AADA has responded to the Attorney-General’s Department consultation paper on anti-money laundering and counter-terrorism financing, arguing that banning cash sales is the best way to prevent high-value Dealers being used for those criminal activities.
In November 2016 the Attorney-General’s Department issued a consultation paper entitled High-value dealers: a model for anti-money laundering and counter-terrorism financing regulation under Australia’s (AML/CTF) regime.
In a submission to the Department AADA argued that the Government’s AML/CTF objectives would be best and most efficiently achieved by simply legislating to prohibit cash vehicle sale transactions by Dealers.
This, however, ignores the practicality of commercial operations where some franchised car Dealers contract with customers who reasonably pay cash and why, accordingly, many of them have moved to AUSTRAC online for current significant cash transaction reports (SCTRs) and suspicious transaction reports (STRs) triggered by their obligations as insurance intermediaries.
“A cash transaction prohibition (at least for the vehicle purchase, even if not for the insurance product sale), combined with existing regulation – involving motor vehicle Dealer licensing, motor vehicle registration and record keeping – would substantially mitigate the risk of ML/TF without adding a further burden on business. Motor vehicle Dealers should not be subject to the more complex AML/CTF regime,” the AADA submission says.
“If motor vehicle Dealers are to be subject to the AML/CTF regime, AADA supports the proposed regime feature that the regime would be inapplicable to Dealers who elect not to deal in cash for vehicle sales.
“In any event, the regime should not be triggered by activities other than vehicle sales. Sales of parts and accessories, and servicing, are relatively low value and not possible activities of money laundering.”
AADA argued that certain attributes of the motor retailing industry make application of a full AML/CTF regime a disproportionately burdensome response to a modest ML/TF risk.
“Whatever incidence of ML/TF there is in vehicle retailing, AADA believes that the burden of regulation can only be justified if the regulation directly targets an identifiable risk factor and the regulation can be effective in materially mitigating or managing that risk,” the submission says.
AADA understands the process of analysis of risk factors in other industries that leads to the re-design or modification of business processes to reduce ML/TF risk. Vehicle retailing is a simple process involving one service, one national jurisdiction and one legal transaction (or ‘delivery method’). AADA sees no practical scope to redesign or modify these elements other than to explicitly prohibit cash as a medium of exchange.
The other risk factor is, of course, that associated with the particular customer. The customer may or may not possess the proceeds of crime. Ordinarily a goods retailer will have no insight into the character or source of funds held by a customer. Unlike a financial institution or wealth adviser, a retailer’s relationship with a customer is purely transactional. A retailer has no legal means or persuasive capacity to glean an insight into a customer’s financial affairs.
The best contribution a vehicle Dealer can make to the wider AML/CTF effort is to reliably record a customer’s transaction and the source of the customer’s electronic funds transfer from an institution or business that is itself subject to CDD obligations (such as a bank or a finance lease provider).
“AADA is concerned to avoid motor vehicle Dealers becoming subject to additional regulatory obligations where fulfilling those obligations would not represent a material gain in the fight against ML/TF. Logically, this means that additional regulation that does not generate new information and does not reduce risk should not be imposed,” the submission argues.
“A statutory prohibition on acceptance of cash for vehicle sales would be new, simple and effective in ensuring that each transaction is linked to an identifiable flow of funds through a financial institution (which is itself subject to AML/CTF regulation). AADA regards this as efficient.”
By comparison, there is existing state and territory legislation that requires motor vehicle Dealers to be licensed and to create and keep records of persons transacting and the vehicles subject of the transaction (which vehicles are also registered). A new law that imposes a new and different set of obligations around identification and record keeping, with additional procedures at further cost, would involve more cost than benefit. AADA regards this as inefficient.
“Any proposed new obligations under federal law must be tested, as incremental changes, for their cost and their benefit. In any event, they must recognise and build upon, rather than duplicate, existing state and territory regulation,” AADA pointed out.
AADA submitted that the Government’s AML/CTF objectives would be best and most efficiently achieved by simply legislating to prohibit cash transactions (for vehicle sales) by Dealers.
“Existing law provides a record of purchaser, vehicle and price data. Dealers’ business and banking records contain details of inbound bank transfers and credit card purchases. All of this information is presently available to law enforcement authorities and can be easily made available for inspection by AUSTRAC. Law enforcement authorities also have access to motor vehicle registers.
“Accordingly, AADA submits that extension of the AML/CTF regime (or parts of it) to motor vehicle Dealers is unnecessary and should not occur.
“If franchised new motor vehicle Dealers are to be subject to the AML/CTF regime, AADA supports the proposed regime feature that the regime would be inapplicable to Dealers who elect not to sell vehicles for cash.”
Lastly, if some form of AML regime is to be applied (with or without opt-out by self-excluding cash transactions), it needs to be a simplified regime. Conduct of Dealer-specific risk assessments would be complex, costly and fundamentally unproductive. Likewise, formulation of AML/CTF programs would over-complicate the design and implementation of targeted AML/CTF measures. Suspicious matter reports (SMRs) are unlikely to be generated given the limited information and insights available to Dealers.
AADA is supportive of Government efforts to minimise money laundering and therefore supports efficient and effective steps to that end. AADA believes that legislating to prohibit cash transactions by Dealers would be simple, effective and sufficient.
AADA expressed its desire to remain engaged with the Attorney-General’s Department on this issue and hopes to receive the opportunity to meet to discuss its submission. AADA would also expect to be consulted on any further steps, including any contemplation of draft legislation.
The Attorney-General’s Department has engaged KPMG Australia to undertake an independent cost benefit analysis of a model for regulating the motor vehicle sector. KPMG have created a questionnaire regarding costs and have sought the assistance of Dealers in determining a cost benefit analysis.