Accountants must prepare early for AML compliance

Accountants do not currently provide designated services specified under the AML/CTF Act and their responsibilities in this area are essentially ethical, and not regulatory.

The accounting profession faces greater regulatory responsibilities and costs with new anti-money laundering (AML) and counter terrorism financing legislation expected to pass federal parliament in 2019.

An estimated 32,000 Australian accountancy firms will be affected by the proposed Tranche 2 of the Anti-Money Laundering and Counter-Terrorism Finance (AML/CTF) Act, says money laundering and counter terrorism financing expert Neil Jeans of Initialism.

With the intergovernmental Financial Action Task Force (FATF) due to visit Australia in October 2019, Jeans believes the legislation is likely to be passed before then “in order for Australia to get a reasonable pass mark” on the FATF audit.

“They were last here in 2014, and they were specifically critical of the fact that Australia hadn’t brought accountants, real estate agents and lawyers into the regime,” says Jeans, who was an expert witness for the government’s financial intelligence agency AUSTRAC in the recent AML/CTF compliance case against the Commonwealth Bank of Australia which resulted in a A$700 million penalty.

Tranche 1 of Australia’s AML/CTF legislation was passed in 2006 and covers 14,000 financial institutions. It has always been the intention of governments to add other professions such as accountants into the regime, despite the time lag.

New Zealand has already done this, and Jeans estimates the country is around two years ahead of Australia.

Regulatory costs to accountants

CPA Australia head of external affairs Paul Drum FCPA says the organisation does not support the “holus bolus” extension of the obligations to all accountants in the same way as for financial institutions.

“The objectives of the Act can still be achieved – and at less cost – even if some of the obligations are either not imposed on members of the accounting profession, or are applied in an extensively modified way,” says Drum.

“Any proposed regime should be risk based. The ongoing compliance costs associated with extending all existing AML/CTF obligations on all members of the accounting profession significantly outweigh the risks.”

Related resource: CPA Australia's Anti-Money Laundering Toolkit

Drum says the current obligations under the Act are primarily designed to counter risks in large financial institutions, and smaller businesses will find compliance expensive and difficult.

Costs of money laundering

The New Zealand experience has given some indication of the likely impact on Australian accountancy firms, with Deloitte estimating the cost of compliance at about NZ$30,000 per firm.

The key component of the legislation is to add accountants, real estate agents and lawyers to the entities with responsibilities to comply with reporting requirements on AML and CTF.
Although covered by criminal legislation, accountants do not currently provide designated services specified under the AML/CTF Act and their responsibilities in this area are essentially ethical, and not regulatory.

According to Jeans, many accountants do not fully understand how necessary their services are to money launderers, whose aim is to use legal structures set up by accountants to mask their illegal movement of funds.

Jeans estimates that the proceeds of crime amount to as much as A$14 billion a year in Australia and A$1.8 trillion annually worldwide, and all this money “has to go somewhere”.

Australia is also attractive as a destination for international money launderers as a jurisdiction with a stable economy and a stable currency.

“Having worked with around 200 accountancy businesses in New Zealand on what they are going through I have come to understand the challenges of this change, and they are not insignificant,” says Jeans.

“AML/CTF compliance is a real change in many business processes, requiring accountants to say ‘I can’t act for you until I know who you are’, and that potentially includes existing customers as well.”

Compliance costs

Compliance, says Jeans, will also require accountants to read about 1000 pages of documentation and develop a formal risk assessment process and set of controls to implement the requirements set out the in AML/CTF Rules published by AUSTRAC.

Current penalties for breaching responsibilities are a maximum A$21 million fine for companies and A$4.2 million for each partner or director. In the case of the Commonwealth Bank (CBA), there were more than 53,000 breaches and the bank faced a theoretical maximum penalty of about A$1 trillion before settling for A$700 million.

“The reality is that this is a regulatory burden which is going to impact significantly on the accounting industry,” says Jeans.

“The bigger end of town will be OK, but if you are a two- to three-person accountancy business working in the suburbs then you need to understand that you are covered by the same regulations as all other reporting entities including the CBA, and you ultimately need to work out how to comply without compliance wrecking your business.”

Jeans, based on his experience working with more than 200 accountancy business in New Zealand, estimates that if one accountant were to prepare for compliance by themselves, the cost would be the equivalent of not taking any fee-paying business for one month.

Prepare early for compliance

His advice to accountants is to move early towards compliance, because leaving it longer will increase the difficulty of obtaining the support needed and therefore make the process more costly.

He says there could be a period of “assisted compliance” of up to 18 months, where no action will be taken by the regulator as long as accountants are working towards compliance with actions such as developing their controls and risk assessment processes.

“Due to the normal nature of business everybody does this at the last minute and just in time, and the likelihood is that by this time next year all accountancy businesses are going to have to go through this,” says Jeans.

“The challenge is that there are probably fewer than 50 businesses that will be in a position to help firms with this, and there will be a rush on the use of those services in less than a year.”

Ultimately, Jeans’ message to accountants is that AML/CTF compliance “is not going away”, and the profession needs to begin engaging with regulators to ensure AML/CTF compliance does not result in unintended consequences and disproportionately impact accountancy businesses.

This will help ensure that the profession is brought into the regime in a way that is most appropriate for the industry, he says.

Neil Jeans will speak at the CPA Australia Public Practice conference in the Hunter Valley from May 30 – June 1, and explain Tranche 2 of the Anti-Money Laundering and Counter Terrorism Finance (AML/CTF) Act. Learn more.

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