The WA government has been warned almost all of its agencies with anti-money laundering and counter-terrorism obligations are at risk of non-compliance with Commonwealth laws.
In particular, auditor-general Caroline Spencer noted two were missing "key program elements" and were at a "greater risk of non-compliance, and money laundering or terrorist financing activity".
So what does it all mean, and how bad a position is the state government in?
What's this all about?
After a series of high-profile issues in this space in the banking and casino sectors in recent years, including with Crown Casino in Perth, the auditor-general decided to see how exposed the state government was to similar risks.
In effect: how easy would it be for someone to use parts of the WA government to hide where they are getting money from to help fund criminal activities?
If anti-money laundering programs are inadequate and can't detect when it's happening, the state government is at risk of "significant reputational damage and financial consequences".
And those financial costs can be high. In 2020, Westpac reached a deal with the financial crime watchdog to pay a $1.3 billion fine for more than 23 million alleged breaches of anti-money laundering laws.
Professor of commercial regulation at the University of Western Australia, Elise Bant, said at its worst, money laundering can help fund the extreme end of criminal activities.
"It could be fraud, and it could be corporate fraud on a massive scale, but you're looking at some really serious forms of exploitative practices like human trafficking, child exploitation, as well as of course drug trafficking, cybercrime, a whole range of really serious forms of criminal misconduct," she said.
"We really do not want our government agencies or organisations to be facilitating criminals to engage in criminal misconduct which causes real harm to real individuals."
There is no suggestion in the auditor-general's report that any WA government agency facilitated any such activity.
What did the auditor-general find?
Ms Spencer and her team took a look at the eight parts of the state government that have requirements under the Commonwealth anti-money laundering and counter-terrorism financing law. Those are:
- The Perth Mint
- Keystart Home Loans
- Racing and Wagering Western Australia
- Country Housing Authority
- Department of Education low interest loan scheme
- Fire and Emergency Services Superannuation Board
- Government Employees Superannuation Board
- WA Treasury Corporation.
The auditor-general wasn't focused on finding evidence of money laundering or terrorism funding in the eight agencies she considered – that's the job of AUSTRAC.
Instead, she was looking at the procedures the agencies were meant to have in place to detect, and prevent, those things happening at all.
The biggest gap she identified – affecting five of the eight agencies – was a lack of proper risk assessment.
We don't know which five agencies those are, because the auditor-general anonymised her findings to prevent criminals taking advantage of them.
The report described this failure as akin to "letting people into your house without knowing anything about them".
"You aren't aware of what they may be doing, how carefully you need to monitor them, or whether you should report their presence to law enforcement," it explained.
Professor Bant said that was a big problem.
"If you're not making those sorts of basic inquiries, then you can't even begin to know that you're dealing with legitimate proceeds," she said.
What else did they find?
Other issues included half of the eight agencies not adequately monitoring transactions to detect indicators of money laundering or terrorism financing.
Alongside other gaps in ongoing monitoring of customers, it meant agencies would find it difficult to identify, mitigate and report instances of wrongdoing.
Ms Spencer also found that one agency needed to better train its staff, and that one agency was "unaware that the type of transactions it had undertaken were covered" by the federal legislation.
That's important because agencies covered under the Act are required to report certain information to AUSTRAC to help build a bigger picture of who might be trying to launder money and where.
Another two agencies also hadn't fully resolved issues that had been identified previously.
Liberal leader David Honey described that issue as "disappointing", using it to criticise the government for being "asleep at the wheel".
"This is nothing new. At every level of government, the fight against money laundering, which is the fight against criminals, has been a top priority, and the government's clearly been asleep on this issue," he said.
"The government should have done more and I hope they take this seriously."
Does this have anything to do with the Perth Mint?
What's happening at the Perth Mint is certainly in a similar space.
The Mint is being investigated by the financial crimes watchdog, AUSTRAC.
That is because of "reasonable grounds to suspect" it breached one of the criminal provisions of the Anti-Money Laundering and Counter-Terrorism Financing Act.
That's the same Act the auditor-general considered in her report.
What has the government's response been?
The state government said all of the entities considered by the auditor-general have "agreed with and accepted" Ms Spencer's findings.
"Entities have already started actioning the recommendations and will continue to engage with [AUSTRAC] to monitor and improve anti-money laundering and counter-terrorism financing compliance programs," a spokesperson said.
"As part of the 2019-20 mid-year review, the state government funded establishment of a new forensic audit team within the Office of the Auditor General.
"The team was specifically tasked with undertaking these sorts of review activities, to improve financial risk management across government."
What happens now?
From here, the six agencies identified in the report are expected to consider the auditor-general's findings and recommendations and take steps to implement them.
But Professor Bant said work cannot stop there.
"I would think that it would be very important for these organisations not to see this as the final say on being compliant," she said.
"This should be the starting point for them to engage in a wholesale review of the reality of their anti-money laundering and counter-terrorism financing procedures."
"These really need to work in practice and they need to be reviewed on a regular basis."
She said that included making sure procedures were being carried out in practice.
