Australian Institute of Criminology

Skip to content

Compliance costs associated with the anti-money laundering/counter-terrorism financing regime

The present study sought to assess the financial and other costs associated with conducting the AML/CTF regime in Australia. Unfortunately, difficulties were encountered by participants in quantifying precisely the costs of implementing AML/CTF regulations. Previous surveys of regulated businesses overseas have also emphasised the difficulties associated with quantifying the costs of AML/CTF regimes. For example, in the United Kingdom, more than 80 percent of MLROs surveyed by PricewaterhouseCoopers were unable to determine their company’s expenditure on AML/CTF in 2006 (PricewaterhouseCoopers 2007). This was partly due to the way compliance systems have been designed, which often do not permit costs specifically associated with AML/CTF compliance to be disaggregated from overall business compliance costs generally. Few reporting entities in Australia have previously provided estimates of the actual cost of AML/CTF implementation. Some banking businesses have declined to do so, citing commercial confidentiality and Sathye (2008) has suggested that accounting practices may render the calculation of separate costs for AML/CTF compliance impossible to ascertain. Hence, the present AML/CTF Australian businesses survey is unique in providing some of the first quantitative estimates of implementation and compliance costs that have been published in Australia.

Despite the fact that the business environment and regulatory systems differ in some overseas countries from those that exist in Australia, it is appropriate to look to some international research to understand the difficulties that arose in attempting to quantify compliance costs and the effectiveness of the regime in the current study. Although most of the MLROs surveyed by PricewaterhouseCoopers in the United Kingdom in 2007 were unable to quantify the costs associated with AML/CTF compliance precisely, approximately 80 percent of the sample considered that the regime had delivered no benefits to their businesses when taking into consideration the level of cost involved (PricewaterhouseCoopers 2007); and one-third of MLROs surveyed in 2001 believed that the costs of AML/CTF outweighed any benefits of the regime (Gill & Taylor 2004). The views of businesses on the expense of AML/CTF in this study were tied to the business sector of the respondents and were also linked to the size of the business in question. Approximately 67 percent of banks did not consider AML/CTF too costly for the risks involved, whereas more than 70 percent of building societies and 68 percent of insurance companies stated that the regime was too expensive for those risks. Almost half of this sample of MLROs, who also performed another role in their company, considered the regime too expensive. By comparison, only a quarter of full-time MLROs considered the regime to be too expensive. Gill and Taylor (2004) suggested that the more favourable view of full-time MLROs stems from their employment in the banking sector. MLROs with concurrent roles may also be more likely to work in a smaller business and this may also have influenced their views on the balance of costs of AML/CTF for the risks involved.

The results of previous overseas surveys have found relatively large increases in AML/CTF compliance costs since the regime has been implemented. The Tier One banks surveyed by KPMG (International 2007), for example, reported an average increase of more than 50 percent for AML/CTF compliance costs between 2004 and 2007. Similarly, more than three-quarters of the regulated businesses surveyed by KPMG in India in 2009 anticipated an increase in their AML/CTF compliance costs in the three years to 2012. These businesses identified automated transaction monitoring, retrospective transaction review and transaction monitoring as the most expensive aspects of compliance. More than 90 percent of the Indian sample forecast that their transaction monitoring systems would need more resources because of the complex implementation process, ongoing costs and reviewing false positives. Just over 75 percent of these businesses anticipated that their total costs for all AML/CTF compliance would increase in the three years to 2012 (KPMG (India) 2009). KPMG’s 2007 Tier One (by capitalisation) banks also reported human resources and transaction monitoring to be the most expensive aspects of AML/CTF compliance (KPMG International 2007).

Current costs of compliance and anticipated changes

The survey sought to document both the nature and amount of the costs expended by respondent businesses in complying with the AML/CTF requirements during the preceding 12 month period ending 30 June 2009. The survey also canvassed the expectations of participants regarding the changes to their AML/CTF compliance costs in the two years to 30 June 2011. Because regulated businesses are well-placed to identify opportunities for reducing their compliance costs, the survey also asked for views on potential cost saving measures.

Cost estimates are somewhat difficult to calculate as initial implementation costs can often be high where new systems are created and software purchased, while savings can be made in subsequent years as systems are refined and inefficiencies eradicated. Subsequent years may, however, have ongoing maintenance costs and regular staff training overheads. Costs can also vary as businesses change their operations or move into new markets—particularly those that entail business transactions with potentially high-risk customers located overseas. As this survey was completed shortly after the full implementation of the AML/CTF Act 2006 (Cth), the costs data presented below refer to a period when entities were actively making system changes in response to new compliance obligations. It is possible that for some entities these changes required substantial expenditure while for others, only minimal investment was needed. The findings described below refer to expenditure as estimated for this timeframe, which may or may not have continued into the current period. In addition, as noted above, it is sometimes also difficult for AML/CTF compliance costs to be disaggregated completely from general corporate compliance and risk management costs. This is reflected by some respondents to the present survey being unable to qualify the costs of AML/CTF specifically.

The survey began by asking respondents to estimate the approximate cost to their business of complying with the AML/CTF regime over the 12 month period ending 30 June 2009. Figure 20 shows that expenditure estimates for all of the survey respondents ranged from $0 to $60m for the period in question. One-fifth (21%) of respondents stated that their business did not incur any AML/CTF compliance costs in the period to 30 June 2009. When costs were incurred, the mean expenditure per business was $57,580, with a median cost of $1,000. Almost two-thirds of the respondents (63%) estimated that their business’ expenditure on AML/CTF compliance was more than $1 and less than $10,000.

Figure 20: Estimated compliance costs from all respondents for the year to 30 June 2009 (%)

figure 20

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

In terms of the sector respondents occupied, at least some respondents from each sector reported having no expenditure on AML/CTF compliance. Almost 40 percent of businesses classified as ‘other’ reported no AML/CTF compliance expenditure, while only four percent of managed funds and superannuation sector respondents reported no such expenditure. The results in Table 20 show the average and range of reported AML/CTF costs within each business sector. Businesses from the securities and derivatives sector had the highest mean annual compliance costs at close to $300,000 for the 2008–09 year. The sectors that reported the least mean expenditure on anti-money laundering compliance were the foreign exchange sector, the gambling sector and those classified as ‘other’ businesses.

Table 20: AML/CTF compliance expenditure across sectors
Sector Mean ($) Median Range
Gambling $10,848 $500 $0–$12,000,000
Banking $198,156 $2,100 $0–$36,200,000
Managed funds and superannuation $52,201 $6,000 $0–$3,000,000
Financial services $26,721 $1,000 $0–$3,016,500
Securities and derivatives $291,037 $1,000 $0–$60,000,000
Foreign exchange $7,979 $375 $0–$550,000
Cash delivery $12,801 $500 $0–$550,000
ARS $12,003 $1,000 $0–$550,000
Other $8,349 $250 $0–$550,000
All sectors $57,580 $1,000 $0–$60,000,000

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

Comparing categories of expenditure on AML/CTF compliance (see Figure 20) with categories of annual business turnover (see Table 3), a statistically significant, but weak relationship was found (χ2=327.8, df=25, p≤0.0001; Cramér’s V=0.23). Similarly, comparing categories of expenditure on AML/CTF compliance (see Figure 20) with categories of the number of full-time equivalent employees (see Table 2), a statistically significant, but weak relationship was found (χ2=802.1, df=30, p≤0.0001; Cramér’s V=0.23).

Figure 21 shows the percentage of businesses in each sector whose expenditure on AML/CTF compliance was grouped into five categories (in addition to those who reported zero expenditure). As expected, respondents from the managed funds/superannuation, banking and securities sectors spent the highest amounts on AML/CTF compliance, while those from the gambling, foreign exchange and ‘other’ sectors spent the least. Over 50 percent of managed funds businesses spent in excess of $10,000, while only 4.3 percent of those in the gambling sector spent in excess of $10,000. Approximately one-quarter (25.5%) of cash delivery businesses spent between $1 and $500. The highest expenditure on AML/CTF compliance costs were reported by one respondent with 850 full-time equivalent employees from the securities and derivatives sector who spent $60m in the year 2008–09. The highest spend in the banking sector was one business that spent $36.2m for the year (see Table 20).

Figure 21: Compliance cost categories for the year to 30 June 2009, by business sector (%)

figure 21

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

Respondents were also asked to arrange various types of compliance costs in rank order from most costly to least costly. The aspects ranked were:

  • AML/CTF training and professional development;
  • AML/CTF staff recruitment;
  • AML/CTF staff salaries;
  • AML/CTF monitoring software establishment costs;
  • AML/CTF monitoring software recurrent costs; and
  • AML/CTF external consultancy costs.

Respondents were also able to provide a rank order for additional items of compliance expenditure and these were also rated from the most costly item to least costly. Table 21 presents summary statistics for respondents’ rankings of the most costly aspects of AML/CTF compliance. Respondents indicated that training and professional development and staff salaries were the two most costly aspects of compliance from the prompted categories. Record keeping and customer relations were the two most costly areas of expenditure of the self-nominated categories.

Table 21: Most costly compliance components
Compliance aspect Mean ranking Median ranking Standard deviation
Prompted responses
Training/professional development 2.19 2 1.5
Staff recruitment 3.62 3 1.5
Staff salaries 2.68 2 1.5
Monitoring software establishment 3.73 4 1.4
Software recurrent 4.52 5 1.4
External consultancy 4.11 5 2.0
Unprompted responses
Record keeping/monitoring/reporting 1.91 1 1.5
Equipment/admin costs 2.81 3 2.0
Customer relations 2.40 1 2.6

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

Comparing mean results for responses relating to the two categories with the highest rankings (training/professional development and record keeping), it was found that there was no statistically significant difference between these two categories (t=-1.1, p≥0.28). Similarly there were no significant differences between the compliance cost mean rankings for record keeping, monitoring, and reporting and for the costs of customer relations (t=-0.407; p≥0.703); or the cost of record keeping and the costs of equipment and administration (t=-1.809; p≥0.080), or for each of the unprompted compliance cost areas supplied by survey respondents.

Respondents were also asked to indicate the extent to which they expected their AML/CTF compliance costs would change in the two year period ending 30 June 2011 and if so, what was the area of greatest increase or decrease. More than two-thirds of respondents (67.7%) expected the AML/CTF compliance costs to their businesses to remain the same in the two year period to 30 June 2011. Few businesses (5.5%) anticipated those costs falling while a little over a quarter of respondents (26.8%) anticipated that their AML/CTF costs would increase (see Tables 29 and 30 regarding anticipated increases in compliance areas). Figure 22 shows the responses from businesses in the various sectors concerning the likelihood of costs of compliance changing in the ensuing two years to 30 June 2011. The largest proportions of almost all sectors expected compliance costs to remain the same. The alternative remittance sector (47.8%), cash delivery services (43.2%) and the securities and derivatives (42%) sectors were those with the largest proportion of businesses anticipating an increase in compliance costs. The gambling and foreign exchange sectors both had approximately 75 percent of respondents expecting the costs of compliance to remain the same in the two years to 30 June 2011.

Figure 22: Estimated movements in compliance costs to 30 June 2011, by business sector (%)

figure 22

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

The size of the expected increases and decreases in compliance costs to 30 June 2011, for those respondents anticipating a change, are presented in Table 22. Approximately 70 percent of the proportion of respondents expecting a shift in compliance costs also expected those costs to rise by up to 50 percent. A much smaller proportion (12.9%) anticipated an increase in AML/CTF costs of more than 50 percent.

Table 22: Anticipated shifts in AML/CTF compliance costs
Direction of change Extent of change Index
n %
Anticipated reduction in costs <50% 59 6.5
>50% 96 10.5
Anticipated increase in costs <50% 639 70.1
>50% 118 12.9

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

Table 23 shows how these anticipated changes in AML/CTF compliance expenditure differed according to the business sector respondents occupied. Of those anticipating an increase in compliance costs, the financial services sector comprised the largest proportion of businesses that expected costs to increase by more than 50 percent. The managed funds and superannuation sector comprised the largest proportion of businesses anticipating a fall in compliance costs of more than 50 percent.

Table 23: Anticipated movements in AML/CTF costs to 30 June 2011, by business sector (%)a
  Anticipating decreased costs Anticipating increased costs
Business sector Decrease by more than 50% Decrease by less than 50% Increase by less than 50% Increase by more than 50% Total
Managed funds/super 18.5 12.6 63.0 5.9 100.0
Banking 14.6 8.1 70.9 6.4 100.0
Foreign exchange 3.7 7.4 77.8 11.1 100.0
Securities/derivatives 7.0 4.7 76.7 11.6 100.0
Cash delivery service 10.0 10.0 65.0 15.0 100.0
Gambling 10.0 3.8 71.1 15.1 100.0
Alternative remittance 5.1 5.1 74.6 15.3 100.0
Other 5.4 1.8 75.0 17.9 100.1b
Financial services 10.0 15.0 47.5 27.5 100.0

a: Percentages are of those respondents who anticipated a change in costs

b: Percentages may not total 100 due to rounding

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

Respondents who reported expecting AML/CTF compliance costs to their business to increase or decrease in the two years to 30 June 2011 also nominated the area of expenditure likely to show the greatest change. The largest proportion of respondents (39.5%) anticipating either an increase or decrease in costs nominated AML/CTF staff training and professional development as the area likely to show the greatest change. AML/CTF staff recruitment was the cost compliance area nominated by the smallest proportion of respondents anticipating change (1.8%) as being most likely to show the greatest impact on costs.

The results presented in Table 24 and Table 25 show that respondents who expected an increase in AML/CTF costs identified different areas of change to businesses who anticipated a decrease in costs. Just over 43 percent (43.2%) of respondents who expected an increase thought that training and professional development would be the area of expenditure most likely to change. An additional fifth of respondents (20.4%) expected that AML/CTF staff salaries would be the area of the greatest cost increase to 30 June 2011.

Table 24: Anticipated increase to costs to 30 June 2011, by compliance area (%)
AML/CTF compliance expense area %
AML/CTF training and professional development 43.2
AML/CTF staff recruitment 1.9
AML/CTF staff salaries 20.4
AML/CTF software establishment costs 12.7
AML/CTF software ongoing costs 6.3
External consultants 12.5
Other 2.9

Note: Percentages may not total 100 due to rounding

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

Table 25: Anticipated decrease to costs to 30 June 2011, by compliance area (%)
AML/CTF compliance expense %
AML/CTF training and professional development 22.7
AML/CTF staff recruitment 1.3
AML/CTF staff salaries 20.0
AML/CTF software establishment costs 18.0
AML/CTF software ongoing costs 0.0
External consultants 29.3
Other 6.0
n/a 2.7
Total 100.0

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

Approximately 30 percent of businesses who anticipated a decrease in costs in the period to 30 June 2011 identified the use of external consultants to be the area of greatest change. Fewer businesses (22.7%) expected staff training and professional development to have the greatest impact on costs although this was similar to the proportion of businesses that anticipated an increase in staff salaries (20%).

Respondents were also asked to indicate how the costs to their businesses of complying with the AML/CTF regime could be reduced. The prompted alternatives were:

  • avoiding duplicated compliance procedures;
  • sharing data and information with other businesses;
  • streamlining account opening procedures;
  • developing AML/CTF software in-house;
  • reducing their reliance on outsourced expertise; and
  • greater sharing of typology data and software by AUSTRAC.

From Table 26 it is apparent that the largest proportion of respondents (34.2%) indicated that AML/CTF costs could be reduced by not duplicating compliance procedures.

Table 26: Mechanisms to reduce AML/CTF compliance costs (%)
Prompted cost reduction mechanisms %
Avoiding duplication of procedures 34.2
Sharing data and information with other businesses 19.8
Streamline account opening 9.2
Develop AML/CTF software inhouse 10.3
Less reliance on outside experts 10.2
Sharing from AUSTRAC 20.5

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

Tests of association demonstrated a statistically significant, but weak relationship between the compliance cost expectations of respondents and their views on reducing costs by avoiding duplicated compliance procedures (χ2=28.0, df=2, p≤0.0001, Cramér’s V=0.10). Those who anticipated an increase in their compliance costs were more likely to agree that those costs could be reduced by avoiding any duplication in procedures.

Respondents who anticipated an increase in costs also indicated that greater sharing of typology data and software by AUSTRAC would reduce their costs, although the survey did not specify what that data or software might be. Tests of association showed that the relationship between anticipated cost movements and greater sharing of typology data and software by AUSTRAC was statistically significant (χ2=68.7, df=2, p≤0.0001, Cramér’s V=0.15). The association between expected compliance costs and the belief that data sharing with other businesses would reduce costs was also statistically significant (χ2=9.9, df=2, p≤0.007, Cramér’s V=0.06). Participants who anticipated cost increases to 30 June 2011 were also more likely to agree that data sharing with other businesses would reduce their compliance costs.

Interviewees’ views of compliance costs

The views expressed by interviewees on the costs and utility of the AML/CTF regime showed a mixture of support for the aims of the regime and difficulties in its application. One interviewee anticipated that, in 2006 when the regime was introduced, compliance costs would be onerous, but later found that compliance was relatively simple and that existing compliance programs or other risk management processes were able to be adapted to suit the new requirements. The positive experiences of one small business with respect to compliance and the ability of existing risk management practices to be integrated into AML/CTF compliance activities, led the Managing Director to believe that those businesses that had difficulties in complying with the AML/CTF regime probably had inadequate risk management procedures in place prior to 2006 and that the introduction of the AML/CTF legislation simply exacerbated the problem for them. Another interviewee noted that although the AML/CTF compliance costs had been very great for her business, the additional benefits that it provided in terms of enhanced risk management made it more than worthwhile. Even if the current legislative requirements were abolished, she would still seek to maintain the system that had been introduced.

For interviewees employed in compliance roles within their organisations, filing the annual compliance report was not felt to be challenging. The picture that emerged from the interviews was that for those with a professional understanding of compliance, or with existing exposure to compliance obligations other than the AML/CTF regime, compliance was not overly difficult. Those without this experience, particularly those from the gambling and alternative remittance sectors, indicated that they found it difficult to understand the entire range of their reporting obligations and where they encountered problems, found it difficult to obtain clear and simple advice. A major concern identified by interviewees from small businesses related to the often legalistic language used by the regulator in providing information and advice. The gambling sector was the industry sector that interviewees perceived the AML/CTF regime as being too onerous for, in view of the risks present in Australia. By comparison, however, one interviewee who was a securities dealer and an Australian Financial Services Licence holder prior to the 2006 AML/CTF reforms, indicated that AML/CTF compliance for his business was so simple that it was pointless. This interviewee took the view that the other compliance obligations for his business, managed by ASIC, were far more arduous. He further noted that the information and templates that ASIC provided were accessible and helpful.

Some interviewees expressed that they had considerable difficulties understanding the regime and knowing how to comply with the legislation. It should be noted that these interviews were conducted in 2009, shortly after full implementation of the 2006 legislation. The actual financial cost of compliance was seen as being less of a problem for some compared with the time and effort required to understand the compliance requirements for small businesses unfamiliar with money laundering and financial crime. Interviewees from the small business sector, in particular, indicated that they found it difficult to obtain advice on how to implement a compliance program that was appropriate for their business sector. The annual compliance report was difficult for some interviewees, although less of a problem for more experienced compliance officers.

Most interviewees found accurate quantification of the costs of complying with the AML/CTF regime for the year to 30 June 2009 difficult. Particular issues arose because AML/CTF compliance costs often were embedded within more general corporate compliance and risk management costs. The reported expenditure was likely to have been affected by the size of businesses, although interviewees suggested that the estimates provided by businesses with multiple types of compliance obligations were probably not solely related to AML/CTF compliance. The interviewees who were able to indicate a dollar amount for their AML/CTF compliance costs for the 2008–09 financial year drew on the fixed costs of software, staff and external consultants to arrive at an estimate, although they noted that the time spent on compliance was difficult to quantify.

The representative from the mutual banking business reported that the business spent approximately $60,000 in the year to 30 June 2009 on AML/CTF compliance. The software component of this figure was $1,500 per month during that period and the remaining portion was for the salary of the compliance officer. The business intended to enhance the software package that it used for risk monitoring and tracking but also noted the impossibility of determining the amount of staff time required to establish the AML/CTF program. The representative from the private equity investor firm, by contrast, paid $25,000 to engage solicitors to prepare an AML/CTF policy but noted that the remaining costs of compliance were negligible as they were subsumed within general risk management and corporate governance activities. The private mortgage provider approached several legal firms to provide the same service to their business and decided, in view of the high price of outsourcing, to develop an AML/CTF compliance regime in-house. This interviewee found the process challenging because of an absence of clarity in the guidelines he used.

Staff costs, record keeping and customer relations were considered to be the most costly components of AML/CTF compliance, with staffing also being identified as an area in which costs are likely to increase. However, this was not the case for all interviewees. One interviewee expected AML/CTF costs to be quite high when he first examined the requirements but subsequently found that his business did not need to hire any new staff in order to become compliant. The resulting costs for implementing an AML/CTF program for this business, as a consequence, were quite low.