In between, Lynch examines Australia’s role as a “major international hub” for laundering illicit funds, which has come about partially due to Australia’s deep dependence on foreign funding.
“At that point,” he told Nikkei Asia in an interview, “You’re so economically vulnerable, although it all looks good, thanks to really high GDP because you’re doing high-value paper-shuffling (financial services) jobs.
“And then the tap turns off and suddenly you cannot make decisions about what sort of capital you’re going to import.”
As Australia becomes more dependent on illicit money, attracting the funds is too important to worry about their provenance, Lynch notes. “You just have to let the money fly in. And that’s where Australia is at. No one is really determined to sit there and say, ‘We don’t want this corrupt money.’ So it becomes symptomatic and reinforces this failure in our system.”
Australia passed the Anti-Money Laundering (AML) and Counter-Terrorist Financing Act (CTF) 2006, also known as Tranche I, to establish an AML/CTF regime covering the financial sector and meet Australia’s obligations as a member of the Financial Action Task Force (FATF), an intergovernmental organisation that develops policies to combat money laundering.
In addition, Australia promised to apply the Anti-Money Laundering and Counter-Terrorist Financing Act 2006 (Tranche II) to legal professionals by 2008. But it fell well behind schedule, and in July 2010 deferred discussion of Tranche II to 2011 because of the global financial crisis. Australia has still not fulfilled its promise, and lawyers do not yet have comprehensive AML/CTF obligations.
Australia’s Treasury declined to comment on this story. A spokesperson for AUSTRAC, a government agency responsible for monitoring financial transactions, said: “The government continues to consider a range of options to ensure that Australia’s financial system is hardened against misuse by criminals and terrorists, without placing undue burden on industry.”
A FATF spokesperson told Nikkei that the body “welcomes stronger measures to prevent money laundering through the real estate sector and other gatekeeper professions, such as lawyers and accountants. Criminals can use real estate and other nonfinancial sector businesses to launder their illicit wealth. The FATF is working to improve the situation.”
For Lynch, the reluctance of “gatekeeper professions” such as lawyers, accountants and real estate agents working in the housing market to adopt AML/CTF reporting has entrenched Australia’s status as a money laundering hub.
“Basically, what we’ve seen is the way that those representatives of the housing market – the lobbyists and all that – have just choked policy at Canberra, to the point where we have sat for 16, 17 years on these money laundering laws when we know that it’s literally a matter of national security because you’ve got the terrorism financing aspect.
“We’ve got no oversight of that in gatekeeper professions. And then you also have the foreign influence aspect, which is a huge issue with the China relationship,” he said.
Most Australian financial services businesses, particularly banks and brokers, are required by law to adopt a rigorous “know your client” (KYC) regime to ensure the legitimacy of their credentials.
“If you’re moving money through Australia, you’re going to be using an accountant. You’re going to be using a lawyer to set up your companies and advise you. And then, in more than half the cases that we’ve seen, money goes through property,” Lynch said.
“The gatekeepers in that chain do not have to do anything. They don’t have to do any KYC, they don’t have to ask any questions, they don’t have to form any suspicions, because we have intentionally left them outside anti-money laundering range. So if there are breakdowns in KYC, it’s because lawyers don’t have to do any KYC in Australia. It’s remarkable.”
Lynch notes that Australia risks being “graylisted” – put under increased monitoring by the Financial Action Task Force – if it does not implement the rules as expected.
“Pakistan was graylisted by the Financial Action Task Force. It cost their economy US$38 billion, and had a huge impact on a whole lot of government programmes, to get back in. Now, why would Australia risk those sorts of penalties?
“What is it about protecting the money laundering that happens through these professions that have so captured and captivated Canberra?”
For Lynch, regulatory capture in the Australian government is best understood by observing the country’s 10 trillion Australian dollar (US$6.6 trillion) housing market.
“Well, my perspective would be that it’s because no one, politically, is willing to touch anything that threatens to undermine house prices because, as we saw in the 2019 general election, it’s political suicide to do that.
“The Labor Party went to the 2019 election with a platform of reforming negative gearing – tax concessions on buying investment property – and bringing in anti-money laundering laws to combat laundering through property markets and lost the election. At the 2022 election, they went with a very modest platform and won.”