Co‐designing compliance to the Anti‐Money Laundering Act within the small and medium enterprise sector
| Pages | 84-101 |
| Published date | 15 February 2013 |
| DOI | https://doi.org/10.1108/13581981311297849 |
| Date | 15 February 2013 |
| Author | Ameya Kelkar,Asha Rao |
| Subject Matter | Accounting & finance |
Co-designing compliance to the
Anti-Money Laundering Act
within the small and medium
enterprise sector
Ameya Kelkar and Asha Rao
School of Mathematical and Geospatial Sciences, RMIT University,
Melbourne, Australia
Abstract
Purpose – Money laundering is a financial crime that does not directly affect a business but poses a
serious threat to a nation’s stability and security. The Australian Anti-money Laundering and Counter
Terrorism Financing Act (AML/CTF Act – the Act) passed into law in 2006, but achieving compliance
is proving a daunting task, especially within the small and medium enterprises (SME) sector. This
paper aims to propose a co-designed communication strategy, which if adopted by the Australian
regulator, AUSTRAC, could improve communication and education about the Act within this sector.
Design/methodology/approach – A literature review is done to understand the complexities of the
Act and its compliance regime, especially with regards to SME. By establishing the importance of
SME to a country’s economy, as well as the need for AUSTRAC to understand their limitations, this
paper uses the concepts of design in communication, and the importance of involving stakeholders in
designing solutions, to develop a communication strategy.
Findings – It is clear that the current compliance regime is not very successful, and a better
communicationstrategy would achievebetter education among the SMEsector and could result in better
compliance indices.
Research limitations/implications – This paper is based on the available literature including
journals, white papers and the AUSTRAC website and did not involve in-person communication or
contact with either the stakeholders or AUSTRAC.
Originality/value – This paper is first of its kind to propose the use of “design” in order to improve
the AML/CTF compliance indices.
Keywords Money laundering,Small to medium-sized enterprises,Legislation, Australia,
Terrorism financing,Design, Design based strategy,Participatory approach
Paper type Conceptual paper
Introduction
Money laundering (ML) and terrorism financing (TF) are serious threats to a
nation’s economic stability. Compliance with the Anti-Money Laundering and
Counter-Terrorism Financing Act (AML/CTF Act) 2006, regulated by the Australian
Transaction Reports and Analysis Centre (AUSTRAC), can help businesses protect
themselves from being exploited by criminals and terrorists.
Small and medium enterprises (SME) comprise a significant part of the Australian
economy (ABS, 2001). Thei r participation against th ese activities is crucial.
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1358-1988.htm
The authors would like to thank the other members of the design challenge team: Yoko Akama,
Juni Gurung, Henrique Delamanha Mendonca and Renato Muttupulle.
JFRC
21,1
84
Journal of Financial Regulation and
Compliance
Vol. 21 No. 1, 2013
pp. 84-101
qEmerald Group Publishing Limited
1358-1988
DOI 10.1108/13581981311297849
While a number of large financial organisations have reported on the high cost of
compliance (Sathye, 2008), SME can avoid compliance by ensuring their services are
within the exemption criteria. This, unfortunately, makes SME attractive targets for
ML, leading to the question:
Q1. How can AUSTRAC enforce compliance among SME?
Ensuring compliance among SME is a complex issue, and a solution taking into
account SME strengths and motivations is necessary (Stappers et al., 2009). This paper
looks at the efforts made by AUSTRAC to achieve compliance within the SME sector
and proposes a co-design strategy to improve communication and education about ML
and TF, and thus compliance within this sector. The co-design strategy presented in
this paper builds on a design challenge undertaken by the authors along with four
other team members in 2010 (Rao et al., 2010). This design challenge resulted in an
artwork which was exhibited in Melbourne, Australia, in November 2010. (A number
of figures from this artwork are included in this paper.)
The crime and the regulation
Crimes like ML and TF seriously undermine a nation’s economic stability. They can
potentially affect the integrity and stability of financial institutions by reducing foreign
investments and international capital flow. These problems evolve as criminals and
terrorists try to find different ways to introduce illegal funds into the financial system
(IMF, 2001).
The aim of ML is to hide the source so that the money can be injected back into the
legitimate financial stream, i.e. to hide the illegal means by which the money was
earned (Johnson, 2000). These crimes do not directly affect a business but can still have
overwhelming social and economic consequences (McDowell and Novis, 2001).
Unpredictable movement of huge amounts of money can result in misleading market
figures, thus affecting economic policies (McDowell and Novis, 2001), while at the same
time, human capital diverted to such criminal activities has a negative impact on
society. Figure 1 provides an example of how pre-paid cards could be used to launder
money across borders, using SME as the conduit.
Countries with weaker policies and regulations are more likely to be targeted by
criminals (IMF, 2001) with a review by the Financial Action Task Force (FATF) in
2005 highlighting many loop-holes in Australian legislation and indicating that the
amount of money laundered in Australia exceeded AU$ 2B in that year (FATF, 2005).
In response to the review, the Anti-Money Laundering and Counter-Terrorism
Financing Act (henceforth, the Act) came into force in December 2006 (AUSTRAC,
2006) with the express purpose of bringing Australian anti-money laundering
regulations in line with international standards.
AUSTRAC, the regulator of the Act, proposes a risk-based approach and has a
number of compliance requirements which need to be fulfilled by the “reporting
entities”, organisations that provide any service on AUSTRAC’s list of “designated
services” (AUSTRAC, 2010c). The Act requires organisations that provide these
“designated” services to have appropriate controls in place to prevent and detect
ML and TF, with maximum fines for non-compliance ranging from AU$ 2.2M for
individuals to AU$ 11M for corporations (AUSTRAC, 2010b). In spite of this, achieving
compliance is proving a daunting task especially within the SME sector.
Co-designing
compliance to the
AML Act
85
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