As Australia’s banks and financial services firms begin work on anti-money laundering reform, their new regulator also faces numerous challenges. Stuart Fagg spoke to Neil Jensen, Austrac’s CEO, about what lies ahead

Australia’s progress in bringing its domestic anti-money laundering laws in line with the global standards developed by the Financial Action Task Force (FATF) have been lengthy and, at times, difficult, but it’s now full steam ahead. Observers agree that the role of the new regulator will be crucial to avoiding the costly and counterproductive mistakes made by countries that adopted the FATF recommendations earlier. But the omens are good, with Austrac frequently being singled out as one of the world’s leading financial intelligence units. And with a new remit and enhanced powers, the next few years for Austrac look set to be a time of major change.

How would you characterise AUSTRAC’s function, both existing and future and also within the reform process itself?

For the past 17 years we’ve had a dual function as Australia’s financial intelligence unit (FIU), and also as a quasi-regulator in the sense of ensuring that people, or cash dealers, are reporting the requirements that they need to and that they are undertaking their customer identification process.

The FIU component of it will effectively continue under the new AML/CTF Act [Anti-Money Laundering/Counter Terrorism Financing Act], but there will be some enhanced provisions in there for us in that and also there are a few new agencies coming in that will have access to our information. The major change is to become the AML/CTF regulator, and that role is what we are putting a lot of focus into developing.

Importantly, we need to remember that with the staggered implementation of AML/CTF, the Financial Transaction Reporting Act [FTR Act] still continues on with some components. So we’ve got a dual role in our regulatory component. We have to continue on with certain functions under the FTR Act and merge into the implementation of the provisions of the AML/CTF Act.

What do you see as being the main challenges for Austrac going into this reform process?

I think the challenges are two-fold and are both external and internal. On the external side of it we need to educate the reporting entities so they understand what it is they have to do under the new legislation, and also what our role is under the new legislation. We need to communicate this during the implementation period of each phase of the AML/CTF Act as parts of the FTR Act continue as well. So there is quite an educative role there.

Internally we’ve got to develop some new skills to fit with our new role. We’ve quadrupled our staff in recent years. So we’ve gone from approximately 60 staff in 2000 and will be up to nearly 300 by the middle of next year. Early last year we put in place a change management program which has been very successful in the organisation and we’ve developed staff as well as welcoming new staff to the organisation. But upgrading skills and developing new skills for the new regulatory role is a major challenge.

Has it been a challenge finding appropriately skilled money laundering experts, or do you rely on internal training?

I think globally this is an issue – there are not a lot of people with AML/CTF programs skills, so we have to develop people. The regulatory approach is different around the world, so we need to be aware of that. Here in Australia there are limited skills and we are competing with the major accounting firms and with the reporting entities who are building up their teams as well. That means we’ve got to develop strategies to enable us to get AML/CTF skills into the organisation. We are developing a range of strategies including secondments from other regulators and we are looking at joint training exercises with regulators. We have had a number of very fruitful discussions with the Australian Prudential Regulation Authority to progress strong working relationships with them. We have a new training and education team developing programs for upskilling staff internally. We are also working with the Australian Competition and Consumer Commission at the moment on training and compliance.

Have you been able to learn any useful lessons from overseas AML regulators that have been through this process before?

Yes, particularly on the risk-based aspects of regulation, and we are continuing to talk, particularly with the UK and US regulators. We’ve also spoken with the Hong Kong Monetary Authority and various others as well. But the main focus has been on the benefits and detriments that have come from the UK and US systems. In fact, I’ve got someone going back to the US and Canadain the next few weeks to investigate further. It’s an ongoing dialogue.

Although its early days for the reforms, does Austrac have any particular targets or goals to meet with regard to the reforms and how they are going to work?

There are a range of targets. The first target is to ensure adequate education for reporting entities, and ensure an adequate skill base in Austrac to undertake the roles that we have. We’ve got to get that right from the start. Commitment by the reporting entities to the program is also key. It’s fine to have programs in place, but they’ve got to be committed to them and make them effective, make them work. We’ve got tools to help us with that and those tools will be used further down the line if needed. There is also more work to be done on the legislative phase of the reforms – the second tranche of the legislation needs to be developed and enacted. It is also important to ensure usage of the materials and information we gather by law enforcement, revenue agencies and national security agencies. Those agencies have been pretty effective in using the intelligence we have gathered in the past, so there’s no reason to believe that it is not going to continue in the future.

Ultimately, our goal is to continue to make Australia hostile to money laundering and terrorism financing. That is a commitment by the Government, the private sector and our partner agencies. We will enhance the deterrence to money laundering and terrorism financing and limit the use of Australia in facilitating those sorts of activities.

Is combining money laundering and terrorist financing in one program efficient, given the differing typologies and motivations between them?

The financiers of terrorism will use whatever means they can to meet their aims and the standards globally have brought money laundering and terrorism financing together. The main area of commonality between terrorism financing and money laundering, from our perspective, is customer due diligence. It relates to both – who is your customer and what are they doing? The other side of it is the reporting of suspicions.

In terms of putting the programs in place, if you have one program that covers both areas, I think it is probably easier to develop that program, because there are some links between the indicators. You are only putting one program into effect, so I think there is a benefit in doing that.

In terms of access to the information gathered, there are joint task forces and areas where money laundering and terrorism financing are crossing the borders between law enforcement, national security agencies and tax compliance.

I think the most important thing is that there needs to be a desire to make it all work on all sides and not try to look at why one won’t fit with the other. We need to make sure that it does work, and I think there are benefits in that.

Do you feel these reporting entities are aware of the business benefits of combating money laundering by demonstrating that your channels aren’t being used for ill gotten gains?

It is very hard to generalise. But when you look at the major entities involved in this, the major financial sector entities and the representative groups for those, and the gambling-type sector, yes, the commitment is there – they see the benefit of it, they know that being part of the global market means they need to put these programs into effect.

I believe through the consultation process, which has been quite extensive over the last two years, you can see the commitment there. I think you would find in talking to them that most would say yes, there is a benefit to us. They see it as part of their overall risk management programs. They don’t want to have people facilitating money laundering and they don’t want to be involved in the process of facilitating or financing of terrorism.