Australia: Money laundering watchdog on guard

AUSTRALIA'S money laundering regulator, AUSTRAC, has geared up for a deluge of suspicious transaction reports as tough know-your-customer rules become law.

Financial services firms must report anomalies in customer behaviour that may suggest involvement in money laundering or terrorism financing.
Since December 12, banks, credit unions, brokers, lenders, advisers and casinos are obliged to verify the identity of every customer before conducting business with them.

AUSTRAC chief executive Neil Jensen says more than 19,000 "diverse reporting entities" are now required to have an anti-money-laundering and counter-terrorism financing program in place.

Customers may be asked to produce a birth certificate, driver's licence or passport each time they seek financial services, but he is not expecting major disruption to business.

What differences will people notice when they go to open a bank account or take out a loan?

I imagine there'll be very little change for 99 per cent of the population. People will still need to be identified and have their identity verified. It will be up to each financial institution what process they use.

Some may still use the 100-point system, if they decide, under their risk-based system, that it is appropriate to use that system. Others might use different processes, but basically it should not change much at all.

Banks are the first to make changes under the new laws, mainly because they're already required to do some transaction reporting. Have they found it hard to adapt?

We've worked closely with them over the past two years in developing the rules, guidance notes, and so on. The main industry associations have been with us, sitting across a table, dotting the Is and crossing the Ts.

There has been a very close consultation process.

Do you expect that approach will extend into the next phase, when real estate agents, jewellers, lawyers and financial advisers have to begin mandatory reporting?

We don't know what's happening with the second tranche of the legislation because it's up to the current government whether and how they go forward with that.

We are awaiting word. The previous government said there would be a second tranche and draft designated services were drawn up. These were published on the attorney-general's website and a number of comments were received. Then the election was called, so the process had to stop.

Because the legislation wasn't before the parliament, it's now up to the new government to decide what we do.

Do you think the government will review the proposal?

I'm sure it will, but in opposition Labor was very supportive of the legislation.

Your new electronic reporting system, Austrac Online, has just been launched. Are you confident it will handle the volume of transactions?I'm extremely confident about all of our systems.

We were building systems before these sorts of things were available in the marketplace. The systems we built have stood the test of time.

We've been in operation for more than 18 years.

In the mid-1990s we built almost a risk system, if you like, when there were none around.

Into the 2000s, I had people knocking on my door saying they wanted to sell us products, and they knew the sort of work we were doing, and they would describe a system similar to what we had built five or 10 years before. I have great faith in my IT people, the systems they build and the staff who operate those systems. I have absolutely no doubt they'll be fine.

How about analytic capabilities?

Those capabilities are exceptional. We're now getting some data mining tools off the shelf and incorporating them into the work we're doing, but our successes come from the analysts who use those tools.

Our financial intelligence unit was compliant with the requirements of the Financial Action Task Force (the international anti-money-laundering co-ordinator) and we're highly regarded globally for the work we're doing.

Austrac received about 25,000 reports of suspicious transactions last year. How will you manage a greatly increased workload?

We anticipate people will make mistakes and over-report (in the US and Britain they refer to this as defensive reporting) but we'll be able to manage it.

The difference between us and the US and Britain is that we have good technology. We're developing a program to use technology to analyse all the suspicious transaction reports we receive and give the more important of those to higher priority.

We do that manually at present, we have staff who look at the reports but, because we anticipate an increase in numbers, we're building a system to help us through that process. It will be successful. Just to indicate the level of our technology, a couple of years ago, the Canadian government was unhappy with a system it had used for four years and decided a new one was needed.

I got together with my counterpart and agreed they could send six of their IT specialists over here for six months, during which time they built their software in Australia, based on ours. The Canadian system works very well. Their analysts are over the moon.

I understand you've also been working with some Pacific island nations.

Yes, we identified a need for Pacific islanders to have a product. Under global standards they must have a financial intelligence unit (FIU) that is efficient and effective.

So we built a microcosm of our database and put it in a black box so it can't be tampered with. We call it an FIU in a box. It's a standalone computer that they can put into their systems and the maintenance is very low.

The benefit to Australia is that we know what they're dealing with, and if we need information they'll have it analysed in a particular way. We've provided those to about six countries. It helps them and it helps us. Also, we've been working in Southeast Asia to help regulators develop systems and processes.

What about extended data-matching of information held by government agencies here in Australia?

We work very closely with the Australian Tax Office in particular, and we abide by the National Privacy Principles.

If there is a data matching program, and we have one going with the tax office at the moment, we consult the Privacy Commissioner on protocols. We actually have someone working in the tax office looking at how we can develop programs for the future.

Also, I have agreements with all the federal and state police commissioners. We have staff stationed with the federal police and we have people who work with the state police all the time.

How are you tackling potential money launderers in the field?

We're visiting a range of businesses we believe may be involved in designated services. We're informing people about the law and giving them educational material.

It doesn't matter where it is or what it is, whether it's a big organisation or a very small business, we're out there. Last month we sent out 19,000 letters to smaller entities to explain that they may have obligations under the law.

As more businesses are required to collect personal details and report transactions, is there increased risk of fraud and identity theft?

There is a lot information about us already out there, and we would hope the good corporate citizens that are reporting entities will work to deter that sort of conduct.

What about small businesses, such as service stations selling prepaid phone cards? They may not have great security in place to protect identity information.

If you've had your car serviced there, they'd already have your personal details on file.

Not my date of birth, surely?

They could probably find that from a range of sources.

It's important to understand how much information people actually put on the internet, and that others can abuse that information if they so desire.

On Facebook, for example, people put their birthdate, their interests, where they went to school, where they work.

A colleague said it's like tattoos: when you're young you think they're wonderful, but when you get to 40 you wish you had never done it.

Social networking sites are very similar: in a few years you may wish you hadn't put your information out there.

http://www.australianit.news.com.au/story/0,24897,23085585-24169,00.html