Announcement date
11 September 2024
Link to announcement
https://www.aph.gov.au/Parliamentary_Business/Bills_Legislation/Bills_Search_Results/Result?bId=r7243
Problem being addressed
Australia’s Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) regime establishes a regulatory framework for combatting money laundering, terrorism financing and other serious financial crimes. The intent of Australia’s AML/CTF regime is to implement a regulatory framework that:
- minimises the risks and impacts of illicit financing on the Australian economy;
- supports domestic and international efforts to combat serious and organised crime, terrorism financing and proliferation financing;
- does not impose unnecessary burden on Australian business; and
- is consistent with international best practice in combating money laundering and terrorism financing.
However, there are a number of inefficiencies throughout Australia’s AML/CTF regime that limit the effectiveness of Australia’s response to transnational crime at large, impacting law enforcement operations and national security, and inflating regulatory burden for industry.
Complexity — The regime is widely considered to be unduly complex and often poorly understood, leading to poor prevention practices and lower quality financial intelligence. The regime spans over 700 pages of legislation, plus published Australian Transaction Reports and Analysis Centre (AUSTRAC) guidance, with many detailed procedural requirements rather than a clear focus on the outcome of mitigating risk. Operational experience and stakeholder consultation have highlighted systemic problems that are largely attributed to this complexity.
Gaps in regulation — The regime does not extend to sectors internationally recognised as being at high risk of money laundering and terrorism financing, such as certain services provided by lawyers, accountants and real estate professionals. Additionally, regulation of digital currency exchange services, a key vector for illicit financing, has also not kept pace with international standards.
Proposal
Four viable policy options to respond to the problems identified were considered in the Impact Analysis(IA), including:
- Option 1: maintain the status quo
- Option 2: simplify, clarify and modernise existing legislation
- Option 3: expand the reporting population to designated non-financial businesses and professions (DNFPBs)
- Option 4: both simplify, clarify and modernise legislation, and expand reporting population to DNFBPs.
The IA presents Option 4 as the preferred option. This option is expected to deliver the significant law enforcement benefits from the expansion of the AML/CTF regime to DNFBPs (or ‘tranche two’ entities in the Australian context), with the additional benefit of improved compliance across regulated entities and tranche two entities due to the reforms to simplify the regime, including AML/CTF program and Customer Due Diligence (CDD) requirements.
These benefits will harden Australia's financial ecosystem against criminal exploitation and likely increase the identification, restraint and confiscation of criminal assets and reduce opportunities for criminals to reinvest illicit funds into further criminal activities. Option 4 will also provide the greatest benefit for improving Australia’s Financial Action Taskforce (FATF) compliance and minimising the likelihood of grey-listing and any associated economic and reputational damage to Australia.
The costs of Option 4 are estimated to be up to $13.9 billion for businesses and $209 million for consumers over 10 years (in net present value terms). The total quantifiable benefits are estimated at up to $13.1 billion over 10 years (in net present value terms), with the full range of anticipated benefits, including those that cannot be quantified, expected to represent a much higher value.
Assessed Impact Analysis outcome
Exemplary
Assessment comments
The IA contains high quality analysis for each of the seven IA questions. Of note, the impact analysis included:
- a well-defined and clearly structured problem section, which provided a detailed explanation of the complexities and gaps in the existing AML/CTF regime
- robust analysis of the benefits and costs of each policy option, including their underpinning assumptions
- a detailed explanation of the consultation process, how stakeholder views shaped the options, and how the preferred option would be implemented.
Regulatory burden
In terms of annual average costs, implementation of Option 4 is estimated to result in $1.851 billion in regulatory costs to businesses and $29 million to individuals each year over the next 10 years.