Fears over money laundering in Australia

A former head of Australia’s anti-money-laundering agency wants tough rules introduced to prevent the country from becoming a safe haven for foreign corrupt funds.

Despite credible warnings that large volumes of illicit money leaving China are being laundered in Australia, an investigation by ABC programme Four Corners has found no domestic agency is charged with identifying the true source of foreign funds.

John Schmidt, who spent five years as CEO of the Australian Transaction Reports and Analysis Centre (AUSTRAC), told the programme solicitors and real estate agents should be compelled to report suspicious transactions.

“Real estate is recognised internationally as one of the means by which people will launder money yet we ourselves have not covered the field as yet,” Mr Schmidt said.

Former treasurer Joe Hockey has also said Australia’s safeguards against the global flow of dirty money should be strengthened.

Foreign investment and corruption

Until recently, Australia’s principal authority responsible for the monitoring of offshore funds coming into the country – the Foreign Investment Review Board (FIRB) – deemed the issue of dirty money to be outside its scope of responsibility.

Two former board members confirmed to Four Corners that concerns about offshore corruption were rarely discussed.

That is despite $US1.25 trillion ($NZ1.86 trillion) worth of corrupt and criminal proceeds from China estimated to have been spent around the world in the decade to 2012.

One former FIRB director – who asked to remain anonymous – said the organisation held “no concerns about corruption”.

“We have to take into account the way they [Chinese investors] operate. Largely it is the one shareholder and at the top, it is the Chinese government,” he said. “It is a different form of corporate governance.”

Another former board member, Chris Miles, said FIRB did not concern itself with identifying the true source of funds from offshore.

“Where the money came from is somebody else’s responsibility.”

No federal authority – including AUSTRAC – would check the source of funds used to invest in Australia from China unless there were obvious concerns about drug trafficking or other serious crimes, the ABC reported.

Mr Schmidt said Australian law-enforcement authorities did not have the resources to filter the billions flowing in from China.

“It is not meant to be a fishing expedition,” he said. “To some degree if there has been criminality going on in the country which has generated the funds, the onus is on the country in which that has happening to alert Australian authorities.”

Calls for further safeguards

In his last sit-down interview as treasurer, Mr Hockey said FIRB’s role should incorporate investigating where funds come from, and pointed to the $AU50 million ($NZ55 million) budget he had provided for a crackdown on illegal sales of property to foreign nationals.

Mr Schmidt, meanwhile, said he believed FIRB would benefit from greater collaboration with agencies including the Australian Federal Police, the Australian Crime Commission and the intelligence services.

In April, the Financial Action Task Force (FATF) – a global association of anti-money-laundering regulators – criticised Australia for failing to force real estate agents, solicitors and accountants to scrutinise their clients and the source of their money.

This is a provision that has long been in place in other major economies.

“Large amounts are suspected to be laundered out of China into the Australian real estate market,” the FATF report said.

“China and other countries within the Asia-Pacific region were also seen as likely sources of corruption proceeds that are laundered in Australia.”

FATF also stated it was “left with the impression that law enforcement efforts to pursue the laundering of foreign proceeds might be given a higher priority if there was an explicit national policy to address this risk”.

For the first time last year, proposed Chinese investment into Australian real estate eclipsed all other sectors of the local economy – including resources.

Chinese investment in the country’s real estate has surged by more than 400 per cent in five years, with as much as $AU12 billion ($NZ13 billion) spent in the previous financial year.

Mr Schmidt said Australia was in a “difficult position” after failing to enforce better standards on the sale of property and the formation of companies.

“Having endorsed the standards – through the G20 having said that we endorse them being rolled out in full – we now have Australian officials who participate in various international organisations who are examining the effectiveness and adequacy of other countries’ regimes, yet we ourselves haven’t covered the field as yet,” he said.

“Some of the countries we are looking at are our near neighbours and they have a reasonable expectation that if we are saying you should meet the standards, then we should meet them ourselves.”

Justice Minister Michael Keenan said recommendations to improve Australia’s anti-money-laundering regime were being considered as part of the statutory review of Australia’s Anti-Money Laundering and Counter-Terrorism Financing Act 2006, which is currently underway.

The review is expected to be tabled in Parliament by the end of the year.