Published on the 07/05/2024 | Written by Heather Wright

Execs worried about compliancy abilities…

Local C-suite executives are feeling less than confident about their company’s anti-money laundering processes as both Australia and New Zealand gear up for regulatory changes.

A report from anti-money laundering (AML) company First AML shows 95 percent of c-suite executives across Australia and New Zealand were worried about their company’s ability to be compliant with new and upcoming AML regulations. Just 53 percent of executives surveyed feel ‘somewhat’ confident about their businesses processes.

“The c-suite should not rest on its laurels when it comes to AML processes.”

Almost all (98 percent) have plans to change their AML processes in 2024, with 60 percent of Australian respondents planning to invest in the technology. In New Zealand, enthusiasm for further investment is lower, at just 30 percent.

That could be tied to regulatory changes afoot across both countries, particularly in Australia.

While New Zealand has had AML requirements for ‘tranche-two’ companies including lawyers, accountants and real estate agents since 2018, Australia is only now gearing up to include them in AML requirements.

Australia is one of just five jurisdictions out of more than 200 which don’t already regulate tranche-two entities, Australian Attorney-general Mark Dreyfus says.

The Australian Transaction Reports and Analysis Centre (Austrac) has estimated that in 2020, criminals linked to China laundered AU$1 billion through Australian real estate.

“Each year billions of dollars of illicit funds are generated from illegal activities such as drug trafficking, tax evasion, people smuggling, cybercrime, arms trafficking and other illegal and corrupt practices,” Dreyfus says.

“Australia is falling short of meeting the standards required to combat criminal abuse of our financial system, and at increased risk of becoming a haven for money laundering.”

Consultation on reforms to the anti-money laundering and counter-terrorism financing regime kicked off last year, proposing to cover tranche-two entities and modernise the regime. The second consultation paper was released last week.

The proposed reforms will be the most significant changes to the act since its introduction and bring with them potentially far-reaching implications for tranche-two entities such as real estate professionals, professional service providers including lawyers and accountants and dealers in precious metals and stones who will all be required to take a more active role in deterring money laundering.

Dreyfus says $166 million will be included in the Budget for reforms to the anti-money laundering and counter-terrorism financing regime. Dreyfus says the Budget funding will be used to implement the new regime and provide education and guidance to businesses, especially newly-regulated entities.

New Zealand too, is making AML changes, with the country set to enact the second phase of amendments to its Anti-money Laundering and Countering Financing of Terrorism Act changes. Those changes include expanded customer due diligence requirements, and will require updates to compliance documents, processes and systems.

The FirstAML report found 98 percent of Australian and Kiwi c-suite have plans to change their AML processes this year. Alongside the increases in investment in technology, come more investment in people (41 percent across A/NZ) and training (35 percent).

A raft of companies across Australia and New Zealand have found themselves on the wrong side of AML requirements in recent years.

New Zealand’s Department of Internal Affairs issued a warning in December to a Wellington real estate company for failing to report suspicious activity on several rental properties.

And in April, Austrac announced it had issued eight infringement notices to businesses and sole traders across a range of industry sectors, including pubs, non-bank lenders and financial services providers, for reporting failures around annual compliance reports. The businesses received initial infringement notices ranging from $3,300 for sole traders to $16,500 for companies, for each contravention.

The financial consequences of non-compliance on their organisation was cited as a key concern for 64 percent of Kiwi companies surveyed and 78 percent of those in Australia, where 30 percent said they were ‘extremely concerned’ about the financial consequences (versus just 18 percent in New Zealand).

Concerns about reputational risks from not meeting compliance weren’t reported, though most Australian respondents (84 percent) felt a strong commitment to compliance would benefit the organisation’s reputation. Only 42 percent of New Zealand respondents shared that sentiment.

Milan Cooper, First AML CEO and co-founder, says the findings should be a call to arms for Australia around the tranche-two decision.

“While the Australian market is further behind other countries and regions for implementing anti-money laundering, it is able to learn from the missteps made by others,” Cooper says.

“New Zealand is deeper into its journey, but that doesn’t mean the c-suite should rest on its laurels when it comes to AML processes.”

Globally, Juniper Research has forecast spend on third-party anti-money laundering systems to hit US$51.7 billion by 2028, up 80 percent from this year’s forecast US$28.7 billion.

While financial markets have traditionally been the big users, there are increasing offerings for other industries, with spend on third-party systems by professional and other businesses, including legal, real estate and non-profit sectors surging 170 percent from 2024 to reach US$6.3 billion in 2028.

Driving that growth, according to Juniper, is the use of AI to assist AML analysts and reduce false positives.

Its research found that AML systems are increasingly using AI in an assistive role to reduce false positives and improve risk assessment. That’ ‘co-pilot’ aspect is expected to remain with AI not likely to be given free rein thanks to ongoing concerns from regulators around the explainability of fully automated decisions, Juniper Research says.

A new Australian bill is expected to be introduced to Parliament this year, amending the 2006 AML/CTF Act.