Legal and Constitutional Affairs References Committee : 09/11/2021 : The adequacy and efficacy of Australia's anti-money laundering and counter-terrorism financing (AML/CTF) regime (2024)

MARSHAN, Mr Benjamin, Head of Policy, Financial Planning Association of Australia [by video link]

McWILLIAMS, Mrs Karen, Business Reform Leader, Chartered Accountants Australia and New Zealand [by video link]

STYLIANOU, Ms Vicki, Group Executive, Advocacy and Policy, Institute of Public Accountants

WALLER, Mrs Keddie, Head of Public Practice and SME, CPA Australia [by video link]

CHAIR: Welcome. I thank you all for giving us your time today. I trust that parliamentary privilege information has been provided to you; there's additional material available if you require it. We have here submission Nos 5, 9, 11 and 37. Are there any additions or corrections to those submissions? Would anyone like to make any changes? All good? Okay. Would each or any of you like to make an opening statement?

Ms Stylianou: Thank you, Chair. I will start and then pass on to my colleagues. Thank you for the invitation to present to the committee today. Firstly, I would like to acknowledge the traditional custodians of the lands of Australia and their continued connection with the land, waterways and communities and pay our respects to their elders past, present and emerging. Chartered Accountants Australia and New Zealand, CPA Australia, Financial Planning Association of Australia and Institute of Public Accountants together represent over 350,000 finance professionals in Australia, New Zealand and around the world. Through our combined membership, we represent over 80 per cent of financial planners who have actively been involved in the regime for over 10 years.

We welcome moves to strengthen regulations that fight money laundering and terrorism financing. Money laundering and terrorism financing are illegal practices that severely damage our financial system. We support the global initiatives to combat this activity and recognise the importance of Australia meeting its obligations as a member of the Financial Action Task Force. As professional associations for accountants and financial planners, we are committed to acting in the public interest and contributing to a robust system that prevents criminals from using Australia for illegal activities. Our members work across a wide range of sectors, including in practice, from large firms to sole practitioners, large financial services providers to self-licensed advice businesses; in business, from major multinationals to SMEs; the public sector; not-for-profits; and academia. We hold our members to high professional and ethical standards, including the requirement to undertake a degree of customer due diligence, to meet recordkeeping requirements and to undertake screening for and be aware of suspicious behaviour by new and existing clients.

Lastly, I refer to the IPA's office in the UK, which is an authorised supervisor for AML purposes and supervises approximately 2,000 member firms. We know from their experience that a proportionate, risk based approach is essential and that an overly complex system, such as in the UK, has resulted in significant compliance costs in order to meet the AML/CTF obligations. I now hand over to Keddie Waller from CPA Australia.

CHAIR: Thank you.

Mrs Waller : In our submissions, we have aimed to assist with shaping the future design and implementation of the expansion of the regime to include the accounting profession, balancing regulation with risk and strengthening our members' contribution to detecting and recording potential money laundering and terrorism financing. We note the importance of undertaking an analysis of the AML/CTF risks compared to the cost of compliance for businesses that would be captured, including if applicable any industry contribution levy. It is important to be cognisant that money laundering and terrorism financing risk is proportionate to the size of a business; the number, nature and location of clients; and the value of transactions, so policy responses should therefore be pragmatic.

For example, we are supportive of imposing the obligation to undertake customer due diligence, or CDD, obligations on all providers of accounting services. Not only should such an obligation reduce the risk of money laundering and terrorism financing but it is also good practice for firms to verify their customers' identities. However, the ATO and the Tax Practitioners Board recently released client verification guidelines that align with the AML/CTF CDD requirements, meaning that tax practitioners are now performing these checks. Furthermore, professional accountants have additional obligations under their code of ethics which require that they must respond when they become aware of noncompliance or suspected noncompliance with laws and regulations. This includes money laundering, terrorism financing and proceeds of crime. It is therefore evident that some of the AML/CTF requirements and obligations significantly overlap with or emulate existing professional requirements imposed on the members of the accounting profession by their respective professional bodies. Importantly, these obligations only apply to qualified accountants, as opposed to those who may call themselves accountants but who are not members of a professional accounting body. I would now like to hand to Karen McWilliams from Chartered Accountants Australia and New Zealand.

Mrs McWilliams: In developing our responses to the committee, we engaged with our respective memberships within Australia and overseas, particularly in New Zealand, where our members are already subject to requirements under New Zealand's AML/CFT legislation. From their experience, there are some critical factors that we consider will assist with achieving the greatest benefit from tranche 2. Firstly, an assessment should be undertaken on which existing mechanisms have led to the successful identification of money laundering and terrorism financing activity. Such an assessment should then be used as a basis to determine any future requirements and obligations for accountants.

Secondly, as Vicki and Keddie have highlighted, our members are already subject to a wide range of existing professional ethical standards. The inclusion of accountants should take into consideration existing regulatory obligations and industry oversight that could be effectively leveraged. The duplication of existing compliance obligations on accountants would exacerbate any compliance burden and associated cost, particularly for our small-practice members. An unintended consequence could be higher costs to small businesses and consumers for accounting services as small practices seek to pass on their increased costs. Further, small practices may cease to offer designated services if compliance obligations are excessive, which may in turn inadvertently displace the risk of money laundering and terrorism financing to service providers that are not members of a professional body or are outside the regime. We recommend a cost-benefit analysis of the regulatory options for accountants is undertaken, including if applicable any industry contribution levy.

Thirdly, there should be extensive consultation with a broad range of stakeholders throughout the process, including raising awareness with consumers. This will contribute to a more effective and efficient regime and establish a collaborative approach to increasing the resilience of Australia's financial system to criminal threats. Critically, the design must recognise accountants are inherently different from financial institutions and will require specific amendments to the regime, rather than simply being captured under the current regime. I'd now like to hand over to Ben, representing the Financial Planning Association.

Mr Marshan : From the perspective of Financial Planning Association members, financial planners have been subject to part B programs for over 10 years, and have been outsourced professionals for the part A programs of financial service product issuers. Our members have benefited greatly from the willingness of product issuers to develop and adopt an industry standard ID verification form through collaboration between the Financial Services Council and the FPA. Unfortunately, not all issuers have adopted the industry standards—superannuation funds in particular—and though the government has added financial planners to the statutory declaration's approved witness list not all issuers will accept financial planners ID verifying their clients, despite the professional relationship they have with their clients.

An emerging issue we would like to see supported by the government and AUSTRAC is a technology-first ID verification process used by part A entities to support the know-your-client obligations. Despite significant advances in ID verification services over the past 10 years, virtually no product providers will accept a technology enabled ID verification service, and they would prefer to still receive a certified photocopy and a wet signature on a form. While this is generally frustrating, the current pandemic has shown the issue with this approach when trying to support Australian consumers to manage their financial affairs.

In conclusion, while Australia has comprehensive and tough anti-money-laundering and proceeds-of-crime laws in place, further efforts to prevent financial crime are a good thing. As professional bodies, we stand ready to assist with this challenge, and we welcome the chance to discuss our submissions and these issues with you here today.

Senator SCARR: I thank you all for attending today. I think you're the first witnesses we've had during the course of the day who are representing people who form tranche 2 and who will actually be impacted by the rolling out of the tranche 2 reforms. I think your evidence is going to be important—as has been all the evidence we have heard during the course of today.

Does there need to be a simplification and a modernisation of the know-your-client and customer due diligence requirements under the legislation prior to rolling it out to tranche 2? As part of that modernisation process, does consideration need to be given to the specific circ*mstances of each of the professional bodies that you represent to make it fit for purpose for each profession?

Mrs McWilliams: I think I'm probably best to respond to the second part of your question, which is around whether it requires a tailored response. As I indicated, accountants will need to have a tailored response to this. They're not the same as financial institutions in that their interactions with their clients are different. They are already subject to a wide range of obligations under existing ethical and professional standards, and as Keddie indicated, they're already under the ATO as tax practitioners. All of those things need to be taken into account. I suspect Ben is best placed to specifically comment on the know-your-client CDD and how that should perhaps be modernised before rolling out.

Mr Marshan : As I noted in my opening, financial planners have been subject to part B obligations under the AML/CTF Act, and have been doing the know-your-client requirements on behalf of product issuers for over 10 years. I'll probably take a slightly contradictory view to my colleagues in that financial planners are under so much regulatory change at the moment. The know-your-client obligations, the ID verification obligations, and the forms we've developed with the Financial Services Council are fairly well embedded and have been for 10 years. Any changes to the process or the obligations around that are just another change and another cost that financial planners are going to have to bear. So, from our perspective, the FPA is quite comfortable with the item 54 reporting obligations that financial planning licensees have, and we wouldn't really want to see a change in the know-your-client obligations at this point.

I guess the main point would be that, when you have a professional relationship with a client, it's quite easy to know who your client is from a financial planning perspective because you're generally dealing with an individual. It's much more complicated, I think, in accounting because you have a lot of different business structures and trust structures and organisational structures, and knowing your client and providing the right kinds of documentation in that framework is a lot more challenging than it is for financial planners.

Senator SCARR: Okay. The Institute of Public Accountants?

Ms Stylianou: I might just add to what my colleagues have said. I think it's important to also look at the client and document verification requirements that are flowing through the ATO and the Tax Practitioners Board at the moment. We're looking at having a consistent standard and at developing minimum standards. I think in time we'll see how the implementation goes, what needs to be changed and how it can be tweaked. I might also add that there are also a lot of other regulatory reforms that are flowing through: there are the director ID requirements and the Modernising Business Registers changes that are taking place. So I think it's also important and useful to have a look at the cumulative effects of these and other regulatory reforms and to see how they're implemented and how practically they're going to work in the future.

Senator SCARR: Is it fair to say that we shouldn't be looking just at what's under the AML legislation but we also need to consider the professional standards and the ethical requirements of those who are members of your relevant organisations and also what's happening in the taxation space in terms of director identification? We need to consider all of that globally and then, once we've done that, come up with the most user-friendly, efficient and effective process which is suitable for each profession—is that a fair comment?

Ms Stylianou: Yes, I would agree with that. I think it's critical to take a holistic approach rather than just focusing on the AML requirements, which obviously are critical and are core to this. However, it's not just the FATF recommendations and requirements and the AML legislation; it's so many other things that are happening across the board, including technological advances, which are going to be a big part of compliance with all of these requirements. As my colleagues have said, the accounting professional and ethical standards are also a critical part of this. There's a whole regime that surrounds those. So I think, yes, it is critical to take all of these things into consideration, along with the overall impact on reducing ML and TF.

Senator SCARR: We received some evidence with respect to the modernisation of processes and the use of technology which is bringing down compliance costs, which is quite favourable to all the participants in this process. There was some evidence provided with respect to cost of compliance. I'm interested in what is the latest information coming out of jurisdictions like the United Kingdom and New Zealand with respect to cost of compliance, especially for smaller service providers. Australia is a country with vast areas and regions, and many of the members of the profession will be providing support to small regional centres. I'm alive to what impact the imposition of additional compliance will have on those small accounting practices and the service they provide to their communities, so I'm interested in any further information you have on cost of compliance in jurisdictions like the United Kingdom or New Zealand.

Mrs Waller : I'm happy to start from a New Zealand perspective if you like. We've had a lot of feedback from our small and sole practitioners based in New Zealand that the cost of compliance is quite excessive and not really in a risk-reward balance when you're looking at the benefit that it's actually giving back to both the system and the integrity and also the consumer. The complexity of the framework they have to comply with means that they have resorted to outsourcing their CDD obligations, because it is such a process to go through. That can cost anywhere from $50 as an individual up to $500, depending on the structures that are there, such as trusts, which have been alluded to before. So we're very mindful that there is an excessive cost that is coming through in that New Zealand framework. We wouldn't want to see that replicated here—especially because it's going to be passed on to the end consumer because the small business, being the professional accountant, often can't absorb those costs.

Senator SCARR: Mrs Waller, is it possible for you to take that issue on notice. It is a very important issue. We received evidence earlier today along the lines that some of the submissions around the costs being incurred by professional services firms are overblown, exaggerated, and there is a bit of a Henny Penny approach being undertaken by some of the professional services agents in terms of the cost. So is it possible for you to take it on notice and provide additional information in respect of what your members are actually seeing in New Zealand.

Mrs Waller : Definitely.

CHAIR: Could I make one other suggestion. Would it be possible for the secretariat to provide the Hansard of the evidence that has been provided on these cost issues and ask the witnesses if they could comment on that in addition to your question? There is a marked discrepancy in evidence we have seen from some of the submissions and some of the material we have seen today. Would it be acceptable to you, Senator Scarr, if we got those two things put together?

Senator SCARR: I think that's a very good suggestion, Chair. From my perspective, this is a key point; and there is a discrepancy, as you have alluded to. I think that would be very helpful. I actually think it's extraordinarily important that each of the professional associations—

CHAIR: I think it's important also to get an understanding of what is actually being said in regard to new technologies and the areas of activity that are subject to compliance costs. There could be some argument about what it is that we are actually measuring. So we can actually look at the evidence that is being presented and you can make your own judgements as to the validity of the claims that have been made.

Ms Stylianou: May I also add, in terms of costs, that it will obviously be dependent on the requirements. If you look at the UK example, which has a very complex system, I'll give you one example of cost: software that, up until next month, we provide free of charge to our member firms to do some of their CDD work. It is no longer viable for us to provide that free of charge, so that is now going to be provided at a cost of 260 pounds annually, which is about $475. That's for the small firms, and the majority are very small firms. So that is one cost. And then, of course, there are other levies that they have to pay as well. So all of those things would have to be taken into consideration.

CHAIR: Indeed.

Senator SCARR: The final question I have is around the role of the professional services organisations. From my perspective, it's going to be absolutely fundamental, as the law is reformed and rolls out to tranche 2, that the professional associations work hand-in-glove with the government in terms of coming up with the right policy mix for each of the professions and making sure that the system is as effective and efficient as possible. It seems to me that the professional associations are going to be at the coalface in terms of rolling it out, assisting their members to get up to speed with the new regulations and introducing it in their practices. I'm interested in your thoughts in respect of that proposition. Is that a fair comment?

Mrs McWilliams: I think it is. Our experience in New Zealand is that we need to be working very closely with government not only as the legislation is designed, the subordinate legislation and regulations, but also in the implementation part and guidance and so forth. It has got to be a very collaborative process. We have to leverage what is already in existence for our members, effectively, and then, as you say, work out where the gaps are for where there are additional bits needed to take it up to the level of FATF requirements. Certainly, what we found out through the New Zealand experience is that the implementation time is really quite key. It can be quite an uplift for some member firms, and so we need to work very closely with them and build that into their processes so that they're ready when it comes into effect. Often it takes time, following the passing of legislation, to come up with what this means in practice.

Mr Marshan : Can I just add to that? Having gone through 12 or 13 years of these know-your-client obligations and assisting issuers, I still have members today ringing and asking how they ID certain types of individuals and certain types of companies. Different products have different requirements, so, 12 or 13 years into the regime, there is still a lot of confusion. The simpler and clearer you can make it upfront, obviously the easier it is over time to roll it out; but, if you create a highly complex requirement for a particular profession, it can go on for a long time.

CHAIR: Can I add to that question? In other areas of industry policy, where there's a change in compliance, it's not unknown for the Commonwealth to provide assistance to industry associations to help industry firms come to grips with the new regime. Would that type of program, for a limited period, be of assistance? It may well be that, in some areas of regulation, there'll never be a point at which firms actually come to understand things. In the R&D tax area, for example, I know there are firms that are constantly managing to have a misunderstanding, many, many years after it was introduced, and they rely on taxation accountants who might end up at the practitioners board because of their misunderstandings of things. Would that principle—of industry associations being given some temporary assistance to help in the transition to a new regulatory regime—be of any value?

Mrs Waller : I would like to comment first and say that I think that would absolutely be welcomed by the profession. What we have seen, especially in our smaller and sole practitioner firms, is that they have undertaken a significant amount of reform and regulatory change in the last 24 months. What we've also seen in the last 12 to 24 months is the impact of COVID and trying to support their SME clients through that change. They've had significant capacity issues; they've had to invest a lot in remote working in areas that were locked down for long periods of time, and that's had a considerable impact on their capacity, their resourcing and, obviously, their financial means to implement more change. So we would definitely welcome that opportunity.

Ms Stylianou: I'll just add that assisted compliance, I think, is something that's been used in the UK, quite effectively. As Keddie said, that would be extremely welcome.

CHAIR: In the United Kingdom, how did that industry support work? Can you explain that?

Ms Stylianou: It's worked in different ways. They've looked, for example, at whether certain sectors need to have exemptions. They've assisted them with their understanding, education and awareness, and they've assisted them with how different parts of the regime apply to different sectors, but I think the problem with the UK, from my understanding, is that it's so overly complex.

CHAIR: So you've got some philosophical objections to the regime, but I'm interested in how the government in the United Kingdom assists firms to come to grips with the regulatory regime. Are you saying that the government provides assistance through industry associations for that adjustment?

Ms Stylianou: Yes. It does. It provides assistance, but it's a very different kind of regime, because they've set up OPBAS as it is, which is a supervisor, and then they've authorised professional associations to be supervisors, so there is assisted compliance. I don't know if that's exactly what you're getting at, but—

CHAIR: When I was a minister, the Labor government provided management consultancy services through Enterprise Connect, for instance. It would work with industry associations to lift the capability of firms in a whole range of areas.

In my historic experience, the biggest problem is a small enterprise firm—for example, a trade firm—moving into a larger capacity and understanding their regulatory requirements, even for basic requirements such as payroll. Now, you're dealing with this on a daily basis. You're actually providing a service to firms to meet their regulatory obligations. That's what taxation and various other financial services provide on a daily basis.

Now, if the Commonwealth is asking for an additional level of compliance, then maybe there is a case for there to be further assistance so that people understand what's required and that takes away the argument: 'It's too hard. It's too difficult. It's too costly.' We're being told there are a range of ways of dealing with that, to minimise costs so that we understand the nature of the ask. It's not the same as the Commonwealth Bank, but it is certainly a requirement to register—particularly when the beneficial ownership test and other such matters are critical to our capacity to defend the country against corruption—and so maybe we have to provide some assistance to small enterprises and, in your case, for financial service companies to be able to provide it. That's the argument I put to you. We have done it in the past; I know that from my direct experience. Is there a case for it to happen in the financial services area as well?

Ms Stylianou: Yes, there definitely is a case for it.

CHAIR: Senator Scarr, I have intruded on your questions. Have you finished with that?

Senator SCARR: I was happy with your intrusion. You're a welcome visitor. I'm happy to pass back to you, Chair.

CHAIR: But are you done? As you know, I'm looking at the clock—I'm always looking at the clock—Senator Scarr—

Senator SCARR: No, I'm done.

CHAIR: You're done? Thank you. Do any of my other colleagues have questions? Senator O'Neill?

Senator O'NEILL: I'm ready to roll. I just want to be clear about your submission to us today. I did hear you say, 'We welcome moves to strengthen AML/CTF.' You're aware that tranche 2 is a long, long, long time coming. Is there now some acceptance amongst the accounting profession and the Financial Planning Association that it is inevitable that tranche 2 must proceed?

Ms Stylianou: Yes, Senator. Certainly from the IPA's perspective, it's something that—we've been involved in consultations from the days of the Attorney-General's Department for many years, really. There has been an expectation that tranche 2 will be introduced, so I think that it is just a case of 'when' rather than 'if' if I could say that.

Senator O'NEILL: Much promised, but undelivered. I wasn't involved in the 2015 MER, and neither was I involved with the 2016 significant review. I don't know if you've had a chance to look at submission No. 32, which is the Department of Home Affairs submission to this inquiry, but, at the end of its submission, it has tracked what happened with the 84 recommendations that were made. No doubt you were a part of the consultation back in 2016, which was when the government was promising to do this. A lot of water has gone under the bridge between 2016 and now, including the royal commission and changes that you've been talking about here in terms of regulatory change. This is a massive body of work that remains unattacked. Are you concerned about the wastefulness of having gone through this process in 2016 only to have to recommence it here in 2021?

Ms Stylianou: From our perspective, we thought it would happen sooner or later. There is so much regulatory reform that goes on. It's constant; it's relentless, really. I was involved in 2015 and 2016, and I remember presenting before the Financial Action Task Force and being almost interrogated, as it were. So I do have memories of all of that, but I suppose it's just a case of, 'Here we are; it'll happen when it happens.' It's not something that's within our control, but there is so much other regulatory reform that happens, and I suppose we just wish to ensure that all of the regulatory reform that has happened since 2015 and 2016 is taken into consideration.

Senator O'NEILL: Yes, because it's a bit of a dog's breakfast as you describe it. There's a little bit here and a little bit there and a little bit over here, and there's no clarity, I think, for the sector about exactly what now might have to happen. So I guess my first serious question to you is: has the government discussed with any of you and your organisations its plans, as of today, to implement tranche 2, which will cover your profession?

Ms Stylianou: I can't speak for the others—they can speak—but not with the IPA.

Senator O'NEILL: So it's still somewhere on the horizon but not a focus for government and certainly not a conversation that's live for you. You are representing the Institute of Public Accountants?

Ms Stylianou: Yes, correct.

Senator O'NEILL: Can I ask Mrs Waller from CPA?

Mrs Waller : No, we have not had any direct conversations.

Senator O'NEILL: So this is not an item of work for the government and you are not in conversation with them about tranche 2?

Mrs Waller : We have not had a direct conversation on tranche 2 recently.

Senator O'NEILL: Mrs McWilliams, for CA ANZ?

Mrs McWilliams: Likewise, we have had no direct conversations with government about the current status of this.

Senator O'NEILL: Of the tranche 2 reforms to AML/CTF?

Mrs McWilliams: Yes.

Senator O'NEILL: And Mr Marshan?

Mr Marshan : As I noted in our introduction, financial planners are already item 54 reporting entities, so we're already under the AML/CTF Act and are part of the regime. Tranche 2 is not something that we've had a discussion with government about, because we are already within this.

Senator O'NEILL: Yes, you're within tranche 1, based on your evidence.

Mr Marshan : Yes.

Senator O'NEILL: But I want to be clear about this: you will still be impacted by tranche 2, but you are not in any conversation with the government currently about tranche 2?

Mr Marshan : That's correct.

Senator O'NEILL: Does it surprise you, then, that recently in Rome, at the G20, Australia signed off the leaders declaration on AML/CFT/CPF, reaffirming 'our full support for the Financial Action Task Force and Global Network' and stressing 'the relevance of the risk based approach of the FATF recommendations with the aim to ensure legitimate cross-border payments and to promote financial inclusion', among many other things? Does it surprise you, Ms Stylianou, that the government continues to herald its action on FATF regulations overseas yet it is not engaged with you at all on tranche 2?

Ms Stylianou: I can't say that I'm aware of what activities or discussions the government has had with others. I can only say that they haven't had any with us.

Senator O'NEILL: Mr Marshan, are you aware of this international stance—looking like a good international citizen but not doing any of the work at home?

Mr Marshan : I'll be honest: I'm a little bit more focused on my kindergarten child's reading abilities than on following what's happening in the news in Rome. So, no, I haven't followed that. Sorry.

Senator O'NEILL: Okay, but how Australia is represented does matter. We are part of an international economy, and money is moving across borders all the time. Your clients and your members would be critical in the ethical movement of that money, so what we present to the world as our public face does matter, doesn't it?

Ms Stylianou: Yes, I suppose it does, but it's just not something that I can really comment on.

Senator O'NEILL: Thank you. Mrs McWilliams, do you have a comment?

Mrs McWilliams: No. As we've indicated, Australia has committed to implementing the Financial Action Task Force reforms, but I guess it's a matter for government as to the timing of when those are implemented.

Senator O'NEILL: Based on evidence we received this morning and confirmed in submissions, are you aware that Australia is being described as a laggard in implementation of tranche 2?

Ms Stylianou: I am aware of what's being written in some of the submissions and what's being written in the media, and I have looked at the FATF website.

Senator O'NEILL: In your view, is there any other significant legislation that you consulted on with this government as far back as 2015 and 2016 that remains completely unaddressed, or is this it?

Ms Stylianou: I think that there might be examples along the way but nothing that is relevant to this.

Senator O'NEILL: So it is a pretty big oversight by the government not to implement this despite their rhetoric to the effect that they were actually doing it.

Ms Stylianou: I think it's really just up to government. It's not something I can comment on.

Senator O'NEILL: In the four years since the government promised a cost-benefit analysis of regulatory options for designated non-financial businesses, has there been, to your knowledge, any effort whatsoever to start that cost-benefit analysis process, which is so important to you that you've given evidence about it this afternoon?

Ms Stylianou: Not that I'm aware of. It is something certainly that we would definitely emphasise. I know that, back in 2015-16, the Attorney-General's Department did recommend that, and it is something that we would definitely seek to happen.

Senator O'NEILL: But, currently, there has been no work done about the financial implications of tranche 2 on your members. Is that correct?

Ms Stylianou: Not that I'm aware of apart from what we've been doing ourselves.

Senator O'NEILL: I'm surprised you didn't actually have that information from the government years ago, but I am particularly concerned that, as we sit here with international declarations about supporting the FATF reforms and tranche 2, the government has not interacted with you to get a cost-benefit analysis underway at all. It would be useful for your members I'm sure, and I'm sure they'd be interested in knowing what that might be. You've spoken about New Zealand, and you've also spoken about the UK. In those jurisdictions and any others, are you aware of the effects of the implementation of tranche 2-like reforms in other jurisdictions and their impact on the viability of businesses? I know that there's a costing change. What has happened in other jurisdictions? Has there been a collapse of the industry? Has there been a significant failure of small or medium businesses as tranche 2 has been implemented in other jurisdictions?

Ms Stylianou: I don't have any particular knowledge of that—only what I've read in other submissions. I don't have any particular knowledge of other jurisdictions.

Senator O'NEILL: Mr Marshan, have you got any response to that? Do you know anything about other jurisdictions and the loss of financial planners?

Mr Marshan : I know plenty around other jurisdictions and loss of financial planners but not in direct relation to money-laundering and terrorism-financing laws.

Senator O'NEILL: Okay. Mrs Waller?

Mrs Waller : I'm not aware of an impact on the viability of any of the businesses for professional accountants. I know it's had a cost impact but not around the continued financial viability.

S enator O'NEILL: And Mrs McWilliams?

Mrs McWilliams: What our experience has been with New Zealand—it's important to note that the New Zealand regime is activity based. It's based on whether or not you undertake a captured activity as an accountant, as opposed to just being an accountant. We do know that some of those smaller firms that might have only undertaken one or two captured activities a year have moved away from doing that work so that they are not part of the regime, as opposed to those who perhaps do a significant amount and are therefore fully within it. I wouldn't say it has affected the viability, but we have seen some firms cease some of the services that they've provided in order to be able to continue to service their clients at that lower cost, where they are in that smaller end.

Senator O'NEILL: So, in some ways, it could become a specialised field with some people carving themselves out of it?

Mrs McWilliams: With it being activity based, it is based on those higher-risk activities. Effectively, members are choosing not to do higher-risk activities that are captured by the regime and are seeking to focus their efforts on lower-risk clients and therefore able to just stay servicing them as they would have done normally. But it would have been those that only had a few clients who might have been in the higher-risk category or had a few pieces of work for them that were considered higher-risk and captured. It was very much on that border.

Senator O'NEILL: Do you have any significant interactions with AUSTRAC currently?

Ms Stylianou: IPA has had interactions not recently but certainly over the years, in terms of training, education, awareness—that type of thing.

Senator O'NEILL: But you wouldn't call it an ongoing and intimate relationship with AUSTRAC? You don't report significantly to them?

Ms Stylianou: No.

Senator O'NEILL: Ms Waller?

Mrs Waller : No. Similar.

Senator O'NEILL: Mr Marshan?

Mr Marshan : The Financial Planning Association has not scheduled but somewhat regular meetings with AUSTRAC on a variety of issues on a regular basis. Two to three years ago, AUSTRAC worked with the Financial Planning Association on a post-implementation review to get an understanding of how financial planners were engaging with AUSTRAC and engaging with the ID verification obligations around the risks, in terms of the services they provided, in terms of anti-money-laundering counterterrorism financing activities. So, yes, we have dialogue with them. I can ask them questions when I need to without any problem.

Senator O'NEILL: But you'd say your last formal consultation with them about it was, what did you say, two to three years ago?

Mr Marshan : No. That was a specific consultation. Whenever AUSTRAC update rules and make changes to their rule books, we are involved in those consultations and will have conversations with them about those changes as they relate to financial planners?

Senator O'NEILL: And that's because you're captured in tranche 1 part B?

Mr Marshan : Correct.

Senator O'NEILL: Ms McWilliams?

Mrs McWilliams: We don't have regular engagement with AUSTRAC. To Vicki's point, we've had some ad hoc engagement with them over time with various bits of guidance, but it has been very limited.

Senator O'NEILL: Once tranche 2 is implemented, you will have an incredible asset to share with AUSTRAC, in terms of reports of anything you see that you think is suspicious or unclear. As was revealed today—I think in evidence from the police representatives—they would have comparative sightings across the industry. If you're a big tier-1 company, you might have five per cent of your transactions about which you would say, 'This needs a little bit of an investigation,' and you would report it and then AUSTRAC would get onto it. What change and what benefits to the Australian system and international finance do you believe will be unleashed when tranche 2 is implemented and your respective professions are engaged?

Ms Stylianou: What benefits?

Senator O'NEILL: Yes.

Ms Stylianou: I suppose the idea is that, in terms of the objectives of the legislation, the wider the net is cast, so to speak, the more suspicious and potential illegal activities might be caught in that net, which would benefit the economy more broadly. I'm going by the policy objectives in the legislation, which we've always supported. To us, that's certainly one of the main benefits.

Senator O'NEILL: Is there anybody who wants to add anything to that?

Mrs Waller : Yes. I'll make an additional comment, if I can. If we have an ability to collaborate and look at how tranche 2 is implemented so that we have some cohesion across obligations, be that through the ATO, the Tax Practitioners Board, the Corporations Act or AUSTRAC, so that we can have a level of consistency, I think that'll bring a level of integrity to the system. The other thing is the potential level of efficiency. At the moment, as Ben alluded to it in his opening comments, there can actually be different points when having to go through some of those CDD obligations, because it's not always accepted by all parties. If we can look at actually bringing that together and having consistency in recognition in one element of verification that could be shared, that could give a lot of efficiencies and integrity to the system.

Senator O'NEILL: Absolutely.

Mr Marshan : We obviously have been involved in reporting suspicious transactions to AUSTRAC over the years. The reality is, and AUSTRAC confirmed this in the review, there are virtually none that come through financial planning, because the relationship between the financial planner and their client is of a type such that financial planners are generally across enough information about the financial position of the client to be on top of those kinds of risks. Financial planners often won't engage with clients where they see risky types of behaviour but will report them because of their professional obligations they have. There has been virtually no suspicious amount of reporting that's come through financial planners as a profession, because of the relationship planners have with their clients. Where they have, they tend to have been where the test for suspicious matter reporting events is set in such a way—for example, somebody doing renovations or building their house is taking regular amounts of money or transferring regular amounts to different builders and contractors—that it tends to trigger the reporting programs, rather than there being anything suspicious to report.

Senator O'NEILL: Nonetheless, with the breadth of the profession you represent there, once you've got the skill set and you know how the system works there is the old expression 'gun for hire'. We heard today about 'professional service providers' who are advertising their services about how to get around Australian law to overseas entities. There are unethical operators in every industry, and I'm sure there would be some who, after a period of time of skilling up, could literally become a very valuable asset to somebody who wanted to launder money within the country or from overseas. I guess there's a reason for capturing that, isn't there?

You raised the issue of overlaps and duplications; we had some evidence about that today, with the tranche 2 requirements and current professional standards. Can I ask you to take on notice anything that you think, in addition, you want to alert the committee to? Where are the aspects of tranche 2, to the very best of your knowledge, already covered in Australian law? If there is anything further you need to add to what you've already put on the record, I would appreciate having that.

Senator Carr asked a little bit about collaboration, and the costs and the benefits of doing so. The UK implementation was focused on collaboration with industry bodies such as yours. How can the government best work with you to ensure these reforms are implemented in a way that doesn't result in onerous regulation on your profession while still getting the job done and restoring Australia to the good books, in terms of an international corporate participant in the world economy?

Mrs Waller : One of the benefits of working with a profession like ours is that we have the ability to engage directly with our members who will be implementing this at the coalface. Quite often we see policy intention or legislative obligations we're looking to achieve in an outcome. But, when it gets to implementation or how it unfolds, we don't always hit the mark. If you engage with the profession—and we use that as a conduit to the members who will be implementing this at the coalface, understanding assisting systems and processes of how that can come into a day-to-day setting—you will get the best outcome because you'll be able to leverage what's already there, understand how it's going to unfold and ensure it's going to hit that policy intent.

Senator O'NEILL: Which makes it even more inexplicable that you are not being consulted by the government at all, given your knowledge. Did you want to add something, Ms Stylianou?

Ms Stylianou: I was just going to agree with what Keddie said. I was going to make similar points—that it's the sort of stuff we have already been talking about. To your point previously, where you talked about where tranche 2 is already covered in the existing requirements: I think that sort of mapping and stocktake will be very, very critical as we move forward.

Senator O'NEILL: Mrs Waller, you indicate very clearly in your submission you are supportive of applying tranche 2 to the gatekeeper businesses. What kind of regulatory framework do you think would be most effective to implement, and what kinds of whistleblower protections do you want for your members?

Mrs Waller : In terms of the regulatory side of what we'd like to see: it's about working with that existing framework. We already spoke about the fact that there are obligations under the tax profession and under the TPP obligations. We also have obligations under our professional code of conduct with our NOCLAR, or noncompliance. It's about whether we can look at how we can bring those obligations together so that we're streamlining those; that'll have the best impact. In terms of whistleblower protection, I think it would be the same sorts of protections that we would expect and that we already have in some of these places, to ensure that they have legislative protection. I think one of the challenges you see is when you're dealing with a small business. If you have someone who comes in who may have a suspicious activity, they would be quite readily identifiable if they were then to report that individual. So we need to ensure that we put protections in place to support these small practitioners and small professionals so that they're not going to be targeted if they actually are doing the right thing and reporting noncompliance.

Senator O'NEILL: That's a very good point. Did you want to add anything, Ms Stylianou?

Ms Stylianou: No, that's fine. Thank you.

Senator O'NEILL: Ms Stylianou, you talked about the structure in the UK setting, and I understand that, with the law societies in that country, there are three different jurisdictions and they have slightly different models et cetera. We've got jurisdictional challenges that have become very obvious to us during COVID. I'm interested in your view about what the best way to proceed would be. Is AUSTRAC the appropriate place, with sufficient expertise? Does it have adequate resources? Does it have the right people to implement and monitor tranche 2 successfully in terms of capturing your profession? If yes, why? And if not, why not?

Ms Stylianou: My understanding is that AUSTRAC would need additional resources if tranche 2 were to come into play, given that there would be up to, potentially, 100,000 different entities that would need to report, one way or another. As with other regulators, we're constantly saying to government, 'Please ensure that they are adequately resourced to do what they need to do.' For example, with ASIC and the ASIC industry funding levy, you've seen what has happened there—

Senator O'NEILL: Especially with financial planners.

Ms Stylianou: Yes, especially with financial planners. We're also advocating for similar relief for liquidators and auditors, I might say. However, we don't want to be in a similar situation, where it's the profession and the industry bearing the cost through increasing levies. I know that in the UK there's a levy paid to [inaudible], for example. We don't want to be in a situation where there's another cost to industry and to the profession because AUSTRAC, or whichever agency it might be, is not adequately funded and resourced. At the moment—and I stress that—it looks like AUSTRAC is the most likely candidate to take this on, but that's really something else that I should imagine will be subject to consultation.

Senator O'NEILL: You would hope so.

Ms Stylianou: I would hope so, yes.

Senator O'NEILL: But it is a few years in between drinks, shall we say, in terms of consultation—2016 to 2021. It's definitely not a love affair, is it!

Ms Stylianou: I think there's a lot to be consulted on in terms of tranche 2. If we were to start today, I don't know how long it would take, but I would certainly hope that sufficient time would be given to careful consideration, including the cost-benefit analysis and all of the other things we've talked about.

Senator O'NEILL: Does anyone else want to add anything to that? Is AUSTRAC the best place for it to be managed?

Mrs McWilliams: Talking about whether or not AUSTRAC is the best place, I'd probably echo Vicki's thoughts on that. To Vicki's comments about ensuring it has sufficient resources, I think that also goes to the earlier comment about working in collaboration with the industry associations, such as ourselves, to ensure that we provide the necessary knowledge and understanding of the sector to the people within AUSTRAC—if it is AUSTRAC—who will be regulating and supervising the sector. Certainly, our experience in New Zealand is that it took a bit of time for the supervisor to get up to speed on the various differences across the tranche 2 professions. They're not all the same; in fact, they're actually very different, and so that does require quite different knowledge and understanding. I think it's important for whoever is going to be doing that to work very closely with the relevant industry associations across the tranche 2 professions to ensure that there is that understanding of how it will work.

Senator O'NEILL: How confident are you that the professionals, who have incredible licence, because they are considered to be a profession, because there's an ethical stance that's embedded in the whole concept of 'profession', because there's so much power—how confident are you that yours is a clean industry, that you haven't got in there people who are making their wealth out of facilitating exactly the kind of behaviour that tranche 2, which in my view should have been implemented a long time ago, in my view, is designed to prevent?

Ms Stylianou: I think that, no matter how much you legislate or regulate, it would be virtually impossible to ensure that there are no bad actors and no bad players in any profession or in any industry. All we can hope to do is minimise it. When you look at the professional accountants, being the members of the three professional accounting bodies, we have in place robust systems that have been in place for approximately a hundred years, so there's a certain level of confidence. The accountants are, after all, called 'the trusted advisers', according to a lot of research and surveys. That's something that they take very seriously. Our job and role as professional associations is to make sure that we do everything so that they maintain that trusted-adviser status. However, I would make a distinction between members of the professional accounting bodies and those who are not members of the professional accounting bodies because 'accountant' is not protected at law, so there might be some out there who call themselves accountants. We have no regulatory oversight of those people. So I would make that distinction.

Senator O'NEILL: It's a little bit like cosmetic surgeons in another inquiry we had the other day. They're actually not surgeons, yet they're operating in that way. Can I remind you of the recent media reports about the practices in auditing companies where there have been gross breaches of professional standards, with tests being taken with people having answers prior to going into them. In the context of that reality, do you remain confident that the standards of ethical behaviour are really robust? Or are they being eroded by the practice of making money over the practice of doing the right thing?

Ms Stylianou: I think the point to emphasise is that there are consequences, that if people do breach the rules and the regulations there will be consequences for doing that. I think that's what sets the profession aside from the others, if I may put it that way.

Senator O'NEILL: Yes. The consequences in that sector only came because of the US regulator, not an Australian regulator. Perhaps there's some warning there.

Ms Stylianou: I suppose there's something to be said for the fact that they were self-reporting, but I'm not going to get into that.

Senator O'NEILL: We should get into that! Thank you, Chair.

CHAIR: Thank you very much. It's much appreciated. I thank you all very much for your attendance today and the advice you've provided to us. I'll take, Senator O'Neill, that you'll be moving that all documents that have been presented for tabling be received.

Senator O'NEILL: Happy to move that one, Chair.

CHAIR: Thank you very much. There's no objection, so we agree with that. We propose 3 December for the return of questions on notice. Senator O'Neill, you'd be happy to move that way?

Sena tor O'NEILL: Yes. Happy to do so.

CHAIR: Thank you very much. There are no objections, so that's agreed. With those formalities over, I thank each and every one of you very much for coming today and giving us your time. That concludes today's proceedings. The committee will take all questions on notice by 3 December. I thank all the witnesses who have been in attendance today, and I thank Hansard, broadcasting and the secretariat for their assistance today. I declare the hearing adjourned.

Committee a djourned at 16:29