The recent bust of a Sydney-based money laundering syndicate, and the story of a charming Chinese criminal brought down by New Zealand authorities, highlight the need for Australia to catch up on global anti-money laundering regulations, reports Callum Foote.
Earlier this year, the Australian Federal Police busted a money laundering scheme earning its members hundreds of millions in profit, with millions of dollars worth of Sydney property seized.
The criminals may never have had the chance, or had a much harder time of it, if successive governments hadn’t slacked off on introducing vital anti-money laundering regulations like our neighbours across the Tasman Sea.
In 2018, New Zealand introduced Phase 2, known as Tranche 2 in Australia, of its anti-money laundering and counter-terrorism financing laws (AML/CTF). Australian governments have been dithering on Tranche 2 since promising to introduce it 15 years ago, despite international condemnation, despite billions a year in black-money inflows to the Australian property market.
Phase 2 brought New Zealand in line with recommendations from the Financial Act Task Force (FATF) the global money laundering and terrorist financing watchdog.
Lawyers, accountants, property lobby to blame
According to Milan Cooper, the CEO of a New Zealand-based AML/CTF technology company First AML, “Our customers are financial institutions, and banks, however, in countries like New Zealand where tranche two has been introduced, our customers are also law firms, accounting firms, and real estate agencies.”
The AML rules require these organisations to conduct customer due diligence or, Know Your Customer checks. “They need to verify their identity they need to dig through the layers of ownership and find the ultimate beneficial owners of these entities and our software helps them do this,” says Cooper.
Nor do these professions need to report suspicious transaction.
Financial crimes expert Nathan Lynch says that real estate is the primary avenue through which money is laundered in Australia. “Unfortunately, when we look at these organised crime schemes more than half the money moves through real estate in Australia,” said Lynch.
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Cooper agrees, “the same is true in New Zealand by the way, the property is a good place to sort of introduce illegal money into the financial system. In Australia, you can buy and sell property through an entity, which may conceal the true identity of the owners. Without anyone asking where the money comes from, it’s very easy to introduce illicit money into the system,” he says.
Clancy Moore, CEO of Transparency International Australia told MWM that “Australia is one of only three countries in the world without Tranche 2 requirements for our anti-money laundering / counter terrorism financing laws.”
This means Australia is a honey pot for kleptocrats, crooks and cronies to launder their dirty money and hide their proceeds of crime in our real estate and gaming sector.
Dropping the ball
Contrary to New Zealand “in Australia accountants, real estate agents and lawyers for 16 years have not been required to do any checks whatsoever as to the source of the wealth that people are moving into property purchases,” says Lynch.
Opaque trust accounts are at the heart of Australian money laundering according to Lynch. When laundering money through real estate, the proceeds of criminal activity money “goes into a real estate agent’s trust account” says Lynch, and despite banks having to abide by anti-money laundering regulations. “The bank really doesn’t know what’s in the trust account, who it’s from. It’s a co-mingled account.”
“Lawyers, accountants, real estate agents all have these trust accounts that even when the banks are doing really good work around money laundering, those accounts are sort of like a black hole,” Lynch notes.
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A Spokesperson for the Attorney-General told MWM that “an inquiry into the adequacy and efficacy of Australia’s anti-money laundering and counter-terrorism financing regime was conducted by the Senate Legal and Constitutional Affairs References Committee in the previous parliament.”
The Government is now considering the findings of that inquiry and will respond in due course.”
According to Moore, “given the conveyor belt of money laundering scandals over the last few years, the government’s plans to establish a beneficial ownership register and the bi-partisan support for Australia to introduce Tranche 2 reforms in the 2021 AML/CTF Senate inquiry, it’s time the parliament came together and tackle money laundering once and for all.”
“In the past the Law Council and other interests have opposed Australia introducing these reforms which have seen Australia become a go-to destination for money laundering,” Moore said.
Global pariah
Experts agree that the government’s lack of action risks turning Australia into a global pariah.
“It’s time to act because it’s becoming embarrassing, and there’s a risk that Australia is put on the grey list by the Financial Action Task Force, which oversees these regulations around the globe,” says Cooper.
“It would result in a lot of the other international players really having question marks about wanting to do business with Australia Cooper notes.”
Lynch agrees, “it’s astounding that Australia has said for 16 years to the international community ‘yes yes we’re fixing this’ and yet every government has kicked the can down the road.”
“When these gatekeepers had to identify this activity and had to report it to the Federal Government via Austrac we would be in a much better position to tackle this scourge,” he says.
Money laundering in action
Launched in 2018, alongside Phase 2, Cooper’s company has assisted in catching international money launders, such as Xiao Hua Gong, who attempted to launder the proceeds of a $200 million Chinese-based Ponzi scheme through the Canadian and New Zealand property markets.
Xiao Hua Gong, appeared in Toronto in 2012 and quickly made his way into influential circles, attending fundraiser dinners for Canada’s Prime Minister Justin Trudeau and donating to the governing Liberal Party. At the same time, Gong bought the first of two million-dollar properties in Aukland.
Exploiting the ease of international property purchases and New Zealand’s trust laws, Gong easily set up a trust that ensured anonymity.
Over a five-year period, Gong built a business empire in Toronto including a hotel chain and television channels.
While claiming the source of his money was from selling medicines in China, it was revealed later that Gong had fraudulently sold hundreds of millions of dollars of securities to Chinese citizens over two of his companies, O24 Pharma PLC and Canada National TV Inc.
Eventually, Gong was connected with convicted mother-son duo Qiang Fu and Fuqin Che of Jiaxin Finance, which a 2018 court case revealed “intentionally concealed” Gong’s money in New Zealand.
All actions that would have been far harder if the reporting obligations of Phase 2 were in place at the time.
ANZ blows the whistle
Previous regulations on governing banks led to ANZ alerting the New Zealand Financial Intelligence Unit that there were large sums of money being transferred to Gong’s account. This was thanks to the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 requiring banks to do so.
Gong also became involved with a Ukrainian banking tycoon Ihor Kolomoisky, who also used a Ponzi scheme to launder hundreds of millions of dollars. In this deal, Gong bought the former Motorola plant in Harvard, Illinois from Kolomoisky.
In March 2017, the New Zealand Police froze nearly $70m of his assets as part of a global investigation. In December 2017, Gong was arrested in Canada and charged with fraud and money laundering over his Chinese pyramid scheme and placed on house arrest.
FirstAML’s services stepped in at the last minute when Gong engaged a defence lawyer in 2020. While defence lawyers were not covered under New Zealand’s recently introduced Phase 2 regulations, accountants were. The QC engaged a New Zealand accounting firm to hold Gong’s payments in escrow.
This process triggered an investigation on behalf of the accountants who tracked down the source of the proceeds to a dodgy loan arrangement through a small Canadian solicitor. The accountants refused to process the funds.
Ultimately, the case went to court in 2021. Court documents showed that, in addition to the properties, Gong had also deposited $77m into New Zealand over seven years, trying to hide his proceeds of crime and distance himself from his pyramid scheme.
At the end of the hearing, Gong signed a plea deal and the New Zealand government retained the frozen money.
In 2022, Gong pleaded guilty to Canadian charges related to operating a pyramid scheme and using forged documents. Due to his assets being confiscated in New Zealand, The Crown withdrew charges.
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Callum Foote was a reporter for Michael West Media for four years.