Early adopters of this regime, notably the UK, have tacitly admitted that the first 20 years or so were a bust, with few prosecutions1 and no evidence of a substantial impact on the flow of dirty money or the crime that generates it. The fact that you can’t swing a dead cat in Knightsbridge without hitting the progeny of a sanctioned Russian oligarch2 is something of a hint in this direction.
The regulations are so complicated that only 18 to 50 per cent of entities can fully comply with them,3 despite spending the equivalent of 75 per cent of the annual UK defence budget4 on a futile attempt to do so.5
The figures are even worse for law firms: in the 2019-2020 reporting year 64 per cent of UK law firms audited were found to be partially or substantially non compliant. One in 11 firms audited were referred for further investigation or prosecution.6 Thirty per cent of surveyed members of the Law Society of England and Wales had compliance costs in excess of (AUD) $200,000 per year, with even small firms spending between $10,000 and $50,000 annually.7
The catch from this gold-plated net is sparse:
- for every $1 in laundered funds recovered8 by government, the UK banking industry alone spends9 over $100 on AML compliance.
- despite the tens of thousands of hours spent in law firms on compliance only 0.29 per cent of Suspicious Activity Reports come from the UK legal profession each year10, without a single publicised case of a solicitor’s tip-off leading to a criminal network being broken up.
It appears that the application of AML regulation to the UK profession has led to more solicitors being prosecuted than criminals,11 with penalties ranging from fines, removal from the roll and prison. Despite this, the obscure international committee which drives this process is not happy,12 demanding ever more regulation and enforcement against solicitors.
For a glimpse of your future if the Australian Government bows to FATF demands, download the handy 100-page summary document: Guidance for a Risk-Based Approach for Legal Professionals.13
The draft bill preserves legal professional privilege to a degree (see Schedule 4) but subject to the ability of the Minister (proposed s 242A) to unilaterally alter the arrangements at some point in the future without parliamentary oversight.14
Footnotes
1 On average there are two per year: see Koos Covée, ‘Money Laundering Reporting Failures Rarely Prosecuted in Britain’, ACAMS (Article, 28 September 2023). The first prosecution of a major player (as opposed to individual employees) came in 2021, 14 years after the regulation was adopted; R v National Westminster Bank (Southwark Crown Court, Cockerill J, 13 December 2021). Even then, it took the deposit of half a billion dollars in cash delivered in bin bags by a mum and dad owned local jewellery business.
2 ‘Stats reveal extent of suspect wealth in UK property and Britain’s role as global money laundering hub’, Transparency International UK (Web Page, 18 February 2022).
3 HM Treasury, Government of the United Kingdom, Anti-money laundering and counter-terrorist financing: Supervision Report: 2022-23 (Report, May 2024).
4 United Kingdom Ministry of Defence, UK Defence in Numbers 2023 (Report, 2 April 2024).
5 Research conducted by Oxford Economics, cited by LexisNexis in Cutting the costs of AML compliance (Report, July 2012).
6 Solicitors Regulation Authority, Anti-Money Laundering (AML) Visits 2019-2020 (Report, November 2020).
7 Law Society of England and Wales, Submission No 41 to House of Commons Treasury Select Committee, Inquiry into Economic Crime (May 2018) 19-29.
8 £125 million pounds sterling.
9 £28.7 Billion pounds sterling; see Transparency International UK (n 2).
10 United Kingdom Financial Intelligence Unit, Suspicious Activity Reports (Report, 2022).
11 Law Society of England and Wales, Consequences of not preventing economic crime: solicitor case studies (Guide, 11 April 2024).
12 Financial Action Task Force, The United Kingdom’s measures to combat money laundering and terrorist financing (Mutual Evaluation Report, December 2018).
13 Financial Action Task Force, Guidance for a Risk-Based Approach for Legal Professionals (Guide, June 2019).
14 Anti-Money Laundering and Counter-Terrorism Financing Amendment Bill 2024 (Cth).
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