Risk and reward: strengthening Australia’s financial sector against crime
29 Apr 2015| and

Organised crime has the potential to adversely affect Australia’s financial interests.

We recently discussed the impact of organised crime on Australians’ daily activities and on Australia’s national interests. But organised crime also has the potential to adversely affect Australia’s financial interests too.

With the mining boom all but over, Australia needs to invest in other industries for the 21st century. So we’ve signed free trade agreements with some of our biggest Asian trading partners over the past year, most of which will foster closer financial links between partners. More trade and money transfers will bring new risks, so it’s crucial that Australia maintains its reputation for safe, secure and sound financial services. But there will be some challenges.

For one, Australia’s not as ‘clean’ as you might think, after dropping out of the ten least corrupt nations in the latest Transparency International Corruption Perceptions Index. It’s the second consecutive year Australia’s position has dropped in this index. Reasons for the decline include high profile inquiries like those in the New South Wales Independent Commission Against Corruption, but those inquiries only explain part of the issue.

Business advisory firm Deloitte reports that 23% of firms in Australia and New Zealand surveyed in their periodic review reported corruption in the last five years.

Australian Federal Police are also conducting 16 investigations into allegations of Australians bribing foreign officials. The Organisation for Economic Cooperation and Development’s latest anti-corruption report card noted an increase in bribery investigations by the AFP, and highlighted a need for more enforcement.

It’s important that Australia considers whether this level of corruption or non-compliance has the potential to affect Australia’s attractiveness as a market for financial services in the region.

But it’s not just corruption that could tarnish our financial sector. According to the US State Department, Australia remains a ‘jurisdiction of major concern’ when it comes to laundered money flowing through Australia to finance terrorism, but their concern doesn’t extend to our systems. Still, there’s a need to be vigilant. Australian money laundering prosecutions in financial year 2012-13 were up 26% on the previous financial year and convictions increased by 20% over the same period. At the same time, the number of suspicious currency transactions increased by 45% from 2011-12 to 2012-13 despite the number of Currency Transaction Reports (i.e. those over $10,000) remaining stable.

Corruption may also have a significant impact on cash remitters, responsible for sending $30 billion to 157 countries each year.

The Australian remittance sector has been subject to increasing pressure over concerns about money laundering and terrorism funding, particularly to Da’esh. In response to the heightened terror alert, and concerns for reputation and regulation in other countries, the Big Four Australian banks have now severely restricted or closed their services to remittance providers.

Countering terrorist financing is a stated national security imperative, but increasing remittance transaction costs and reducing the scope of available services will have unintended human costs.

The Somali community has expressed concerns that the closure of this service without a viable alternative is cutting off vital funds for food, water and healthcare for family in Somalia, which lacks a formal banking service. International money transfer costs charged by banks are often ten-times greater than those charged by remitters; cutting off these services has been a very blunt instrument.

So what’s to be done to combat these problems? Firstly, a federal anti-corruption agency is required. This agency should have the discretion to investigate suspicious activity, and the powers of a standing royal commission so it can compel witnesses. It should be independent of government so it can investigate politicians and all agencies, including law enforcement agencies. In this respect, a new body could replace the Australian Commission for Law Enforcement Integrity.

Second, while whistle-blower protections for the government are considered to be comprehensive, Transparency International has criticised our protections for private sector whistle-blowers as some of the most underdeveloped amongst the G20. Their found real gaps in terms of anonymity, oversight and wrongdoing for private sector workers. These gaps should be addressed.

Finally, we agree with AUSTRAC that risks in the remittance sector should be assessed and managed, not eliminated through blanket bans. There are dodgy dealers out there, but many are legitimate and their operations shouldn’t be curtailed unless they are an unacceptable risk.

Maintaining Australia’s financial integrity is paramount to our national interests. Continuing efforts to ensure our system is ethical and transparent will bolster our economic future, but those won’t happen without committed regulatory reform. It’s time to boost our armoury for a new stage of the fight.