What’s happened?

The announcement in the recent Federal Budget that AUSTRAC will receive a further $100 million to enforce the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act) should be welcomed. It is a small investment by the Federal Government given the $1.3 billion return AUSTRAC just made to consolidated revenue with the approval by the Federal Court of the settlement in the case against Westpac.

The AUSTRAC CEO and its National Manager, Regulatory Operations have both flagged more enforcement action in the next 12 to 18 months. AUSTRAC has embarked on a recruitment campaign with a particular emphasis on regulatory operations. Perhaps more importantly AUSTRAC has flagged that the extra investment will be used to replace its reporting system which is 20 years old.^[1]

Key considerations for AUSTRAC’s reporting system

It is worth considering what AUSTRAC’s reporting system might need to be fit for purpose. In its recent Annual Report AUSTRAC reported that it received 167 million reports in 2019-20, which is a 49% increase over the last four years, and the trajectory is for this number to increase. In this total were 165 million reports on international funds transfers (IFTIs), 2.2 million reports on cash transfers at or above the AUD10,000 threshold (TTRs) and 265,000 suspicious matter reports (SMRs). The number of IFTIs has increased by 53% in the last four years whilst over the same period there has been a 258% increase in SMRs and a 50% decline in TTRs. The increase in SMRs may be due to defensive reporting given AUSTRAC’s enforcement posture but given the variables inherent in this form of reporting quality is often an issue.

This volume of reports is received electronically by AUSTRAC and whilst it is not a large number for a computing system to cope with, the issue is more how the system can be best utilised to provide financial intelligence for use by law enforcement, national security, taxation and other agencies, both domestically and internationally.

This financial intelligence can be used to assist investigations, to obtain evidence and hence to prosecute criminals (or perhaps even prevent crimes). AUSTRAC didn’t take action against Westpac for the reports it submitted, but for the reports it failed to submit or submit on time, over a long period resulting in a significant intelligence gap.

A key part of a better reporting system for AUSTRAC would be to improve the quality of the data it receives. AUSTRAC largely controls this currently in the format in which it requires the reporting to be done, with some flexibility in the case of SMRs given the subjective nature of such reports. However, this is an area it will probably pay some attention to given it has indicated it wishes to make life easier for its regulated population.^[2]

A further issue AUSTRAC should look at is to clean its current data holdings. This is a risky exercise to separate the wheat from the chaff and is not for the faint hearted.

AUSTRAC will need better tools to mine this mass of data to find patterns, relationships and networks and create financial intelligence to provide the leads for law enforcement etc to investigate. Some of this is comprised of talented humans and some is the algorithms they create. In time (or probably already) the computer system will write the algorithms based on parameters given by the humans. However, once the computer system has done its filtering and thrown up the red flags, a human will still need to make the decision to act (or not).

Key takeaways

If AUSTRAC does this right, then the Australian Government (and taxpayers) stand to benefit in a number of ways, and not just from the financial return on the investment. No pressure.

^{[1] ‘AUSTRAC to replace 20-year-old reporting system’, James Frost, Australian Financial Review, 14 October 2020
[2] Ibid}