Advisers vulnerable to criminal abuse

A spokesperson for Austrac, the Australian money-laundering and counter-terrorism financing regulator, told ifa the financial advice industry is a prime target for criminal abuse by clients.

“Financial planners are vulnerable to abuse by criminals; there is potential for financial planning services to be inadvertently used as a means to hide or ‘clean’ money sourced from illegal activities – such as fraud, tax evasion, theft or drug trafficking – to make it seem legitimate,” the spokesperson said.

The spokesperson said Austrac would focus on the sector to ensure compliance now that the significant FOFA reforms were complete.

“Austrac is engaging more closely with industry on its compliance with the [Anti-Money Laundering and Counter-Terrorism Financing Act 2006] regulations and rules,” the spokesperson said.

“Austrac has a priority to harden regulated entities – including financial planners – against attempts by criminals to misuse their services for money laundering and other criminal activities, which can include tax evasion, fraud, people smuggling and drug trafficking,” the spokesperson added.

Austrac compliance assessments had found that some financial planners had not adequately assessed their risks and that effective training was necessary, according to the spokesperson.

“AUSTRAC does not expect financial planners to be crime fighters. However, there is a legal obligation to identify suspicious behaviour and report this to AUSTRAC and to undertake appropriate due diligence on customers. Having good systems and controls in place should enable a financial planner to comply with these obligations,” the spokesperson added.

At the Association of Independently Owned Financial Professionals (AIOFP) conference in Hobart in November, Austrac supervision branch director of reporting entity operations Rob Buchan presented research indicating reporting rates for financial advisers are lower than other comparable service providers.

However, reflecting on the research, AIOFP executive director Peter Johnston told ifa the suggestion does not necessarily mean there is a culture of non-compliance existing within the advice sector.

“[The Austrac research] doesn’t mean that everyobe’s hiding things,” he said. “I think Austrac has been out of sight, out of mind over the last three to four years because everyone’s been focused on FOFA.”

The AIOFP intends to hold a number of educational programs for members over the coming year to remind advisers and advice executives about reporting obligations.

“Any little bit helps. Some of the smallest tip offs have actually uncovered huge frauds and other commercial manipulation…we just hope that we can assist everyone to make sure the public’s money is safe and our reputations are not tainted,” Mr Johnston said.

Austrac’s latest annual report revealed that Austrac received more than 40,000 suspicious matter reports in the 2012/1013 year. Austrac information contributed to 1,428 ATO cases and $572 million in taxations assessments being raised.

A review of the legislation Austrac relies on was announced by justice minister Michael Keenan on 4 December 2013.

The closing date for submissions to Austrac is 28 February 2014.