A series of domestic law enforcement initiatives that would strengthen Australian defences against financial crime. This will make it harder for corrupt or criminal business and political elites abroad to undermine development by moving illicit assets into Australia.
Domestic development efforts are undermined by corruption. We can forget about development impact if the domestic budgets of partner countries are sapped by corruption. That money – which regularly crosses Australian borders – is meant for education, medicines, and trade. Not only that, but fraud, corruption, illegal fishing and logging stunt the economic development of low- and middle-income countries.
We don’t really grasp the scale of offshore corruption. Nor do we grasp the responsibility Australia has as a donor and neighbour to play our part in addressing it. Measuring how much financial crime undermines development is hard, however, because it is clandestine by its very nature. For example, Papua New Guinea (PNG) is Australia’s largest development partner – yet ranks 124/180 in Transparency International’s Corruption Perceptions Index, and it’s in the 35th percentile in the World Bank's corruption control statistics.
The former head of PNG’s Operation Task Force Sweep, Sam Koim, suggested in 2015 that the cost of corruption to government revenue was above $1.4 billion USD. Part of that money flows into Australia, which Koim likened to ‘the Cayman Islands for PNG’. A 2015 Global Witness, Fairfax and SBS investigation exposed a complex money laundering system involving banks, real estate markets, politicians, and lawyers in Australia and PNG. This generated controversy, but almost no policy change. There is also evidence of elites in Nauru using Australia as a source destination for cash.
Action gets our own house in order. Australia’s legal framework to combat money laundering has not been updated significantly since being enacted in 2006. Australia does not have an institution dedicated to preventing or responding to financial crimes. Instead, responsibility is spread across institutions including AUSTRAC, AFP, Home Affairs, and the Attorney-General’s Department.
A Senate Inquiry made important recommendations about financial crime, including that the Government accelerate consultation on implementing reforms to bring “designated non-financial businesses and professions” — otherwise known as DNFBPs — under more scrutiny. The DNFBP group includes lawyers, accountants and real estate agents, among others. Making it harder to use Australian intermediaries would undermine efforts to move illicit assets into Australia.
It also improves our international credibility. This is not just a Pacific issue. Financial crime undermines development in many countries. Take Southeast Asia: in March 2021, Labor MP Julian Hill labelled the government ‘pathetic’ for failing to tackle investment in Australian property from prominent Cambodian families, including that of the country’s President, Hun Sen. The Senate Inquiry heard examples of officials from South Sudan, China, Malaysia and Russia using Australia as a cash hub. The Inquiry’s report found delays in enacting reforms were ‘risking Australia’s credibility’. Most recently, PNG leaders hit out at Australia’s hypocrisy over failures to extradite an allegedly corrupt Papua New Guinean elite, pointing out that “Australia's apparent inability to assist in this most basic of legal processes does not sit well with its broader anti-corruption and security intentions in the region”.
Financial crime subverts our development budget. Corruption ‘undermines efforts against poverty and disease’, and decimates the economies of our near neighbours, diminishing the revenue available to deliver services. At a domestic level, inaction on closing loopholes in Australian financial defences is becoming a reputational risk.
Bolstering these defences aligns with other foreign policy settings. Good work at home is the hinge for successful work abroad – just like having more stringent domestic climate targets boosts Australia’s case for being taken seriously internationally. The Senate Inquiry described Australia as a “laggard on the world stage” when it came to enacting regulation of DNFBPs. If our own Senate notices that we are one of only three states to have failed to act in this area, it is safe to assume others have noticed similar laxity. If we’re serious about using “all tools of statecraft”, this is a good place to start.
Australia now has a powerful tool to target financial crime. Under ‘Magnitsky-style’ laws introduced in December 2021, the Australian Government can target sanctions against a person or entity ‘engaged in, responsible for, or complicit in corruption that is serious’. The legislation has been used once, following Russia’s invasion of Ukraine, but there is scope for broader use.
Amending Australia’s beneficial ownership laws
Advocates and analysts have long proposed Australia’s beneficial ownership laws are alarmingly opaque, serving as open doors for dirty money. At least some of that money flows from countries Australia invests development dollars in. Implementing a free public beneficial ownership register which clearly states the ultimate owners or controllers of companies is critical. Such a register — which the Senate Inquiry endorsed in its report — would reveal who ultimately owns assets held through complex legal structures.
AUSTRAC international corruption assessment
AUSTRAC is responsible for preventing, detecting, and responding to financial crime. Its 2019 Strategic Analysis Brief acknowledged the corruption challenge, but the agency has never squarely focused its attention on international corruption. A specific corruption typology risk assessment would identify the most common avenues for illicit funds entering Australia.
Some of this has already been caught on camera and includes fake and inflated invoices, large-sum cash deposits, and house purchases using the banking system. The risk assessment would identify these and other methods, then specify how high-risk entities such as banks, law firms and real estate agencies should respond. That information would be provided to the financial, bullion and gambling sectors – entities that can help detect and prevent the flow of corrupt proceeds of crime. This information will also be critical for regulators and law enforcement undertaking international corruption-related investigations.
Developing a responsibility matrix
This would ensure nothing falls through the cracks by making it clear which government departments were responsible for tackling different financial crimes. A matrix would make it clear who deals with illegal assets, who identifies illicit money and assets, and who keeps tabs on high-risk entities.
This approach has been used elsewhere – notably the U.K. and the U.S. – and could be replicated here. It would improve co-ordination and make Australia’s approach more coherent.
Establishing a domestic reform roadmap
The Attorney-General’s Department should lead on establishing a ‘Domestic Reform Roadmap’ coming out of the Senate Inquiry, along with a target date for reporting back to the Senate. This roadmap would include priority actions emerging from the Senate Inquiry and directives for agencies to focus on international corruption.
A feasibility assessment on a regional corruption entity
The assessment in Australia would explore whether this is a unit established within an existing organisation (such as the AFP) or needs to be a new set-up entirely, as occurred in the U.K. This entity would focus on preventing, disrupting and investigating allegations of international corruption as well as recovering proceeds of crime.
Establishing a corruption assessment in an annual report on development performance
Corruption within countries where the development program works has long remained an off-limits topic. Making a requirement to report on the issue would change that.
Despite the diplomatic difficulties, this is not an insurmountable problem. The U.S. State Department submits reports on human rights performance on all countries that receive its assistance to Congress on an annual basis. These reports include a dedicated chapter on corruption; for example, the 2021 report on Solomon Islands described corruption as ‘a pervasive problem in the government, especially in the forestry and fishing sectors’.
No-one denies this is a vexed issue. There are vested interests both in Australia and abroad who would prefer the status quo remain: those in the know remember the story of the High Commissioner recalled early for tattling tales about a country’s political leaders and their Australian bank accounts. But we quite literally cannot afford to continue looking the other way. Talking a big game when it comes to our development aspirations in the region, at the same time as doing little while our partners’ domestic budgets are syphoned into Australian real estate, instead of being spent on the development of the welfare of their people, has been the de facto policy for too long.
The challenges are not insurmountable. Sure, investigative resources spent on recovering proceeds of drug trafficking is easier than tackling cases involving the political elite of some of our most important bilateral relationships. And on a practical level, the technical challenges of client confidentiality, admissible evidence and mutual legal assistance raised by Government and the legal profession need to be dealt with. Doing so, however, does not require reinventing the wheel, since jurisdictions with similar legal environments such as the U.S., U.K. and Canada, have managed to navigate a path. And while statecraft is always an uncomfortable balance between principles and interests, bringing our own regulations into line with those of our peers allows us to talk of regulatory parity, rather than needing to single out individuals.
The above stepped approach is practical and sensible. It is not as much about new ideas as much as it is about recognising the potency of existing tools at our disposal such as the ‘Magnitsky-style’ laws introduced in 2021 and the effectiveness of well-resourced agencies who are able to do their jobs.
We sought three perspectives on financial crime over on The Intel — read them here.
John Chevis is really the mastermind behind this Pitch. In March 2021 he wrote for Transparency International on the “seismic rumbling” that occurred when the U.N. weighed in on anti-money laundering policy. As John wrote, the U.N. had realised the “absolute impossibility of achieving the 2030 Agenda for Sustainable Development while trillions of dollars continue to flow out of developing countries into developed ones” — all of it facilitated by opaque financial arrangements.
We’ve long enjoyed Clancy Moore’s work on this topic — the best place to start is here. Read more from Transparency International here.
If you want to find out more from the 2022 Senate Inquiry into ‘The adequacy and efficacy of Australia’s anti-money laundering and counter-terrorism financing (AML/CTF) regime’, read it here.
If you want to get technical on Australia’s Magnitsky Legislation, dive in here.
Read more from Papua New Guinean lawyer Sam Koim, who described Australia as the ‘Cayman Islands for PNG’ here.
And then there’s Four Corners’ report on the Panama Papers, where it looked at how the rich and powerful exploit a system of secret financing and tax avoidance.
Gordon Peake, Bridi Rice, Izzy Coleman and Jason Staines.
