Australian Financial Watchdogs Back New Powers To Curb Money-Laundering Via Crypto

Authored by Rex Widerstrom via The Epoch Times,

Australian crime-fighting and financial agencies are moving to prevent the use of cryptocurrency for money laundering, scams, and money-mule activities.

The Australian Banking Association (ABA), Transparency International, and the regulator, AUSTRAC (Australian Transaction Reports and Analysis Centre), are backing a proposal to amend the Anti-Money Laundering and Counter-Terrorism Financing Act.

The change means the CEO of AUSTRAC can limit or stop a "reporting entity" or institution from using a "high-risk mechanism," such as cryptocurrency, to transfer funds.

The CEO must be satisfied that transferring funds has or will cause "significant harm to either the financial system, the Australian community, or both."

Currently, there are around 19,000 reporting entities, including banks and credit unions; non-bank lenders and stockbrokers; gambling and bullion service providers; and remittance service and virtual asset service providers (VASPs).

All are required to have processes and controls in place to protect their systems from criminal misuse.

Yet that number will soon expand to over 100,000 when new sectors, including lawyers, accountants, conveyancers, real estate professionals, and dealers in precious metals and stones, come under Australia's anti-money laundering and counter-terrorism financing regime from July 1 this year.

Sector-Wide Powers Needed, AUSTRAC Argues

Senator Michaela Cash asked what evidence suggested AUSTRAC's current powers were inadequate.

Daniel Mossop, the centre's national manager for policy rules, said current law mandated that the agency take a case-by-case approach, looking at individual businesses.

"What we can't do is have a look at a sector or a channel or a product and say, 'On the basis of what we are seeing here, there is an unacceptable risk,' [and] when you're dealing with really high-risk things, [it] becomes more inefficient.

"What we've seen over the last few years is a proliferation of new channels, payment methods, and products ... the real diversification of the market.

"When we have looked at some of these channels, what we have seen is high levels of criminal misuse in particular sectors, and that has caused us, along with the department [of Home Affairs], to start questioning whether the policy and legislative settings are right to deal with that type of threat," Mossop said.

Cash then asked officials whether they would support a change requiring the AUSTRAC CEO to report to Parliament on any prohibitions imposed.

Andrew Warnes, first assistant secretary of Home Affairs' criminal justice division, said there would be a "range of information" available and that lawmakers could always overturn the CEO's decision.

"We do not expect the power will be used particularly regularly," Warnes said.

"It will be a power that will be used occasionally, at best, based on our discussions with AUSTRAC. And when you look at the use of other powers in AUSTRAC's legislation, this is going to sit at the higher end, and you will have that parliamentary review, ostensibly of [every decision].

"A review mechanism is ultimately a matter for parliament, if it wants to do it. I expect this will be used on such a sparse occasion that your review will only be looking at one example. The next mechanism that might be banned might not have even been invented yet."

Crypto ATMs Major Area Of Concern

One are of concern is cryptocurrency ATMs, which have proliferated from 23 machines in 2019 to about 2,000 today - Australia has the third highest volume of such machines globally.

AUSTRAC told the committee it estimates that almost 150,000 transactions, totalling over $275 million, occur every year via crypto ATMs, with about 99 percent being cash deposits to make purchases.

The ABA says (pdf) they have been linked to "significant scam-related activity, high-risk cash-based transactions, and the rapid movement of illicit funds."

The recent Crypto Crime Report, shows a 162 percent year-on-year increase in the amount of cryptocurrency received by criminals.

That led the ABA to suggest the new powers be used on that channel than on banks.

"Banks are already subject to prudential supervision by APRA (Australian Prudential Regulatory Authority) and market conduct regulation by ASIC (Australian Securities and Investment Commission), both of which hold comparable product intervention powers," said Chris Taylor, the ABA's chief of policy.

"Extending the AUSTRAC CEO's power to ADIs (Authorised Deposit-taking Institutions) creates overlapping regulatory authority without a corresponding uplift in risk mitigation."

Further, crypto ATMs charge fees of up to 17 to 19 percent, or more, on the purchase of cryptocurrency.

"There's clearly some degree of consumer harm or some risk of consumer harm going on," Taylor argued.

"AUSTRAC's data is clearly showing that people who are using these ATMs are either themselves subject to a scam or they are involved in money mule activities, which is helping to move criminal proceeds, either from scams or from other types of illicit activities, so we really struggle to see a legitimate use case here."

A large number of scam victims tricked into sending money via crypto ATMs were elderly, Taylor said.

"When AUSTRAC first released this data, they talked about an 85-year-old woman who had physically fed in, over the course of a year, $325,000 of her life savings. That's heartbreaking."

The banks also want the period during which any channel was prohibited to be reduced from 3 years to 18 months, in line with the powers of ASIC.

Transparency International supported the bill, saying in its submission that, "For too long, Australia has been a major destination for kleptocrats, organised crime gangs, and corrupt officials to wash their illicit funds. Much of this dirty money flows out of low and middle-income countries."

The bill also amends the meaning of financing terrorism to include new offences of providing monetary support to a state sponsor of terrorism.