The Australian Transaction Reports and Analysis Centre (Austrac) in late 2017 gained authorisation to extend anti-money laundering and counter-terrorism financing (AML/CTF) regulation to cryptocurrency exchanges.
Exchanges are required to enrol with Austrac and register on the Digital Currency Exchange (DCE) Register and adopt and maintain a program to identify, mitigate, and manage the money laundering and terrorism financing risks they may face.
Similar to a bank, the exchange must also identify and verify the identities of their customers, and report suspicious matters, international transactions, and transactions involving physical currency that exceeds AU$10,000 to Austrac.
Appearing before Senate Estimates on Tuesday, Austrac CEO Nicole Rose said her agency was expecting about 30 exchanges to register; that figure is currently 456.
She said Austrac is currently looking into how it can extend regulation to the DCE space.
“Austrac’s not responsible for regulating digital currencies, just in the way it’s not responsible for regulating physical currency — ie the Australian dollar — we’re interested in businesses that exchange fiat currency to digital currency, and visa versa,” Rose explained.
“We register those, but that’s only one part of the cryptocurrency environment, so we’re working with the RBA and the other regulators — ASIC, APRA, and a range of other regulators in Treasury — to actually work out how broader regulation could be done throughout the regulator population, and then what possible legislative change we might need to look at to grapple with some of these issues that obviously no one had even thought about five years ago.”
Rose said her agency and its colleagues are interested in regulating the exchanges that “turn cash into cryptocurrency” because they want the AML/CTF procedures to be in place to ensure money laundering is not occurring at that junction.
Austrac deputy CEO Peter Soros said while he couldn’t guarantee that all 17,000 entities his agency deals with are fully complying, he said cryptocurrency exchanges are a sector that is “working quite hard” and is “quite enthusiastic” about ensuring compliance with their arrangements.
Soros also confirmed Austrac has not taken any formal investigations against DCE’s, but that it has conducted compliance checks and supervision activities to “identify areas where they need to improve”.
“It wouldn’t be a usual practice within a couple of years of a new sector coming onboard, unless the failures were so egregious or had such a massive risk to money laundering that we would be looking to be very heavy handed,” he said.
The Financial Action Task Force (FATF) earlier this year began consultation on proliferation financing risk, and on digital currencies and digital currency exchange providers. FATF is the global standard-setting body for AML/CTF.
One of the recommendations it has put forward is the “travel rule”.
“Recommendation 16 was developed with the objective of preventing terrorists and other criminals from having unfettered access to electronically-facilitated funds transfers for moving their funds and for detecting such misuse when it occurs,” the FATF said in a consultation document [PDF].
“At the time of drafting, the FATF termed such transfers ‘wire transfers’. In accordance with the functional approach of the FATF Recommendations, the requirements relating to wire transfers and related messages under Recommendation 16 apply to all providers of such services. This includes VASPs [virtual asset service providers] that provide services or engage in activities, such as VA [virtual asset] transfers, that are functionally analogous to wire transfers.”
“It gives us visibility of the payer and payee primarily, which at the moment we don’t have,” Rose clarified.
FINTEL ALLIANCE KICKING GOALS
Austrac in early 2017 stood up a public-private initiative to follow the money trail in a bid to “harness and turbo-charge the collective knowledge of government and industry”.
There are currently 29 members comprising the alliance, including ASIC, Border Force, the ACCC, the Crime Commission, AFP, ATO, Home Affairs, NSW Police Force, ANZ Bank, Bendigo and Adelaide Bank, the Commonwealth Bank, HSBC Australia, MoneyGram, Macquarie, NAB, Paypal, Tabcorp, Western Union, and Westpac.
The Australian Financial Crimes exchange also shares fraud data with the alliance and it also draws on expertise of specialists from Deakin University.
Austrac chief operations officer Dr John Moss said the alliance now boasts two operation hubs, one each in Sydney and Melbourne, where around 30 analysts frequent Austrac’s officers to work alongside the agency.
He said in this current financial year, 4,200 suspicious matter reports have been generated by the team.
“There’s a 55% increase on previous reporting from those Fintel Alliance partners,” Moss said. “We receive about 850 of those a day … we focus on wildlife trafficking, fraud against government programs, highest-risk criminal targets such as outlaw motorcycle gangs or at the highest priority, organised crime targets and professional money laundering syndicates.
“We’ve also done recently a lot of work on COVID-19 in initiatives such as fraud against early release or superannuation, and Jobkeeper and Jobseeker payments.”
Work of the Fintel Alliance has this year resulted in the rescue of around 14 children from the Philippines.
“That intelligence actually came from Austrac in the first instance, working with Fintel Alliance partners, looking at remittance-type payments from Australia into the Philippines, and matching that with other law enforcement data,” Rose explained. “And once we had that information, we provided actionable intelligence so that Border Force and AFP then picked up that job and went further to investigate and it resolved in arrest last week.”
The federal government has provided Austrac with AU$2.9 million in the 21-22 Budget to strengthen financial intelligence efforts to disrupt the cash flow behind child sexual abuse, part of an AU$11.9 million four-year package.
“AU$2.9 million over four years will fund five FTE specialist analysts who will work with the Australian Centre for Child Exploitation to counter it,” Moss said. “It will allow us to do deeper analysis of our data holdings to support active law enforcement investigations.”
Austrac also received AU$104 million to modernise its reporting systems and to enhance industry compliance.
“That’s going to be a new IT system interacting with all of our registered entities, to nearly 17,000 entities,” Rose said. “The system that Austrac currently uses was set up about 20 years ago, and didn’t have any consideration, of course, about the huge increase in data that we would be ingesting from all of those entities.”
It will also fund five offshore placements in the United Kingdom, United States, Kuala Lumpur, and China, as well as an additional intelligence team to help support the increased data flows, Moss said.
