AUSTRAC’s Securities & Derivatives Sector: Money Laundering and Terrorism Financing Risk Assessment

Friday 14 July 2017 @ 11.26 a.m. | Corporate & Regulatory | Crime

A two year study by the Australian Transaction Reports and Analysis Centre (AUSTRAC) has revealed that fraud, money laundering and insider trading are the most common criminal activities on the share market. According to AUSTRAC close to half the 663 suspicious matters reported to it from the securities and derivatives directly related to fraud; half of which were related to cybercrime.

The Report

Federal Minister for Justice, Michael Keenan, released AUSTRAC’s Securities & derivatives sector: money laundering and terrorism financing risk assessment on 12 July 2017. This report represents the fourth risk assessment of the financial sector undertaken by the Government’s financial intelligence agency. According to a media release, the report was developed in conjunction with key industry players, including stockbroking firms, online traders and banks.

According to the media release, the main points revealed by the report include:

  • There is a continue risk of criminal exploitation at a high end of ‘medium’ level for the securities and derivatives sector;
  • Fraud was by far the highest reported threat to the sector (sitting at an alarming 51%) which included the hacking of customer email and trading accounts leading to the theft of money;
  • Money laundering, insider trading and market manipulation were equally the second highest areas of suspected criminal activity (sitting at a 21%); and
  • Tax evasion and terrorism financing were the least reported (sitting at 2% and less than 1% respectively).

Mr Keenan stressed the integral nature of the financial markets to Australia’s economy and any potential threats it might face:

“But we know criminal gangs will seek to exploit any weaknesses in our financial systems, putting our economy, national security, and international reputation at risk... This report sends a clear message to Australia’s financial sector: no individual or company is immune from the threat of serious and organised crime, but they can mitigate it.”

Offshore Criminal Gangs and Money Laundering

More alarmingly, the report also uncovered evidence of foreign criminal gangs using Australia as part of Asia-Pacific money laundering operations. According to an ABC report:

“In one case, the gang was found have to shifted large cash deposits into a trading account, only to move it out some time later with little or no trading activity taking place, in a laundering scheme known as layering.”

The report recommended that financial institutions must strengthen their reporting systems and work on the ‘vulnerability’ of their front-office staff. AUSTRAC expressed concerns that more than half of Australia’s trading and settling organisations did not report a single instance of suspicious activities between April 2014 and March 2016. It said:

“Front office staff, such as traders and advisers, can represent a vulnerability. Some reporting entities observed that client-facing front office staff can sometimes be complacent about (anti-money-laundering/counter-terror financing reporting) due to their greater focus on retaining client business.”

Minister Keenan said the Coalition Government, and law enforcement and intelligence agencies, are committed to working with the financial sector to harden their domestic and international operations to undermine the business models of crooks and remove the profits from their crimes.

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