After reviewing the recently released 2019-20 AUSTRAC Annual Report, it is encouraging to see across-the-board improvements in the fight against financial crime and the funding of terrorism. Even withstanding the impact of COVID-19, which affected half the fiscal year ending 30 June 2020, the momentum is heading in the right direction.
2019-20 AML/CTF by the numbers
- 6% more reporting entities than 2018-19 (15,762)
- 4% increase in requests for information (top five agencies being: WA Police 156, AFP 139, 76 Department of Home Affairs, 75 ACIC, 38 NSWPOL)
- Suspicious Matter Reports increased 258% over the last four years (265k +)
- 50% reduction of Threshold Transaction Reports (TTR) over the previous four years (2.2m)
- 1,235 international exchanges of financial intelligence
- 49% increase in total reports over the last four years (167m)
- 525 intelligence reports produced on child sexual exploitation, with 25 detections of exploitation material and 10 individuals arrested.
The COVID-19 effect
Unfortunately, criminals and terrorists will always search for ways to make the most of their circumstances and look for ways to fund their illicit activities.
The Financial Action Task Force (FATF) recently noted how criminals and terrorists have turned to various financial fraud and exploitation scams in light of COVID-19. FATF particularly called out the misuse of, or fraudulent access to, fiscal stimulus packages, advertising and trafficking in counterfeit medicines, offering fraudulent investment opportunities, and engaging in phishing schemes that prey on virus-related fears. They also mentioned malicious or fraudulent cybercrimes, fundraising for fake charities, and various medical scams targeting innocent victims are likely to increase, with criminals attempting to profit from the pandemic by exploiting people in urgent need of care.
In light of this, Nicole Rose PSM, CEO of AUSTRAC, highlighted that between March and June this year AUSTRAC had received more than 3,600 suspicious matter reports from the financial sector, linked to COVID-19-related financial crimes.
As a reporting entity, it’s important to be aware of how your risk profile has changed, then adapt your AML compliance programme as required.
Partnering to take down networks
AUSTRAC’s purpose, as stated in their corporate plan 2019-23, is to build resilience in the financial system and use financial intelligence and regulation to disrupt money laundering, terrorism financing and other serious crime. Knowing it can’t do this alone, it proactively partners with government and industry, at both an international and domestic level to disrupt criminal abuse of the financial system.
From a global cooperation perspective, AUSTRAC took part in over twelve hundred exchanges of financial intelligence with other AML supervisors and law enforcement agencies. The top crimes can be seen as per the image above.
Keeping regulators accountable
The AUSTRAC report highlighted the proactive measures that the Australian government enacted to assess how regulators perform when interacting with business, the community and individuals. It did this in the form of the Regulator Performance Framework, which seeks to:
- improve the way regulators operate;
- reduce the costs incurred by business, individuals, and the community in the administration of regulation;
- increase the public accountability and transparency of regulators.
Investing in technology and data to fight financial crime
Criminals and terrorist entities are increasingly turning to digital mediums to facilitate their illegal operations. AUSTRAC is attempting to stay ahead of the curve by significantly investing in the use of data analysis and advanced analytics, with the express goal of increasing their understanding of compliance and risk across the financial sector; plus applying near real-time monitoring to identify and respond to non-compliance.
AUSTRAC are also intent on leveraging user-friendly and agile technology to minimise the regulatory burden on reporting entities. Throughout the period, AUSTRAC focused on uplifting the current methods of collection and analysis of their data to make maximum use of the data they collect. They did this by developing new models to analyse data, maturing their alerting systems and learning from their partners. This allowed AUSTRAC to continue identifying and sharing new and emerging risks in the financial system with our domestic and international partners.
So, how did AUSTRAC perform throughout 2019 and 2020? Let’s take a look.
Assessing AUSTRAC’s performance against their objectives
AUSTRAC’s performance criterion centres around mitigating risk in the financial system through various means to support the mission of its public and private partners. In their annual report, AUSTRAC were pleased to announce they had achieved all the objectives they had set out for the 2019/20 period. Its objectives and performance measures can be seen below, and are anchored around their five strategic objectives: discover, understand, strengthen, disrupt, and optimise.
AUSTRAC identified new and emerging risks posed by criminal actors seeking to abuse the financial system. The two measurement methods they used for this was:
- Evidence of AUSTRAC enriching and linking data. This was achieved through analytical tools that helped with their risk profiling and regulatory triaging.
- Evidence of more effective and proactive information and typology sharing. This was achieved by providing regulatory insights to, and heavily engaging with, reporting entities and government partners. This included risk assessments that helped the system more effectively identify and manage new and emerging money laundering/terrorist funding activity. AUSTRAC provided technical assistance and training for FIU and AML regulators to lift compliance standards. AUSTRAC is also nearing the completion of the eight risk assessments that are part of the Fintel Alliance Risk Assessment Program set up in 2018.
AUSTRAC developed and shared a comprehensive understanding of vulnerabilities to criminal abuse within domestic and international financial systems. The two measurement methods they used for this were:
- Evidence of partner agencies using AUSTRAC data and intelligence products. AUSTRAC’s intelligence publications saw a sixfold increase of accessibility through NIC sharing platforms, with a 250% increase in active readership. AUSTRAC provided robust intelligence for various reasons – including money laundering (mainly digital currencies), national security, and cybercrime. AUSTRAC opened its data to other government partners, whilst building an understanding of, and the financial intelligence capability of, their Australian and South-East Asian partners.
- Contributions to intelligence task forces and interagency forums. AUSTRAC contributed to several forums – including The Egmont Group, Counter-Terrorism Financing Summit, Financial Intelligence Consultative Group, Financial Action Task Force, Asia/Pacific Group on Money Laundering, and various other task forces. AUSTRAC also stepped up their efforts on reducing Child Sexual Exploitation, as well as the war against Meth and illicit drugs.
AUSTRAC ensured risks within the financial system were identified, mitigated and managed effectively. The two measurement methods they used for this were:
- Evidence of regulatory efficiencies. AUSTRAC is working through reforms to the AML and CTF and Other Legislation Bill 2019, which had been progressing as planned, however, Parliament had delayed the bill’s progression due to the impact of the pandemic. AUSTRAC has also been working closely with consultants and RegTechs to help them provide better service and support to the system.
- Evidence of positive behavioural change in the reporting entity population. Tailored education and outreach activities were key focuses on developing capability and improving compliance outcomes for the regulated population. AUSTRAC took risked-based approaches to potential non-compliance. While they will take appropriate action if necessary, AUSTRAC prefers to issue warnings and to see how reporting entities plan to become compliant again.
AUSTRAC collaborated with partners to disrupt criminal abuse of the financial system. The two measurement methods they used for this were:
- Evidence of AUSTRAC’s contribution to disrupting criminal abuse of the financial system. From conditions imposed to cancellation, AUSTRAC made 21 decisions in relation to the criminal abuse across remittance service and digital currency exchange providers. Westpac, Compass Global Holdings, and PayPal Australia were each subject to various responses by AUSTRAC.
- Evidence of strengthening the Fintel Alliance. AUSTRAC expanded its efforts of the Fintel Alliance by bolstering it with additional staff and partners. These efforts particularly included a focus on disrupting trade-based money laundering. AUSTRAC has invested in several technology and analytical projects that improve compliance outcomes, which includes The Alerting Project, a key area of improvement to connected disparate data sets across the financial system to detect suspicious activity that was previously undetectable. AUSTRAC also reviewed and matured governance processes of two key Fintel Alliance bodies.
AUSTRAC continuously evolved and adapted business operations to improve efficiency, effectiveness and sustainability in a dynamic operating environment. The two measurement methods they used for this was:
- Evidence of providing innovative, co-designed technological solutions to drive business productivity and address operational challenges. This was achieved continuing AUSTRAC’s systems uplift, including projects to enable a distributed workforce after the pandemic struck.
- Evidence of AUSTRAC delivering improvements that generate long-term efficiencies and uplift capability. This was achieved by maturing its enabling services through greater integration and alignment of processes – internally and with Home Affairs and the NIC. Business Continuity plans were also established and refined in response to COVID-19.
So, what’s in store for you in 2020/21? We were recently also involved in a panel discussion with the ACAMS Australasian chapter that delved into The Future of Transaction Monitoring: What Does It Look Like and included risk identification, and imagining what the future might hold.
If you’re considering investing in or enhancing your AML compliance programme, let us know below. We’d love to start a conversation with you.