People generally don’t draw the link between money laundering and human rights, so it’s understandable that many may ask, why should I care about this?
However, the link becomes clear when people understand that some of the worst criminal activity — often involving the exploitation of children — underpins the practice of money laundering. With this understanding, the ‘why’ becomes very clear.
Money laundering as the term suggests, is the process of cleaning dirty money so it can’t be traced back to the crimes from which the funds originated such as fraud, drug trafficking, tax evasion, people smuggling, child exploitation, human trafficking, theft, and arms trafficking.
Officially defined in Division 400 of the Criminal Code Act 1995 (Cth), money laundering is more than just concealing the proceeds or instruments of crime. The Criminal Code makes it an offence to ‘deal with’ the proceeds of crime or an instrument of crime. ‘Deal with’ is defined as a person receiving, possessing, concealing, or disposing of money or other property as well as importing, exporting, or engaging in a banking transaction relating to money or other property.
The obvious channel for money laundering is the banking and finance sectors but other channels also known for money laundering include gaming and the real estate sector along with the purchase of high value goods such as jewellery, boats, artwork, antiques, precious metals, and stones.
How significant is the problem?
The International Monetary Fund and the World Bank estimate that around 3-5 per cent of global GDP, around $3 trillion, is laundered worldwide every year and the highest level of regulatory scrutiny is reported in the Asia-Pacific (APAC).
Over the past three years, Austrac, Australia’s financial intelligence body has levied more than $2 billion from Australia’s banking sector. In 2018 the Commonwealth Bank paid $700m to Austrac for compliance failures and just three months ago, in June the National Australia Bank was referred to the regulator’s enforcement unit for alleged AML/CTF breaches. The regulator has also assisted an Australian Federal Police operation this year, involving criminal convictions in Malaysia and the rescue of four children.
Last year, Australia topped the global rankings in AML fines making up 41 per cent of the world’s total fines, followed by Sweden and Hong Kong. This unenviable position can be attributed to Westpac’s whopping $1.3 billion fine which was linked to 262 customers whose bank account activities were consistent with the funding of child exploitation and trafficking in the Philippines and across APAC. The activity resulted in over 23 million breaches of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth).
AML breaches are a result of failings in compliance and risk mitigation strategies which also indicate systemic governance deficiencies — problems which are unfortunately evident across Australian organisations.
Organisations that haven’t implemented proper governance and reporting regimes, are exposed to massive risk. When this happens, we see serious financial and reputational consequences as a result. Organisations that have enabled money to be laundered through their systems are contributing to human rights violations — the majority victims being children who fall prey to child traffickers in the Asia-Pacific. The consequences in this regard are impossible to quantify. One may contemplate, what is the cost of a child’s life?
The human rights connection and the ‘why’ of legislation
There is a global perception that Australia has more compliance obligations than anywhere else in the world. It could be argued that this is partly the result of Australia being the only western democracy without a bill of human rights. Whilst party to seven core international human rights treaties, technically we are not bound by any and understandably, this is a longstanding debate for reform.
Every piece of legislation is there to protect people and we have a raft of legislation that fundamentally goes to the heart of protecting human rights. In the case of money laundering, the purpose of AML/CTF legislation is to target criminal activity which ultimately violates human rights. It also targets market manipulation, trade of illegal goods, corruption, and evasion of tax, as well as all activities that aim to conceal these deeds. It’s therefore important that everyone has an understanding of what money laundering is and the degree to which their business is at risk and exposed to it.
Breaches occur due to non-compliance and therefore, organisations rely on their Boards to invest in compliance training which protects the business, the Board, and helps to enforce the legislation. This requirement upon Boards is to ensure organisations are providing appropriate AML/CTF compliance programs and by doing so, the outcome is a culture of integrity that provides appropriate skills, education, knowledge, and expertise to all employees. This in turn engenders a deeper level of understanding throughout the organisation and at that same time, ensures it is compliant with the legislation.
The crucial role of Board Directors in stamping out money laundering
The legislation isn’t there to be annoying, it’s there to help stamp out crime and uphold human rights for all — but it’s not easy, tracking AML is difficult. The starting point for any organisation is in its approach to and investment in compliance. A critical question therefore for many Boards is to ask, to what extent have they genuinely prioritised compliance or is the share market and short-term profits the main focus?
Investing in compliance training costs money but the alternative — the check-a-box approach — runs the risk of cutting corners which can cost an organisation a lot more and potentially see them in the news for all the wrong reasons. Therefore, a Board that invests in a people-first approach — where all staff are educated and trained in meaningful compliance training — reflects an organisation with integrity. And an organisation with integrity is one that is led by a Board that invests in the long-term health and sustainability of the business, for its people, its shareholders and for the upholding of human rights for all.
Safetrac’s Anti-Money Laundering and Counter-Terrorism Financing Course provides employees with a general understanding of how AML/CTF laws operate within the workplace and their responsibilities. The course can be customised to suit your organisation, include content and scenarios that relate to your business and its policies and procedures, and educate staff so they’re aware of the appropriate conduct when it comes to AML.
