Money Laundering: Government Requires Professionals to Report Suspicious Activities of Clients

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The last two decades has seen numerous pieces of anti-money laundering and proceeds of crime legislation enacted by the federal parliament, as well as state and territory legislatures across the nation.

These laws are ostensibly aimed at preventing the financial proceeds of criminal activity being ‘laundered’, meaning used to fund investments in assets such as property, businesses and shares with a view to having these appear legitimate.

And while governments claim these laws have gone some way towards reducing the incidence of money laundering offence in our nation, they have also been used to criminally prosecute individuals and restrain assets on the mere suspicion of property being derived from crime.

The broad scope of money laundering offences and criminal assets recovery laws has led to many innocent people being charged with criminal offences, having their property restrained, requiring them fight for their liberty and their legitimately owned property.

As if existing money laundering and proceed of crime laws didn’t go far enough, the federal government is now proposing to pass laws that essentially require professionals involved in property transactions such as lawyers, accountants and real estate agents to undertake due diligence checks on their clients and report any transactions they view as suspicious to authorities.

And while the proposal is being spruiked as a way to reduce the incidence of unlawfully derived funds being used to fund purchases of real estate, and to thereby relieve pressure on home buyers, there are very real concerns about professionals being required to compromise their ethical obligations towards clients by reporting them to authorities.

But before we have a look at the new laws, let’s take a step back and have a quick look at the types of conduct that can often amount to money laundering.

What Is Money Laundering?

Money laundering is a term used to describe the processing of unlawfully derived funds so as to make it, or the property purchased with it, appear legitimate. 

Unlawfully derived funds can come from any of a range of sources, which may include drug transactions, cybercrime, fraud, property offences, bribery and other forms of corruption and human trafficking.

Examples of money laundering techniques include:

Smurfing: where illegal funds are divided into smaller amounts and deposited into multiple bank accounts or financial institutions.

Exploiting cash-based businesses: when a business type known for mainly taking in cash, such as car washes, laundromats, strip clubs, and small retailers, is used to hide illicit money as income.

Bulk cash smuggling: the physical transportation of large quantities of illicit cash across borders in order to avoid mandatory financial reporting obligations in some jurisdictions.

Trade-based laundering: exploiting international trade by disguising the proceeds of crime by moving funds through trade transactions.

Real estate laundering: investing illicit funds into the property market.

Gambling laundering: buying large sums of chips and making low risk bets in small denominations on gambling tables, or putting large numbers of high denomination banknotes into gambling machines, before playing a small amount and cashing the remaining sum as winnings.

Cyber laundering: transforming illicit money into cryptocurrency or utilising encrypted networks on the dark web to transfer funds. 

A person engaged in money laundering may use several of these techniques over a period of time to minimise the likelihood of detection.

Existing Financial Reporting Obligations

One of the main ways that Australia is identifying and tackling money laundering is through the imposition of some Anti Money Laundering and Counter Terrorism Financial (AML/CTF) obligations on key institutions susceptible to money laundering.

Section 6 of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 outlines a range of ‘designated services’ that must regularly report any suspicious activities. 

These include financial services organisations, remittance service providers, the gambling sector, and bullion dealers. 

These organisations must register with the Australian Transaction Reports and Analysis Centre (AUSTRAC), the key government agency responsible for detecting, deterring, and disrupting criminal abuse of the financial system.

These designated services are obliged to report extensively, including completing:

  • Threshold Transaction Reports (TTRs) for transfers involving physical currency equal to or exceeding $10,000 (or its foreign currency equivalent).
  • International Funds Transfer Instruction Reports (IFTIs) for money transfer instructions crossing international borders.
  • Cross-Border Movement Reports for movements of physical currency valued at $10,000 or more, whether through carrying, mailing, or shipping to or from Australia.
  • Suspicious matter reports for any transaction or interaction in which someone is acting illegally.

Failure to comply with AML/CTF obligations by designated services can result in significant penalties, including fines of up to $5 million for individuals and $27 million for corporations.

The proposed new laws

The federal government is proposing to extend due diligence and reporting requirements to what are known as ‘tranche-two entities’ – which include lawyers, accountants, trust and company service providers, real estate agents and dealers in precious metals and stones – to carry out due diligence checks on their clients or customers, and report suspicious activities.

But while the government is marketing the proposal as a necessary measure in detecting and deterring money laundering offences, lawyers are pointing out that the measure represents a significant infringement on their ethical duties of confidentiality and acting in the best interests of their clients.

Lawyers assert that imposing such a requirement could affect trust between clients and lawyers, thereby acting as an impediment to being able to obtain full and frank instructions (information) from clients, which is necessary in order to provide accurate advice and the highest quality representation.

Lawyers express the view that being required to interrogate their clients in the proposed manner and even ‘snitch’ on them is an unacceptable intrusion into the outlined tenets of the lawyer/client relationship – such as trust, confidentiality and acting in the client’s best interests – one which should not be present in a modern system of justice.

However, it appears federal politicians have not given due consideration to these very real concerns and seem intent on passing the laws regardless of them.

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