Australia standing proud — and increasingly alone — as property haven for international criminals 

by Nathan Lynch | Dec 29, 2021 | Finance & Tax

Australia is cementing its name as a haven for money-launderers in global regulatory circles. Now that former laggard America is reforming however, the 64 billion dollar question is: will Canberra finally leap into action? Nathan Lynch examines how Australia has been exposed by the changing climate in Washington.

For 15 years, Australia has stood comfortably in the shadow of its big brother Sam, pulling fingers at the international money laundering community. As documented by Michael West Media, Australia has been one of the world’s leading laggards when it comes to blocking money laundering through the holy trinity of lawyers, real estate agents and accountants. In refusing to pass its promised Tranche 2 laws, Canberra has made it abundantly clear that Australian gatekeeper professions are open for business. Any kind of business.

In a radical policy shift under the Biden Administration, however, Australia could soon find itself out in the cold.

Australia and the United States are among the five remaining “recalcitrant” countries in the international quest to block dirty money through gatekeeper professions. Two of their compatriots in this distinguished club are the financial powerhouses of Haiti and Madagascar, which have a combined annual GDP of $US28 billion. Australian and the US, meanwhile, boast a combined GDP of $US22.3 trillion.

China, the fifth laggard, has a GDP of $US14.72 trillion — but it has at least set out a road map to update its laws as it modernises and internationalises its economy.

It’s not difficult to see from these numbers where criminals might look to hide their fiscal needles within financial haystacks.

In Canberra, meanwhile, there has been nothing but reviews, inquiries, broad in-principle commitments and cost-benefit analyses. It has been safe in doing so as it stands in company with the US. But the Biden Administration’s unexpected hard crackdown on corruption could leave Australia swimming very naked this antipodean summer, without an American jock to hide its tackle behind.

The proposed ENABLERS Act in the United States is seeking to expend the gatekeeper professions that are captured under the country’s Bank Secrecy Act — it is equivalent of the Australian Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) Act. This would in effect give rise to regulation of money laundering controls at gatekeepers such as lawyers, jewellers, car dealers, accountants and realtors. Sources in the US said there was still only a small chance this legislation would pass in its current form, however, it is a clear sign of the Biden Administration’s direction.

The US bill was developed in response to the Pandora Papers, which exposed the role that gatekeepers play in major international laundering schemes. Australia featured prominently in the Pandora Papers, with more than 400 Australians being exposed as users of opaque offshore service providers such as Asiaciti.

The anti-money laundering world holds many dark and inconvenient secrets. One of them is that while the US was placing pressure on offshore jurisdictions to shine a light on their tax shelters, it was simultaneously opening the floodgates to its own “onshore” tax evasion industry. States such as Delaware and South Dakota have become the Switzerland of North America. The underground economy didn’t disappear, it just migrated to more attractive climes.

Uncommon wealth

To make matters worse, the US is a “non-participating jurisdiction” under the global Common Reporting Standard (CRS) for information sharing between tax authorities. More than 100 countries — including the UK’s tax shelters of Jersey, Guernsey, Isle of Man and Gibraltar — have signed up as part of a co-ordinated effort to lift the bar on cross-border tax avoidance. The US still flounders as a notable absentee from this crucial global accord.

Casey Michel, adjunct fellow at the Hudson Institute and author of American Kleptocracy, said states such as Delaware and South Dakota had become some of the world’s great secrecy jurisdictions. Professional enablers, especially lawyers, were critical to the establishment and operation of these schemes.

“These are the Western professional classes that effectively enable kleptocrats living abroad to launder their ill-gotten gains into legitimate above-board assets,” he said. “Without these enabling classes of professionals and all these loopholes that they use and abuse, kleptocracy as we know it would not exist.”

The failure to regulate gatekeeper professions in the United States and Australia has opened huge vulnerabilities in these economies, Michel said. “It allows these corrupt and kleptocratic clients to anonymise their wealth while still controlling it, nonetheless. So, we’re talking about a whole range of industries — professionals, luxury goods providers, escrow agents, lawyers and law firms — who don’t have to conduct any AML checks at all.”

A receding tide waits for no laggard

The pressure on the Biden regime to address corruption, however, could be the sea change the global financial crime and financial intelligence communities have been awaiting. Any meaningful reforms to target corruption will have to involve a crackdown on laundering activity, as dirty lucre is the lifeblood of graft.

In this climate, the Australian and US government’s game of political bluff is becoming increasingly untenable. The danger for Australia is that Biden’s alliances can shift quickly, leaving Australia dangling like a pair of budgies in a Lycra swimsuit.

Lakshmi Kumar, policy director at Global Financial Integrity, said Western countries were clearly acting as safe havens for the world’s illicit funds. She said this risked a huge loss of political credibility, as Australia and the US had always sold themselves to the world as squeaky clean jurisdictions that offer a safe, rule-of-law place to do business.

Kumar said there was a significant gulf between the salesmanship and the substance.

“At its heart it’s a complex relationship between the countries and governments that set the rules and enforce the rules and also play the role of good guys. At the same time, those advantages of strong democracies and strong rule-of-law means there is sometimes not enough scrutiny of the gaps on the home front that allow people to invest money but also … there is strong enforcement of these rights,” Kumar said.

To many observers, the Pandora Papers seemed to burn hot and then disappear, leaving little in the way of durable reform. In global policy circles, however, the pressure is mounting on countries such as Australia and the US to clean up their act. Global bodies such as the Organisation for Economic Co-operation and Development (OECD) and the Financial Action Task Force (FATF) are using these revelations to apply political pressure behind the scenes.

Kumar said this would play a critical role in the push for tougher international regulation of gatekeepers.

Pandora’s box of secrets 

In Washington, where the International Consortium of Investigative Journalists (ICIJ) is headquartered, there is optimism that the Pandora Papers will have a lasting impact on voters and Congress.

Will Fitzgibbon, senior reporter at the ICIJ, said the 11.9 million leaked documents had shone a spotlight on the exploitation of American states in money laundering schemes.

“This booming South Dakota trust industry is worth $370 billion in assets under management,” he said. “But we still are only seeing a tiny slice of what’s going on.”

The Pandora Papers showed the extent to which trust providers lacked an awareness of the impact of these schemes, Fitzgibbon said.

“Nothing really assuaged me that South Dakota — and a number of other US states that are engaged in this race to the bottom — have the experience or the mindset in place that something is wrong,” he said.

“That tension between the federal and state level is very evident in this trust industry and has allowed this system to grow in a way in which assets and foreigners have really outstripped the knowledge and ability of the United States at a state level to catch up.”

The Australian connection 

In Australia, these are also topical issues. The size of the underground economy is believed to have swollen to $A64 billion, according to the criminal intelligence community’s conservative estimates. As such, the 64 billion dollar question is: will Canberra read the writing on the wall and leap into action? Or will it simply continue to limber into inaction, finding itself standing naked on Bondi Beach one day when the US steps aside?

Neil Jeans, a financial crime compliance consultant at Initialism in Melbourne, has been at the forefront of the global fight against organised financial crime for more than three decades. He cut his teeth working on the Wolf of Wall Street case and the mafia stockbroking frauds on Wall Street in the 1990s as part of a partnership between US and British money-laundering agencies.

Jeans said he was not confident that Australia realised just how exposed it was with the changing climate in Washington.

In addition, Australia will be the first of the five “laggard” jurisdictions to face a “fifth round” mutual evaluation visit from the FATF.  This places it in an unenviable position.

“We have recognised this problem in Australia for many years,” Jeans said.

“We have in Australia a Senate inquiry going on to assess the AML/CTF regime that is due in March 2022. They have identified this as a significant issue. But we’re still faced with a situation where the lawyers, in particular, are in denial. They simply do not believe this problem exists.”

Pressure is mounting on Australia to take meaningful action before the FATF’s next on-site visit, which is due as soon as the FATF can fly in a team of assessors. Jeans said the government’s claims that the laws were complex was disproven by the speed with which New Zealand acted when it was outed as an offshore centre for foreign trusts in the original Panama Papers.

“This long-promised Tranche 2 law could be introduced with the stroke of a pen by amending one table in the AML/CTF Act to bring the services that these enablers provide into the legislation. Then we would have a basis for regulation.”

In the meantime, the financial crime intelligence community is waiting with bated breath to see what comes out of the Senate inquiry.

Will it be just another inquiry that falls victim to the 2022 election caretaker period come March next year? Or is Australia ready to wean itself off the 15-year addiction to some of the world’s filthiest lucre?

The answer, unfortunately, is that kleptocrats will more than likely be “safe as houses” to wash their money through Australian property and law firms for the foreseeable future — and certainly until after the next election.

Nathan Lynch is a writer and international speaker who has spent two decades investigating the hidden world of dark money that fuels organised crime, corruption and violent extremism around the globe. He is certified by the US Department of Justice's elite CCIPS Cybercrime Laboratory and is a program expert with the Financial Services Volunteer Corps, which provides support to developing countries to help them combat the scourges of money laundering and other serious financial crimes. Nathan has trained police, government officials and bankers across Asia and the Middle East on the techniques the world's criminals use to conceal and clean their dirty money.

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