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Attitudes towards the anti-money laundering/counter-terrorism financing regime

One of the central aims of the present study was to canvass the views of respondents concerning the necessity for, and effectiveness of, Australia’s AML/CTF regime. Views were also sought on the necessity of the level of resources required for compliance with the legislation in light of the level of risk of ML/TF in Australia and accordingly, the extent to which the regime was effective in minimising risk. Finally, respondents were also invited to offer suggestions concerning possible ways the regime could be improved.

Effectiveness of the anti-money laundering/counter-terrorism regime

The present study sought to document the views of those regulated by Australia’s AML/CTF regime by seeking their opinions on the regime’s contribution to the deterrence of financial crime, minimisation of financial crime risks within businesses, ability to recover the proceeds of crime and promote good governance and integrity of the financial system generally. The AML/CTF regime operates within a much broader regulatory environment, so it was sometimes difficult for respondents to identify the precise extent of the contribution of the AML/CTF regime as distinct from other aspects of corporate governance. Nonetheless, the responses provided some indication of how businesses assessed some of these key aspects of the AML/CTF regulatory environment.

Respondents were asked to rate the effectiveness of the AML/CTF regime in achieving each of the following nine goals:

  • deterring offenders from using reporting entities to facilitate crime;
  • enabling regulators to investigate financial crime effectively;
  • facilitating the recovery of the proceeds of crime;
  • minimising risks of financial crime and identity fraud;
  • minimising risks of money laundering;
  • minimising risks of terrorism financing;
  • minimising risks of reputational damage;
  • maintaining the integrity of the financial system; and
  • promoting good governance.

The views of survey participants on the ability of the AML/CTF regime to meet is goals varied quite considerably (see Figure 23). Overall, significantly more respondents viewed the regime as being effective or very effective at minimising the risk of money laundering (65.2%) compared with those who believed the regime was effective or very effective at minimising terrorism financing risks (58.2%; t=4.7, p≤0.0001). Ten percent of respondents took the view that the aim of the AML/CTF regime to reduce risks of terrorism financing was either ineffective or very ineffective.

Figure 23: Perceptions of the AML/CTF regime’s ability to meet its stated goals

figure 23

Note: POC=proceeds of crime

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

Table 27 presents centralised tendency results for the ratings that respondents gave the regime in meeting its nine objectives. The aim of the regime of ‘enabling regulators to investigate financial crime effectively’ received the highest mean effectiveness rating (3.7), as did the additional benefit of installing ‘good governance practices’. The lowest effectiveness rating was given for the aim of ‘facilitating the recovery of the proceeds of crime’ (3.4). A statistically significant difference was found between the mean results for the highest and lowest mean rated aims of the regime (t=-2.5; df=7069.9; p≤0.01).

Overall, survey respondents considered that the AML/CTF regime was generally effective in meeting most of its stated aims, such as deterring offenders, facilitating investigations of financial crimes and promoting good governance, and held neutral opinions regarding its effectiveness in reducing reputational risks and tracking the proceeds of crime.

Table 27: Perceptions of the effectiveness of the AML/CTF regime, by goal
Possible benefit Mean effectiveness rating (1–5) Median effectiveness rating (1–5) Standard deviation
Deter offenders 3.6 4.0 0.9
Help regulators to investigate financial crime 3.7 4.0 0.8
Facilitate proceeds of crime recovery 3.4 3.0 0.8
Minimise financial crime/ID fraud risks 3.6 4.0 0.9
Minimise money laundering risks 3.7 4.0 0.9
Minimise terrorism financing risks 3.6 4.0 0.9
Minimise reputational damage risks 3.5 3.0 0.8
Financial system integrity 3.6 4.0 0.8
Good governance practices 3.7 4.0 0.8

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

Views of interviewees concerning effectiveness of the regime

Interviewees indicated that the regime was, to them, less effective in minimising risks of terrorism financing than money laundering, owing to the amounts of money involved being generally much smaller than the amounts of money that would be involved in money laundering activities.

One interviewee from the remittance sector viewed the current system of threshold reports and suspicious transaction reports as well as the general monitoring of large remittances, to be effective in identifying fraudulent transactions. One business, for example, used its transaction monitoring systems to identify several Nigerian scams that had been reported to its parent company. The parent company was able to examine the transactions in its database and to contact the customer in question to prevent the customer from being defrauded. Although the business in question was not obligated to prevent its customers from sending funds in these circumstances, it tried to discourage them from doing so.

Interviewees indicated that the regime had focused their attention on the possible impact that criminal activities could have on their operations, on their profitability, or on their corporate reputations, even if the regime could not materially change behaviour in all cases. The perceived effectiveness of the AML/CTF regime was influenced, for some, by the paper trail that law enforcement and other agencies could follow, even if it remained very difficult for banks to stop financial crimes from actually taking place. These views are reflected in the results presented in Table 32, which show that the aim of helping regulators to investigate financial crime effectively was the most highly rated aim in terms of effectiveness of the regime.

Other interviewees, from both the financial services and gambling sectors, considered that the regime was an appropriate crime risk-reduction mechanism but considered, on balance, that the inclusion of their business within the regime was inappropriate because of their perceived very low levels of risk.

Justifications for the regime

The participants in the study were also asked to provide their views on whether they considered that the costs and difficulties of the AML/CTF regime were justified, given the risks of money laundering and the financing of terrorism that were present in Australia. Specifically, participants were asked to indicate on a five-point scale the extent to which they agreed or disagreed with the statement ‘In Australia, the AML/CTF regime is too onerous, given the risks’ and then to provide reasons for their views.

On the scale from 1 (strongly disagree) to 5 (strongly agree), all respondents recorded a mean score of 3.8, a median score of 3.0 and a standard deviation of 1.0. The largest proportion (45.5%) of respondents neither agreed nor disagreed that the system was too onerous for the money laundering risks. The proportion of respondents who agreed with the statement (30%) was slightly higher than the proportion that did not (25.7%). These findings indicate there is no strong feeling either way about the extent to which the regime is onerous.

The results were significantly different according to the business sector respondents occupied (χ2=108.5, df=16, p≤0.0001). A Cramér’s V of 0.12 indicated that there was a weak level of association between the views of respondents for the justifications for the regime and the business sector they occupied. Those from the securities and derivatives, alternative remittance service and financial services sectors were most likely to take the view that the regime was too onerous for the perceived level of risks present (see Figure 24). Those in the banking sector were most likely to disagree that the regime was too onerous for the risks perceived to be present (42.1%).

Figure 24: Perceptions of the demands of compliance for the risks involved, by business sector (%)

figure 24

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

Each respondent was also asked to provide their reasons for agreeing or disagreeing with the view that the AML/CTF regime in Australia was too onerous given the risks. From Table 28, it is apparent that the most common reason offered by businesses that did not view the AML/CTF requirements as being too onerous was that the regime was essential or beneficial (20.8%). A further 14 percent of businesses who disagreed that the system was too onerous shared this view for safety reasons or because of the regime’s counter-terrorism aims. A small proportion of businesses that disagreed that the regime was too onerous (2.6%) suggested that the perceived low risks to their businesses meant a low burden in terms of AML/CTF compliance.

The two most common reasons that participants cited for considering the AML/CTF regime to be too onerous were the small size of their businesses or that the threshold for reporting was too low (19.1%), or that they perceived their business or industry experienced a low AML/CTF risk (19.7%).

Table 28: How respondents view the AML/CTF regime (%)
Reason All businesses ‘Disagreeing’ businesses
Not too onerous
Not too onerous/adequate/sufficient 3.1 7.7
Necessary/essential/important/beneficial 7.7 20.8
Safety/security/counter-terrorism 4.3 14.0
Money laundering/crime 4.6 15.0
In line with international standards 0.5 2.0
Many procedures already in place 1.4 3.5
Low risk, low burden 1.4 2.6
Too onerous
Process is onerous/unnecessary 3.3 8.0
Business is small/reporting threshold too low 8.4 19.1
Business/area/industry is low risk 8.6 19.7
Regime time intensive/costly/work intensive 6.3 15.1
Regime complicated/hard to understand/need guidance 3.0 5.1
My business should be exempt/doesn’t apply to us 1.0 3.0
Regime prescriptive/compliance too general/not specific enough 3.7 8.9
Over regulated/issues already regulated by other bodies/duplication 3.2 8.56

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

Level of business responsibility

Participants were also asked to comment on the level of responsibility for ensuring the legitimacy of their customers required by the regime. Specifically, respondents were asked to indicate on a five-point scale the extent to which they agreed or disagreed with the statement ‘Not enough responsibility is placed on reporting entities to ensure probity when dealing with customers’ and then to provide reasons for their views.

Just under half of respondents (46.7%) disagreed or strongly disagreed that reporting entities did not have enough responsibility to ensure probity when dealing with customers (see Figure 25). A smaller proportion (6.9%) agreed or strongly agreed that reporting entities’ current responsibilities were insufficient. The largest single proportion of respondents (46.3%) provided a neutral response to the statement. Responses to this question differed significantly according to the business sector respondents occupied (χ2=138.2, df=16, p≤0.0001). A Cramér’s V of 0.14 indicated that there was a weak level of association between the views of respondents concerning their responsibility for ensuring probity of customers and the business sector they occupied.

Figure 25: Perceptions of the responsibilities of business owners, by business sectors (%)

figure 25

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

Banking sector respondents were the most likely to disagree or strongly disagree that they did not currently have enough responsibility for ensuring probity (65.4%), while respondents from the gambling sector were the least likely to disagree or strongly disagree with the statement, although still more than 40 percent disagreed or strongly disagreed with the statement. Respondents from the alternative remittance sector were most likely to agree or strongly agree that they did not have enough responsibility to ensure probity when dealing with customers (12.3%).

Respondents provided unprompted reasons for agreeing or disagreeing with the statement that reporting entities currently have enough responsibility for ensuring probity when dealing with customers and these are presented in Table 29. Almost 16 percent of respondents (15.7%) who disagreed with the statement gave their reason as being general support for the current regime or because they thought that they already had sufficient responsibility. Another 16 percent indicated that they were currently compliant or that the penalties for non-compliance were sufficiently high to ensure that adequate probity checks were made. Fewer businesses that disagreed that they did not have enough responsibility suggested that their obligations were costly and time consuming (4.5%), they were over-regulated or had too much responsibility (5.7%), or their responsibilities were too high in view of the low level of risk that was present (4.2%)

Table 29: How respondents view levels of responsibility for ensuring probity (%)
Reason All businesses ‘Disagreeing’ businesses
Disagreed that responsibility was insufficient
Enough responsibility/regime is OK/generic positive 9.4 15.7
Over regulated/ too much responsibility/generic negative 3.1 5.7
Current system onerous/time consuming/costly 2.5 4.5
Obliged to comply/penalties high/currently compliant 9.2 16.2
Too much for low risk 3.5 4.2
We would do the requirements anyway 2.7 5.0
Current requirements already cover anti-money laundering 1.7 3.4
Agreed that responsibility was insufficient
Need assistance/support/difficult to implement 1.6 4.3
System is ineffective 0.9 4.6
Needs more vigilance from some/more responsibility 1.3 8.9
Anti-money laundering is important/essential 0.8 2.5
Neutral response
Irrelevant 0.7 1.1

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

A far smaller proportion of respondents agreed or strongly agreed that they currently did not have enough responsibility to ensure probity. The largest group of these respondents formed this view because of a perception that more responsibility is needed generally, or that greater vigilance is required from some businesses (8.9%). Some respondents also expressed the view that combining the DFAT and Attorney-General’s Department watch lists, and employing simpler language, would make compliance easier.

Interviewees reported experienced a number of challenges in assessing probity of their customers under the AML/CTF regime. Discrepancies between the AML/CTF regulatory requirements in different countries created problems for businesses with international operations and different standards for customer due diligence. Reporting had to be managed in each of the locations they conducted business. On a practical level, undertaking customer identification could also be difficult where customer bases included many foreign nationals whose names are not based on Roman characters. An example given by one interviewee concerned the application of SWIFT transaction identification procedures that required a code to be used for Chinese character names. The resulting output was a very long code that made reporting difficult using standard forms. Most banks use SWIFT to transfer funds securely between banks.

Suggested improvements to the anti-money laundering/counter-terrorism financing regime

Survey respondents were also asked to consider how the AML/CTF regime could be improved. Survey respondents were provided with some closed questions, as well as the opportunity to provide their own suggestions for improvement (see Table 30). These findings should be read in the context that they were provided during the early stages of implementing the AML/CTF Act.

Table 30: Suggested improvements to the current AML/CTF regime (%)
Suggested improvements %
Prompted responses
More typologies/case studies from AUSTRAC 33.5
More training courses by AUSTRAC 43.9
More training/seminars by industry peak bodies 29.0
Unprompted responses
More feedback on compliance/reporting 0.4
More case studies/typologies/examples of effectiveness 1.0
Abolish AML/CTF regime 0.6
Simplify the process/more user friendly 2.9
Consider business size/risk levels/industry specific regime 6.5
More data sharing/central data base 1.0
Stop duplication of reporting/of legislation/of requirements 0.5
More AML/CTF training/industry specific assistance 4.3
Provide software 0.3
Costs too high/provide reimbursement or concessions 0.5
Increase awareness/public information 0.3
Other 17.3
Don’t know 2.4
Refused 0.2
No response 9.4

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

The category of improvements with which the largest proportion of respondents agreed was for AUSTRAC to provide more training courses and seminars on the regime (43.9%). These views were based on actual experience of AUSTRAC’s services prior to 2009. Another third nominated the provision of more relevant typologies and case studies. The most commonly cited unprompted suggestion for improving the AML/CTF regime, nominated by 6.5 percent of respondents, was to consider business size, the extent of risks to businesses, or to consider industry-specific measures in reforming the regime.

Figure 26 shows the proportions in each business sector that responded to the three prompted responses to how regime could be improved—by AUSTRAC providing more typologies and case studies, by AUSTRAC offering more training courses and by more training and seminars being provided by industry peak bodies. Generally, there was a preference for AUSTRAC to provide more training courses, although those in the gambling and foreign exchange sectors least favoured this option. Alternative remittance providers were particularly keen on further training being provided by AUSTRAC (a need reiterated during AIC consultations with alternative remittance providers; see Rees 2010). Those in the managed funds, financial services and cash delivery sectors also favoured the use of industry-based training because this is the form of training that is employed for other compliance regimes that they are subject to.

Figure 26: Suggested improvements to the AML/CTF regime, by business sector (%)

figure 26

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

The results relating to each of the prompted alternative responses were significantly different according to the business sector respondents occupied in terms of the provision of more training course provided by AUSTRAC (χ2=63.8, df=8, p≤0.0001, Cramér’s V=0.10); in terms of the provision of more typologies and case studies from AUSTRAC (χ2=188.1, df=8, p≤0.0001, Cramér’s V=0.21); and in terms of the provision of training by industry peak bodies (χ2=41.8, df=8, p≤0.0001, Cramér’s V=0.10). Each of these statistics showed a weak level of association between the views of respondents as to the specified methods of improvement and the business sector they occupied.

More than half of the respondents from the managed funds and superannuation, banking and securities and derivatives sectors agreed that the current regime could be improved with more typologies and more training courses from AUSTRAC. Smaller proportions of respondents from the cash delivery (31%) and gambling sectors (26.4%) agreed that typologies and case studies provided by AUSTRAC would improve the regime. These findings illustrate to some extent the difficulties AUSTRAC faces in educating the regulated sectors, as it appears that a proportion of respondents were unaware of the typology reports and other sources of information that were available, even in mid 2009.