In light of today’s geo-political climate and public concerns over the threat of terrorist attacks, we see a trend of governments placing greater focus on countering the funding of terrorist groups. Indeed, the United Nation’s International Convention for the Suppression of the Financing of Terrorism, which Australia has ratified, has been in force since 2002 to promote international cooperation to prevent, investigate and punish the financing of terrorist acts. Whilst governments have been taking proactive measures, ultimately private-sector banks and financial institutions are relied upon to play a great role in global anti-money laundering and counter-terrorism financing (AML/CTF) effort.
In Australia, the AML/CTF regime adopts a risked-based approach whereby financial institutions conduct their own risk assessments, identify and mitigate the risk of any customers facilitating financial crimes through their organisations, and report suspicious transactions to the Australian Transaction Reports and Analysis Centre (AUSTRAC). This framework has, to an extent, been effective in identifying potential money-laundering, fraud, market manipulation and tax evasion through the Suspicious Matter Reporting (SMR) program.
However, a recent January 2018 report released by the Financial Action Task Force (FATF) titled “Financing of Recruitment for Terrorist Purposes” (FATF’s Report) revealed that “the private sector and civil society show a strong willingness to assist authorities in terrorist financing issues. However, in many situations, financial institutions are likely to have difficulty in identifying relevant transactions without close interaction with law enforcement agencies…”
This may go towards explaining why from 1 April 2014 to 31 March 2016, only three SMRs (less than 1% of all SMRs reported to AUSTRAC) were considered by financial institutions to relate to possible terrorism financing. Based on this, AUSTRAC’s latest assessment of terrorism financing risk in the securities and derivatives sector as “very low”. Yet, this “very low” percentage of SMRs being reported to AUSTRAC as relating to terrorism financing could well reflect that identifying terror-related transactions are much more complex and difficult compared to other financial crimes such as money-laundering, fraud, market manipulation and tax evasion.
For example, a $10,000 cash transaction may raise alarm bells with respect to potential money laundering, but without the resources and expertise of intelligence agencies, financial institutions are not well equipped to know or suspect whether seemingly innocent transactions between seemingly innocent accounts may in fact be channelling money to fund terror-related recruitment and operations.
In any case, although the Australian Government and AUSTRAC has yet to comment or respond to FATF’s Report, it is likely that greater emphasis and focus will be dedicated to addressing terrorism-financing in line with the overall National Counter-Terrorism Plan.
Financial institutions should take note that, in December 2017, the Australian Parliament passed the Anti-Money Laundering and Counter-Terrorism Financing Amendment Act 2017 which provides enhanced powers to the AUSTRAC CEO with respect to investigations and enforcement, and the Government is injecting additional funding of $43 million for AUSTRAC. Coupled with the appointment of Nicole Rose, who has a background in law enforcement and counter terrorism with the Australian Criminal Intelligence Commission, the Federal Attorney General’s Department and the Office of the New South Wales Police Commissioner, as the new AUSTRAC CEO, there is little doubt that the Government is “beefing-up” Australia’s efforts, legally and resource-wise, to prevent the funding of terror-related activities through Australian financial institutions.
Therefore, given the Government’s positioning, Australian financial institutions could expect greater interactions with not only AUSTRAC but also other national security, intelligence and law enforcement agencies, such as the Australian Federal Police’s Terrorism Financing Investigation Unit, to help identify possible terrorism financing transactions. This, in turn, will mean that financial institutions and other reporting entities should be prepared to invest in and boost their own AML/CTF resources and compliance capabilities.
 FATF is a global inter-governmental body which develops and promotes policies to combat money laundering and terrorism financing.
 AUSTRAC, ‘Australia’s Securities and Derivatives Sector – Money Laundering and Terrorism Financing Risk Assessment’, July 2017.