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Perceptions of money laundering and terrorism financing risks

One of the central tenets of the FATF Recommendations is a risk-based approach to preventing and detecting money laundering and the financing of terrorism (FATF 2012). A risk-based approach requires regulated businesses to determine the risks of ML/TF they face, identify customers and transactions posing high levels of risk, and mitigate those risks by implementing enhanced due diligence procedures (FATF 2007). Effective compliance with a risk-based AML/CTF regime requires businesses to understand the potential risks posed to their businesses and respond to them effectively (Gurung, Wijaya & Rao 2010).

Ross and Hannan (2007) have identified three risk elements, each of which needs to be considered in effective money laundering risk assessments—probabilistic, consequence and vulnerability risks. Probabilistic risk assessment involves the establishment of an association between an observable action and an activity the observer would like to detect. If money laundering and identity fraud have a strong association, to use Ross and Hannan’s (2007) example, then the presence of identity fraud would suggest a high risk of money laundering. The assessment of consequence risk is tied to the potential impact of an activity. A small cash transaction may be illicit but its potential impact may be far smaller than a large illicit transaction. Monitoring large transactions in this example would be a better risk mitigation practice. Vulnerability risks are those that impede effective monitoring or detection, such as regulatory deficiencies or the presence of opaque transactions. Kini (2006) argues that the high-profile AML/CTF regulatory enforcement activity in the United States around 2006 illustrates the significance of a considered risk assessment program. ABN AMROs correspondent banking business with Russian banks constituted a high-risk activity in a high-risk location; Bank Atlantic’s high net-worth business in Florida also entailed a high-risk business in high-risk locations. The banks, in both cases, failed to employ adequate AML/CTF controls and FinCEN, the AML/CTF regulator in the United States, imposed large penalties on both banks (Kini 2006). These cases illustrate the need for regulated businsses of all sizes to have an effective AML/CTF plan in place to assess the level of ML/TF risks that face their operations and to respond to such risks appropriately.

Perceptions of money laundering risks

One of the primary aims of the current study was to determine how Australian businesses perceived the AML/CTF regime and in particular, their views on the customers that pose highest risks of money laundering, the types of money laundering risks posed to their businesses and the best ways in which they might be reduced. The respondents to the survey by industry sector and their primary role in the regulated business, are listed in Tables 1 and 5 respectively. Table 6 provides case studies of the types of high-risk customers that regulated businesses in Australia may encounter.

Table 6: Customers perceived to hold the greatest risks of money laundering
Customer type n %a
Individuals—foreign residents 1,670 39.9
Individuals—Australian residents 1,556 37.2
Registered foreign companies 932 22.3
Politically exposed persons 921 22.0
Foreign government bodies 638 15.2
Charities and not-for-profit organisations 545 13.0
Domestic companies 484 11.6
Partnerships 363 8.7
Trustees 360 8.6
Incorporated and unincorporated associations 351 8.4
Registered cooperatives 202 4.8
Domestic government bodies 168 4.0
Don’t know 1,529 36.5
None selected 168 4.0

a: Respondents were able to select more than response; therefore, percentages do not total 100

Source: AIC AML/CTF Australian businesses survey [computer file]

The AML/CTF Australian businesses survey asked respondents to identify the types of customers they viewed as posing the greatest risk of being involved in money laundering. Respondents were able to nominate multiple types of customers posing greater risks, selected from the following list:

  • domestic companies;
  • registered foreign companies;
  • trustees;
  • partnerships;
  • incorporated and unincorporated associations;
  • registered cooperatives;
  • domestic government bodies;
  • foreign government bodies;
  • charities and not-for-profit associations;
  • PEPs;
  • Individuals—Australian residents (including sole traders); and
  • Individuals—foreign residents (including sole traders).

Approximately 40 percent of all survey respondents nominated individual foreign residents as the type of customer posing the greatest risk of money laundering (see Table 6). A slightly smaller proportion (37.2%) selected individual Australian residents as those customers posing the greatest risks of money laundering. The proportions of respondents who nominated each customer type show that participants were least likely to nominate domestic government bodies as posing high risks of money laundering (4%).

While most respondents ascribed the greatest risks of money laundering to Australian and foreign resident individuals, the data showed some differences between how customers are perceived by different business sectors surveyed. Participants from the gambling sector held different views on who constituted a high-risk customer than did those from the financial services sectors such as banks.

A high proportion of survey respondents were from the gambling sector (n=2,252) and they appeared to perceive Australian residents as posing a greater risk of money laundering than respondents from the banking sector or those from the securities and derivatives sector. Approximately 41.2 percent of respondents from the gambling sector identified individual Australian residents as the customer group posing the greatest risk of money laundering, while 36.8 percent of banking sector respondents and 25.4 percent of securities and derivatives sector respondents considered Australian individuals to be high risk. In each case, the mean results for those in the gambling sector regarding clients perceived to present the greatest risk of money laundering were significantly different from those in the banking sector (Z=31.5; p≤0.0001) and those in the securities and derivatives sectors (Z=35.6; p≤0.0001).

Respondents from the gambling sector were, however, much less likely to consider that individual foreign residents held increased risks of money laundering (34%) than those in either the banking sector (54.9%) or in the securities and derivatives sector (57%). In each case, the mean results for those in the gambling sector concerning money laundering risks of foreign sector customers were significantly different from those in the banking sector (Z=23.9; p≤0.0001) and those in the securities and derivatives sector (Z=29.2; p≤0.0001).

Gambling sector respondents were also less likely to perceive PEPs as being high-risk customers than respondents from the banking sector or from the alternative remittance services sector. A relatively small percentage of gambling sector respondents (15.2%) identified PEPs as those who presented the greatest risk of money laundering; more than one-third of banks (38.2%) cited PEPs as high-risk customers. Comparing the means between these groups, significant differences were found between the perceptions of gambling and banking sector respondents with respect to the money laundering risks posed by PEPs (Z=13.9; p≤0.0001) and between those from the alternative remittance and banking sectors (Z=-6.214; p≤0.0001). This could, arguably, be explained on the basis that those in the banking and remittance sectors would be more likely to encounter and hence form views about foreign PEPs than those in the gambling sector. Confirmation of this would, however, require further research. It should be noted that the majority of respondents within the gambling sector were from small business clubs and pubs, and that larger gambling sector entities such as casinos, may have a different view on the risks posed by PEPs.

The different perceptions of the level of risk of customers present in different industry sectors could also be due, in part, to the nature of the customer bases of these businesses. The large proportion of respondents from the gambling sector who perceived that individuals posed risks of money laundering (41.2%), as opposed to domestic companies (8.5%), reflects the customers of these businesses—gambling businesses generally only having individuals as customers. The interview data further confirmed this finding. Proprietors of pubs that have gaming machines considered that high levels of risk surround patrons who spend large sums at venues with multiple gaming. Domestic companies were, obviously, not involved in such activities.

Respondents were also asked to predict what they perceived as emerging money laundering risks to their businesses for the period from 1 July 2009 to 30 June 2011 (see Table 7). The unprompted response of approximately one-third of respondents (32.8%) was that they expected their businesses to face no money laundering risks in the two years to 30 June 2011. A further 18.7 percent of respondents expected there to be low risk or for risk of money laundering to decrease during that period. A much smaller proportion of respondents (1.5%) anticipated that risk of money laundering would increase.

Table 7: Areas of perceived money laundering risk to 30 June 2011
Potential money laundering risk n %a
No perceived risks 1,375 32.8
Low risks/decreasing risks 785 18.7
Risks perceived to increase 62 1.5
Money transfer/foreign exchange 111 2.7
Gambling 288 6.9
New/unknown clients 88 2.1
Generic money laundering/proceeds of crime risks 45 1.1
Fraud 52 1.2
Drugs 45 1.1
Identity-related issues 45 1.1
Use of cash 33 0.8
Financial services 34 0.8
Superannuation 20 0.5
Internal fraud/staff issues 22 0.5
Tax evasion 19 0.5
Other 118 2.8
Don’t know 190 4.5
No response 1,061 25.3

a: Respondents were able to select more than response; therefore, percentages do not total 100

Source: AIC AML/CTF Australian businesses survey [computer file]

Respondents from the cash delivery service sector were most likely to believe that there would be no money laundering risk for their businesses in the two years to 30 June 2011 (43.9%), while a further 21.1 percent anticipated that such risk would be low or would decrease. Respondents from the securities and derivatives sector were least likely to believe that there would be no money laundering risk to their businesses in the two years to 30 June 2011 (21.1%), although 25.4 percent of these businesses also anticipated that risks would be low or decrease during the ensuing two year period.

Apart from those who considered that their business faced no risks of money laundering or low or decreasing risks in the two years to 30 June 2011, gambling was the most commonly identified money laundering risk, selected by 288 respondents, although most of these (n=272) were from the gambling sector themselves. Most of the 2.7 percent (n=111) of respondents who nominated money transfers or foreign exchange as posing money laundering risks in the two years to 30 June 2011 (see Table 7) were also sector specific. The foreign exchange sector had the highest proportion of respondents who selected foreign exchange or money transfers as being a risk (13.8% of that sector’s respondents). A statistically significant difference was found between the mean results for foreign exchange businesses and the next business category that identified foreign exchange as a high risk (7.9% of the ‘other’ category), in terms of foreign exchange being a money laundering risk in the ensuing two years to 30 June 2011 (Z=-2.855; p≤0.004). In summary, respondents from the foreign exchange sector were most likely to nominate money transfers or foreign exchange as a money laundering risk, as might be expected.

Changes in perceived money laundering risks

Survey respondents

Survey respondents were asked to consider the level of money laundering risk their business had been exposed to in the financial year prior to 30 June 2009 and how they perceived the level of risk may alter in the ensuing two year period to 30 June 2011. The findings are shown in Table 8.

Table 8: Changing perceptions of money laundering risks
Risks to 30 June 2009 Risks from 1 July 2009 to 30 June 2011
Current risk level n % Expected change to risks n %
Low 3,785 97.8 Increase 128 4.0
Medium 76 2.0 Remain the same 2,991 93.6
High 9 0.2 Decrease 78 2.4

Source: AIC AML/CTF Australian businesses survey [computer file]

The majority (97.8%) of survey respondents perceived the level of money laundering risk to their businesses in the year to 30 June 2009 to be low. A similarly high proportion of respondents (93.6%) expected the risk of money laundering faced by their businesses to remain the same in the two year period to 30 June 2011. These findings were obtained in 2009 from surveyed businesses and may not accord with the understanding of risk levels held by law enforcement agencies and regulators such as AUSTRAC (2011c) and the Australian Crime Commission (2011).

Interviews

Interviewed participants explained in more detail why they perceived that their businesses currently faced few risks of ML/TF and why they thought these low levels of risk were unlikely to change in the foreseeable future. The customer profile of their business, stringent practices for acquiring new customers and KYC procedures, having few new customers, business size and the nature of their industries were the key reasons cited by the interview participants for the perception that they had very low or non-existent risks of ML/TF to their businesses (eg see Box 2).

Box 2: Business perceptions of money laundering risks

The customer profile of a cash delivery business

All of the cash delivery business customers were well-known companies and entities that the public are familiar with; their customers did not include any individuals. A NSW Government department, with 900 sites that were serviced by the cash delivery business where all of the cash collected was in the form of coins, was a typical example of a client. All of the cash delivery business customers were based in Australia and no customer had ever requested that their funds be sent offshore.

Screening new customers in a private mortgage company

The private mortgage company held views on specific kinds of borrower clients that might pose higher risks of illicit dealings. These views were formed on the basis of the location that the business operates from. The company would not lend funds for some property development ventures or to other borrowers that they assumed may be likely to be involved in organised crime. The company had, unwittingly, loaned funds to borrowers to pay proceeds of crime warrants in the past. The company ameliorated the risks associated with these customers by clarifying the nature of the offence with the prospective borrower’s lawyer and witnessing proof of the nature of the matter. Banks, faced with the same kind of loan application, have the capacity to request details of the debt, whereas a private mortgage lender does not have the same powers.

Source: Cash delivery business and private mortgage company representative, personal communication, November 2009

Some interviewees took the view that money laundering and terrorism financing did not pose any risk to their businesses because of the nature of the industry in which they operated. For example, one interviewee from the funds management industry was unaware of any instances of funds managers who had been involved in ML/TF, although it is theoretically possible that funds managers could be involved in assisting money laundering activities unwittingly. Those from the gambling sector, predominantly owners of pubs and clubs that operated gaming machines, viewed the legislation as being necessary for financial institutions but considered it to be superfluous for a pub or club.

The small business owners who were interviewed each referred to the size of their businesses as the main reason why risks of money laundering and financing of terrorism were low. These individuals stressed that the size of their customer base allowed them to know their existing customers personally, effectively minimising risks to their businesses. The interview participants from the gambling sector provided a common example of how the size of their businesses might insulate them against risks of ML/TF. Gaming machines allow the possibility of placing large sums of money into each machine and having that money paid back out. A customer’s capacity to do so in a venue with few machines, while remaining unnoticed by staff, would be exceedingly low. A larger venue with many more machines could offer, in the opinion of the interviewee, a more genuine opportunity for this to take place as the staff would be less likely to be able to monitor all of the gaming machines effectively. One interviewee observed that previously unknown customers in a small pub were immediately noticed by staff and some customers were inclined to monitor the behaviour of each other carefully—often in order to see which machines were likely to pay dividends more than others. The interviewee felt that this kind of environment almost completely removed the ability for anyone in the establishment to do anything untoward without attracting attention.

One interviewee noted that the cash-based nature of the hotel industry afforded a far greater opportunity to launder illicitly-gained funds than did the use of gaming machines. It was thought that hotels offered opportunities to co-mingle the proceeds of crime with legitimate turnover by discounting stock to increase the turnover of the business; or by adding false levels of stock into the stock monitoring system. One interviewee noted that the ability to co-mingle funds in a cash business was not tied singularly to the hotel industry—it had little to do with gaming facilities and more to do with the cash-intensive nature of businesses in general.

The risks identified by interviewees were very industry specific; or tied to the specific services offered by some businesses. For example, some of the risks posed to commercial banks were thought to arise from the remittance services and trade financing products they do business with. One interviewee explained that a bank’s inability to verify the presence, absence, quantity, or price of commodities exposed it to risk that it may have provided finance for something entirely different than that represented and the money may have been paid back to the bank to develop a financial trail for it. The goods financed by a bank arrive at their destination port, money is exchanged and the transaction documents arrive weeks after a transaction has taken place. The transactions take place long before the bank’s documentation arrives; it is not possible to examine the actual delivery even if the bank wanted to, or had the expertise to do so. The process becomes even more complex where the bank has provided financing for trade between two countries other than Australia.

Risks identified by an interviewee based on the Gold Coast concerned the location of the business. The director of this firm considered that the Gold Coast was a target for criminals testing out various scams. This director highlighted that the risks of doing business in this location were increased by the highly transitory population and the absence of any industry apart from tourism.

The interviewee from the money-changing and remittance service business held a different view of the tourist-orientated location of his business. He viewed the customer base of tourists, cruise ship employees and migrant workers as posing a lower risk of becoming involved in ML/TF than a more diverse customer base that the same kind of business in a metropolitan location might attract. He did note that the only potential risk areas within the business stemmed from the remittance services he provided to migrant workers, but stressed that the identification requirements and transaction information needed to complete the transfer through the network he utilised eliminated those risks. Alternative remittance providers may, however, be subject to enhanced risks owing to close kinship or cultural ties with their customers, which may lead to subtle pressures to comply with high-risk requests. Smaller businesses, regardless of sector, also face capacity constraints in putting risk identification and mitigation programs in place. A regional pub owner agreed with the utility of the AML/CTF regime in metropolitan areas but did not see any risks of ML/TF to her business due to its location in a country town with a population of less than 10,000 people; she had never seen any evidence of either taking place and did not expect this to change in the next two years.

Interviewees highlighted the fact that opaque transactions within their businesses created a potential risk area for exposure to ML/TF. One interviewee expressed concern about the role of other financial institutions as intermediaries in the transactions made with his business. Borrower clients, for example, are able to make cash deposits in a branch of a major bank to service a loan. The mortgage company, in these instances, remained unaware if those payments were made as large cash payments. The mortgage company has had to rely on the bank to perform the appropriate due diligence in these situations. The opaque transactions identified by an interviewee in the mutual banking industry encompassed internet banking services, where the business has a decreasing amount of contact with customers, and in the capacity for account holders to nominate third-party signatories or power of attorney access to accounts. This left the business unsure about who was transacting through the account.

Perceptions of terrorism financing risks

Survey respondents were asked to consider the potential risks to their business of becoming involved in a transaction tied to the financing of terrorism in some way. All survey participants were asked to identify the customer types that they considered would pose the highest risk of becoming involved in the financing of terrorism and the types of terrorism financing risks that their businesses might face in the two year period to 30 June 2011. The survey sought to document the level of terrorism financing risks perceived by regulated businesses in the 2008–09 financial year and to document how regulated businesses expected those risks to alter in the forthcoming two year period. The study also documented the views of regulated businesses on the best strategies for reducing risks of terrorism financing. It should be noted that accurate intelligence on terrorism financing risks is not widely known among the community generally and few people in Australia could be expected to have the same level of understanding of risk levels as law enforcement and security agencies.

Table 9 shows the views of survey respondents as to the types of customers they perceived to hold the greatest risks of being involved in the financing of terrorism during the financial year 2008–09, selected from a predetermined list of customer types. It was found that more than 36.1 percent (n=1,511) of respondents believed that individuals posed the greatest risk, followed by PEPs (24.7%).

Table 9: Customers perceived to hold the greatest risk of terrorism financing
Type of customer n %
Individuals 1,511 36.1
Domestic and foreign companies 837 20.0
Charities and not-for-profit organisations 500 11.9
Partnerships 303 7.2
Registered cooperatives 200 4.8
Politically exposed persons 1,035 24.7
Foreign government bodies 815 19.5
Incorporated and unincorporated associations 366 8.7
Trustees 289 6.9
Domestic government bodies 174 4.2
Don’t know 1,898 45.3
No response 138 3.3

Note: Respondents were able to select more than response; therefore, percentages do not total 100

Source: AIC AML/CTF Australian businesses survey [computer file]

These results were significantly different according to the business sector the respondents occupied (χ2=35.8, df=8, p≤0.0001). Comparing mean results for the highest perceived risk customer types, it was found that there was a statistically significant difference between the proportion of respondents who considered that individuals presented the highest risk of financing of terrorism and those who considered that PEPs presented the highest risk, with respondents across the entire sample perceiving risks from individuals to be the greatest (Z=11.31, p≤0.0001).

Changes in perceived financing of terrorism risks

Table 10 shows the views of respondents on the types of terrorism financing risks they considered would affect their businesses over the two year period to 30 June 2011, selected from a predetermined list of risk categories (see Box 3 for known Australian terrorism financing cases). The majority of respondents (57.9%) were of the view that their business would face no risks, or low risks, of terrorism financing in the two years to 30 June 2011. Approximately six percent of respondents did not know whether such risks existed or they were unable to predict the level of risk. Comparing mean results for response categories of no risk/low risk and don’t know/can’t predict the risk, it was found that there was a statistically significant difference between the proportion of respondents who considered that there were no/low risk of financing of terrorism and those who did not know or could not predict the risks for the two years to 30 June 2011 (Z=51.21, p≤0.0001).

Table 10: Perceived terrorism financing risks to business to 30 June 2011
Perceived terrorism financing risk n %
No risk/low risk 2,425 57.9
Money transfer/foreign exchange 70 1.7
Gambling 48 1.2
Increased business/new customers/new products 27 0.6
Unknown customers/investors/services 26 0.6
Identity fraud/other fraud 21 0.5
Cash 8 0.2
Charities 3 0.1
Other 451 10.7
Don’t know/can’t predict 241 5.8
No response 912 21.8

Note: Respondents were able to select more than response; therefore, percentages do not total 100

Source: AIC AML/CTF Australian businesses survey [computer file]

Box 3: Australian terrorism financing cases

Very few defendants have been charged with terrorism financing offences in Australia (see Smith, McCusker & Walters 2010). The case of Vinayagamoorthy does not provide any great insight into the potential covert use of the Australian financial system for the purposes of providing financing to terrorist organisations or for terrorist actions. The prosecution contended that the defendants generated funds by selling stolen car parts and made personal donations to a group pool of funds. The judgements in this case did not explicitly describe whether any of these funds entered the financial system, remained as cash, or were simply spent on goods or services.

Aruran Vinayagamoorthy and Anor v DPP [2007] VSC 265

In 2009, three men—Aruran Vinayagamoorthy, Sivarajah Yathavan and Arumugan Rajeevan Tash—pleaded guilty to offences under the Charter of the United Nations Act 1945 (Cth) for making money available to an entity, the Liberation Tigers of Tamil Eelam (LTTE), proscribed for the purposes of that Act. It was the prosecution case that $1,030,259 was made available to the LTTE. Although the judge at sentencing found it was not possible to say precisely how much money was made available, he considered that they were large amounts. It was also the prosecution’s case that Mr Vinayagamoorthy made an estimated $97,000 worth of electronic components available to the LTTE over a period of about two years. The three defendants collected funds from the Tamil community in Australia through the Tamil coordinating committee, the TCCE, and provided them to the LTTE between 2002 and 2005. The court accepted that the defendants were motivated, in part, by a desire to assist the Tamil community in Sri Lanka. The three were sentenced to terms of imprisonment, but released on good behaviour bonds (R v Vinayagamoorthy & Ors [2010] VSC 148, 31 March 2010).

R v ANB and others [2009] VSC 21

In November 2005, 10 men were arrested in Melbourne and charged with terrorism offences under Part 5.3 of the Criminal Code Act 1995 (Cth). A further three men were arrested in March 2006 and charged with similar and related offences. All 13 were alleged to have been members of a local unnamed terrorist organisation led by the defendant. It was alleged that the organisation was committed to preparing, planning, assisting in, or fostering the commission of terrorist acts in an effort to influence the Australian Government to withdraw its troops from Iraq and Afghanistan. Four of the 13 accused were acquitted, with the balance convicted following either pleas of guilty or a contested trial. Three of the accused were convicted of attempting to intentionally make funds available to a terrorist organisation pursuant to s 102.6(1) of the Criminal Code. The Court found that they intended to do this by selling parts from stolen cars and using the proceeds of sale for the purposes of the organisation. The Court accepted evidence that an amount probably in the order of $7,000 had been raised through other means. Applications for leave to appeal against conviction and sentence were lodged by all the defendants and were heard by the Victorian Court of Appeal in March 2010. On 25 October 2010 the Court delivered judgement. The convictions recorded against each of the defendants with respect to the principal offences were upheld although other convictions for possessing a thing connected with preparations for a terrorist act were overturned. The defendants were resentenced. Applications for special leave to appeal to the High Court of Australia by three of the defendants were refused (CDPP 2011: 71).

The results were significantly different according to the business sector respondents occupied (χ2=98.1, df=8, p≤0.0001). A Cramér’s V of 0.16 indicated that there was a weak level of association between respondents’ perceptions of risk and the business sector they occupied. The proportion of respondents from different business sectors who perceived no or low risk of terrorism financing ranged between 65.9 percent for financial services businesses to 40.4 percent of foreign exchange businesses.

Table 11 shows the views of respondents on the level of terrorism financing risks they considered have affected their business in the year 2008–09 and how the level of risk would change over the two year period to 30 June 2011. Almost all respondents (99.5%) considered there to be a low level of terrorism financing risk to their business in the year to 30 June 2009 and almost all (95.3%) anticipated that the level of risk would not change during the two years to 30 June 2011. The 17 respondents who considered that terrorism financing risks were medium in 2008–09 were spread across the gambling (n=6), banking (n=4), alternative remittance (n=2), foreign exchange (n=2), managed funds and superannuation (n=1), and other (n=1) business sectors. The two respondents who considered risks to be high were both from the gambling sector.

Table 11: Perceptions of the level of terrorism financing risks to businesses
Risks to 30 June 2009

Risks from 1 July 2009 to 30 June 2011

Current risk level n % Expected change to risks n %
Low 3,522 99.5 Increase 84 2.8
Medium 17 0.5 Remain the same 2,822 95.3
High 2 0.1 Decrease 55 1.9
Total 3,541   Total 2,961  

Note: Percentages may not total 100 due to rounding

Source: AIC AML/CTF Australian businesses survey [computer file]

Perceived effectiveness of anti-money laundering/counter-terrorism financing measures

Respondents were also asked to identify the countermeasures that they considered would be most effective in minimising ML/TF risks to their businesses.

Anti-money laundering measures

Table 12 presents the results for anti-money laundering measures grouped into 17 categories. The most commonly identified measures that respondents considered to be effective in minimising money laundering related to customer identification and due diligence (14.6%). Considerably fewer respondents viewed transaction monitoring (6.4%) or reporting (2.9%) as effective countermeasures.

The large ‘no response’ rate, compared with the limited positive response rates given for each of the suggested risk mitigation measures listed in Table 12, maybe due to a lack of understanding of the utility of the risk mitigation measures proposed, a lack of understanding regarding the differential functions of the risk mitigation measures and/or a level of indifference to the effectiveness of any or all of these measures. In turn, this may be because respondents came largely from small or micro businesses that do not always have extensive AML/CTF compliance measures in place. However, the majority of respondents, irrespective of the sector they represented, did use basic compliance measures and most believed these were effective in minimising ML/TF risks faced by their business (see next section). Alternatively, views may have been influenced by the educative resources available to entities at the early stages of implementation of AML/CTF regulatory obligations, which have been described as possibly being limited in both sector specificity and accessibility (eg see Bricknell et al. 2011 and Choo et al. forthcoming).

Table 12 : Measures most effective in minimising money laundering risks to business
Risk mitigation measure n %
KYC/customer ID/more customer ID/ID card 611 14.6
Staff training/vigilance/awareness 450 10.7
In house/existing procedures/no change needed 401 9.6
Ongoing monitoring/vigilance/observation 311 7.4
Transaction monitoring 269 6.4
Limit transactions (such as by size) 123 2.9
Reporting 120 2.9
Compliance/increase compliance/AUSTRAC or AML/CTF Act measures are fine 101 2.4
Intelligence sharing/ID verifying database/list of high-risk customers 80 1.9
Software 69 1.7
Need information/training/typologies from AUSTRAC 60 1.4
Update/assess procedures/improvement 41 1.0
Other legislation/regulation already covers it 31 0.7
General public awareness 39 1.0
Other 168 4.0
Don’t know 297 7.1
Low risks/no risks/need nothing at all 478 11.4
No response 1,279 30.5

Note: Respondents were able to select more than response; therefore, percentages do not total 100

Source: AIC AML/CTF Australian businesses survey [computer file]

The extent to which respondents nominated customer due diligence as the most effective strategy against money laundering varied significantly according to the respondent’s business sector (χ2=124.2, df=8, p≤0.0001), although a Cramér’s V of 0.18 indicated that there was only a weak level of association between respondents’ identification of effective anti-money laundering measures and the business sector they occupied. Fewer gambling sector respondents (10.9%) nominated customer due diligence as the most effective countermeasure to money laundering than respondents from the banking (19.4%) or managed funds/superannuation (24%) sectors. Comparing mean results for responses from gambling sector respondents with those from the banking sector, it was found that there was a statistically significant difference between the proportion of respondents who identified customer due diligence as an effective anti-money laundering measure (Z=14.18, p≤0.0001). Similarly, there was a statistically significant difference between the proportion of respondents from the gambling sector who identified customer due diligence as an effective anti-money laundering measure and those in the managed funds and superannuation sectors (Z=12.35, p≤0.0001).

Approximately 11 percent of respondents stated that there were low risks, or no risks associated with money laundering and that, accordingly, they did not see the need for any countermeasures. The extent to which respondents stated that there were no risks of money laundering to their businesses and accordingly, no anti-money laundering measures were needed, varied significantly according to the respondent’s business sector (χ2=44.5, df=8, p≤0.0001), although a Cramér’s V of 0.18 indicated that there was only a weak level of association present. Cash delivery services was the sector most likely to indicate that no risks were present and that no measures were necessary to address money laundering (19.3%). Only 4.7 percent of respondents from the alternative remittance sector considered there to be no risks and no countermeasures required. Comparing mean results for responses from gambling sector respondents (13.4%) with those from the banking sector (10.2%), it was found that there was a statistically significant difference between the proportion of respondents who indicated that their businesses faced no risks or low risks of money laundering (Z=-19.7, p≤0.0001), with gambling sector respondents being more likely to indicate an absence of risk than those from the banking sector.

Counter-terrorism financing measures

Respondents were also asked to identify the countermeasures that they considered would be most effective in minimising financing of terrorism risks to their businesses. Table 13 presents these results grouped in 12 categories. Respondents most commonly indicated that no countermeasures were necessary, or they had no suggestions as to the measures required (36.4%). The proportions of each sector who indicated that no measures were necessary or that they had no relevant suggestions ranged from more than 40 percent of respondents from the securities and derivatives sector to 24.4 percent from the financial services sector. The extent to which respondents stated that there were no counter-terrorism financing measures needed or that they had no relevant suggestions regarding counter-measures, varied significantly according to the respondent’s business sector (χ2=41.0, df=8, p≤0.0001), with a Cramér’s V of 0.10 indicating a weak level of association being present.

Table 13 : Effective measures for minimising terrorism financing
Risk mitigation measure n %
Due diligence/Know your customer 396 9.5
Education and training 286 6.8
Following in-house policies and procedures 268 6.4
Transaction monitoring 214 5.1
Awareness/observation/vigilance 149 3.6
Better communication with government, law enforcement and other agencies 117 2.8
Reporting suspect transactions/individuals/instructions 102 2.4
Existing legislation, policies, procedures 101 2.4
Limiting services (such as no cheques, no cash out) 72 1.7
Identity checks/watch lists/criminal checks/institution checks 71 1.7
Other 1,248 29.7
No measures needed/no suggestions 1,526 36.4

Note: Respondents were able to select more than response; therefore, percentages do not total 100

Source: AIC AML/CTF Australian businesses survey [computer file]

The most commonly identified measures that respondents considered to be effective in minimising terrorism financing related to customer identification and due diligence (9.5%) and as noted above, 14.6 percent of respondents suggested that this was also an effective countermeasure for money laundering risks. Only 1.7 percent of respondents considered that identity checks, use of watch lists, criminal background checks and other institutional checks would be effective counter-terrorism financing measures. Comparing mean results from respondents who indicated that no measures were needed and those who indicated that customer due diligence was the most effective counter-terrorism financing measure, it was found that there was a statistically significant difference between these two groups of respondents (Z=29.3, p≤0.0001).

On the whole, KYC procedures were considered to be effective in countering both money laundering and financing of terrorism risks, possibly because these are widely known and used already by many businesses. Many respondents, however, had no suggestions concerning effective countermeasures owing to the perceived very low levels of risk that they faced. Again, reasons surrounding the lack of understanding of utility, a lack of understanding of the differential purposes of the measures and/or indifference to the regime may explain the limited positive responses received to the risk mitigation measures proposed.