Anti-Money Laundering Legislation and its impact on the legal industry

November 2017

Background

The Financial Transactions Reports Act 1988 (Cth) (FTRA) was initially introduced to control and monitor the supply and use of cash funds. The Australian Transaction Reports and Analysis Centre (AUSTRAC) is mandated by the government to have regulatory responsibility under the FTRA. The remit of AUSTRAC has expanded since its inception. The ways and methods to launder money and finance criminal and terrorist activities have become more sophisticated; at times they can appear as legitimate sources of funds. As technology continues to evolve, the Federal Government, via AUSTRAC, continues to respond by reviewing and updating its policies and procedures.

On a global level, the Financial Action Task Force (FATF) was established in 1989 by ministers of the member jurisdictions - which now total 35 countries including Australia. The purpose of this task force is to further address the issue of money laundering for the illicit drug trade. Lawyers were included within the FATF’s designation of Non-Financial Businesses and Professions in 2003 and it was recommended they undertake measures such as due diligence and record keeping.

In 2005 the FATF reviewed Australia’s implementation of its recommendations. That review found that our systems were well behind the rest of the world in terms of having implemented best practice procedures. The Australian Government then released the Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) bill in December 2005 for consultation. That bill then became legislation in December 2006 in response to the FATF review. This bill was to be released in two separate tranches; the first covering existing reporting bodies such as banks, financial services providers, the gambling industry and money service providers. The legal profession and conveyancing entities were to be considered for inclusion as reporting entities under the second tranche of the AML/CTF bill.

As to be expected with any proposed changes to the legal and conveyancing professions, many papers have been written with differing views as to the likely impact these changes will have on the legal profession in Australia.

Discussion Points

1. What would be the benefits of making legal practitioners and conveyancers comply with the AML/CTF requirements?

The Law Council of Australia (LCA) issued its “Anti-money laundering guide for legal practitioners” in 2009 and updated it 2012 and 2016. The LCA believes that there are few benefits, if any, for legal practitioners to be included in AML/CTF legislation due to the existing regulation of the legal profession in Australia. They believe these regulations are sufficient to require practitioners to manage law practices and provide legal services in such a way that does not allow the furtherance of a client’s unlawful objectives [1].

The existing regulatory environment includes:
• criminal laws
• cash reporting under existing legislation
• the Australian Solicitors Conduct Rules
• trust accounting legislation and regulation
• regulation under the PEXA regime
• legislation covering the conduct of legal practitioners and
• commitment exhibited by the profession to ongoing education in all areas [2].

In AUSTRAC’s 2015 paper titled “Strategic analysis brief - money laundering through legal practitioners”, they formed a different view of how the legislation would benefit legal practitioners. AUSTRAC suggests that legal practitioners can either wittingly or unwittingly assist clients in perpetuating criminal activities by way of:
• the managing of the client’s finances
• carrying out debt recovery transactions
• buying and selling real estate or
• establishing and administering complex legal entity structures such as trusts and companies [3].

AUSTRAC’s paper cites specific examples where illegal activities have been unwittingly assisted by Australian lawyers. The details of these cases indicate, however, that failure was primarily in the lack of satisfactory initial due diligence and not because the current regulatory system "failed" in any way.

ALPMA’s position:
ALPMA believes that there would be no benefit gained in including lawyers and conveyancers in the AML/CTF legislation. We believe that the existing regulations are more than adequate to ensure that legal practitioners and conveyancers will not undertake money laundering activities for their clients. The existing regulatory systems are what separate the legal profession from the financial and gambling sectors; which were targeted in the first tranche of the Act.
The legal profession can certainly benefit from the provision of information and ongoing education with regard to client due diligence and risk management strategies.

2. How does regulation of Australia’s legal industry compare with that of other FATF member nations?

FATF issued recommendations (most recently revised in 2012) that are recognised as the international standard in combating money laundering and terrorism financing. Their recommendations for the legal profession centre on:
• customer due diligence (client identification and verification, ongoing due diligence, transaction monitoring and enhanced due diligence)
• applying enhanced due diligence to politically exposed persons
• assessing and mitigating the AML/CTF risks associated with new technologies
• specific measures for relying on customer due diligence performed by third parties
• suspicious matter reporting
• internal controls and special measures for mitigating risks for foreign branches and subsidiaries and
• enhanced due diligence when dealing with higher risk countries [4].

AML/CTF regulations were applied to the legal profession in the UK from around 2004 and New Zealand has recently introduced a bill to parliament to include lawyers in its AML/CTF legislation [5].

In its consultation paper published in November 2016, the Attorney-General’s Department stated that “Legal practitioners and conveyancers provide certain services that operate as a gateway to property and financial markets, financial institutions and other regulated professionals. These “gatekeepers” provide financial and business services that can be abused to disguise beneficial ownership, conceal the origins and purposes of financial transactions, facilitate tax evasion and, ultimately, launder the proceeds of crime”[6]. The paper further states that “in the absence of an AML/CTF regulatory framework, legal practitioners and conveyancers that provide these types of services may be at risk of being targeted and exploited by criminals”[7].

On the other hand, the LCA believes that the existing regulations for lawyers and conveyancers offer a robust framework, without the need for an additional layer of regulation and compliance [8].

The Attorney-General’s Department’s consultation paper lists the existing regulations and regulatory bodies whose roles and responsibilities are to oversee and enforce a very strict regime for legal practitioners and conveyancers. The Attorney-General’s Department notes that this regulatory framework (on a state and territory basis) is extensive and robust [9]. All obligations applied to legal practitioners and conveyancers are enforceable and can lead to cautions, reprimands and pecuniary fines for lesser breaches and being struck off as a practitioner and/or imprisonment for more serious breaches. These penalties are in addition to any civil or criminal liabilities that may arise.

The LCA has recommended a number of risk management strategies that can be incorporated into a firm’s existing practices and procedures to address specific AML/CTF issues, without the need for an additional layer of statutory regulation [10]. These strategies cover most of the recommendations made by FATF.

ALPMA’s position:
While the current regulatory system does not specifically address the risk of misuse of funds for money laundering or terrorism financing purposes, the intent and scope of existing regulations encompass the prevention and detection of irregularities that are indicative of those activities. The existing regulatory systems, together with risk management strategies (as recommended by the LCA) are more than adequate to ensure that legal practitioners and conveyancers are not either wittingly or unwittingly involved in money laundering or terrorism financing activities.

3. How would any AML/CTF obligations impact on the legal profession and conveyancers?

As set out in the Attorney-General’s Department consultation paper, all legal practitioners and conveyancers would be regarded as reporting entities and would be required to:
• enrol with AUSTRAC as a reporting entity
• register with AUSTRAC if the reporting entity provides a remittance service;
• conduct customer due diligence
• implement ongoing customer due diligence procedures
• implement and maintain an AML/CTF compliance program
• lodge transaction and suspicious matter reports (SMR’s) and
• comply with the various AML/CTF related record-keeping obligations [11].

It is worth noting that AUSTRAC is not funded by the Commonwealth Government. All reporting entities pay a levy dependent upon the volume of work carried out.

The implementation of this legislation would add significant costs to legal businesses and could impact access to justice by driving up the price of services for those seeking legal services at a time when many can ill afford such additional costs. There are constant pressures on legal practitioners and conveyancers to reduce costs and become more competitive in a continually disrupted market place.

A recent survey conducted by the Queensland Law Society (QLS) has found that firms estimated their annual compliance costs under the proposed second tranche could be around $119,000 for smaller firms and up to $748,000 for larger firms. The QLS also reported that lawyers in the United Kingdom, under the same scheme, reported turning down work and losing significant business [12].

There is also concern as to the impact of further AML/CTF reporting obligations on professional independence, client confidentiality and client legal privilege. The LCA notes that the obligation to report suspicious matters conflicts with a lawyer’s duty to keep information about a client’s affairs confidential and could interfere with the operation of legal privilege. The requirement for a lawyer to report is inherently at odds with a lawyer's fiduciary relationship to the client [13].

ALPMA’s position:
ALPMA believes that any regulation that forces a legal or conveyancing practice to incur additional costs for no direct benefit to society, their clients or the business itself should be opposed. Regulations that threaten professional independence, client confidentiality and client legal privilege should also be avoided. ALPMA is of the opinion that the obligations imposed by regulations purporting to protect an already well regulated industry are unwarranted.


For further information, contact ALPMA Board Director Mark Wiggins on +61 (3) 8644 7055 or email info@alpma.com.au



References____________________________________________________________________________________________________________

[1] Law Council of Australia Anti-Money Laundering Guide for legal practitioners (Updated January 2016) p17

[2] Ibid from p11

[3] Austrac Strategic analysis brief Money laundering through legal practitioners 2015 from p8

[4] Australian Government Attorney-General’s Department Consultant paper Legal practitioners and conveyancers: a model for regulation under Australia’s anti-money laundering and counter-terrorism financing regime November 2016 at 2.3

[5] Law Society of South Australia Bulletin Anti-Money Laundering and Counter-Terrorism Financing: Regulating the legal Profession September 2017

[6] Australian Government Attorney-General’s Department Consultant paper Legal practitioners and conveyancers: a model for regulation under Australia’s anti-money laundering and counter-terrorism financing regime November 2016 at 2.1

[7] Ibid at 2.1

[8] Law Council of Australia Anti-Money Laundering Guide for legal practitioners (Updated January 2016) p17

[9] Australian Government Attorney-General’s Department Consultant paper Legal practitioners and conveyancers: a model for regulation under Australia’s anti-money laundering and counter-terrorism financing regime November 2016 at 3.1

[10] Law Council of Australia Anti-Money Laundering Guide for legal practitioners (Updated January 2016) p18

[11] Australian Government Attorney-General’s Department Consultant paper Legal practitioners and conveyancers: a model for regulation under Australia’s anti-money laundering and counter-terrorism financing regime November 2016 at 4.1

[12] Queensland Law Society Proctor Magazine The reality of AML for solicitors May 2017

[13] Law Council of Australia Anti-Money Laundering Guide for legal practitioners (Updated January 2016) p20


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