• Dealers in precious metals and stones.
• Lawyers and accountants.
• Real estate brokers and developers.
• Offshore gaming operators.
• Company service providers.

DNFBP Due Diligence

In the memo, supervised FIs are reminded to do the following when conducting customer due diligence (CDD) on DNFPBs: 

• Identify and verify customer identities.
• Establish and confirm beneficial ownership structures based on official documents or other reliable information.
• Review the customer’s Provisional Certificate of Registration (PCOR) and/or the Certificate of Registration (COR) with the AMLC.
• Understand and obtain information related to the purpose and intended nature of the business relationship.
• Conduct ongoing due diligence throughout the business relationship and scrutinize transactions undertaken throughout the business relationship.

The Philippines and the FATF

The Philippines is currently subject to increased monitoring by the Financial Action Task Force (FATF) after several deficiencies were identified in the country’s anti-money laundering (AML) efforts. The country was re-added to the so-called “grey list” in July 2021 after previously being on the black list from 2000 to 2005. 

Among the deficiencies identified by the FATF was the Philippines’ regulation of DNFBPs. Since 2021, the country has been in enhanced follow-up with the global watchdog. In its latest mutual evaluation report (MER) dated July 2022, the FATF noted that while the risk-based supervision of DNFBP sectors was underway, it had yet to be implemented and did not account for casinos, lawyers, and accountants.  

DNFBP Compliance Framework

To underscore the country’s progress toward implementing risk-based supervision of DNFBPs, in 2021, the AMLC published a regulatory issuance outlining anti-money laundering and counter-terrorism financing (AML/CTF) guidelines for the sector. The paper noted general principles and policies, the scope of covered persons, and core responsibilities. 

When building and implementing a compliance framework, the AMLC expects DNFBPs to devise and implement risk-based policies, procedures, processes, and controls designed to prevent and detect potential money laundering and terrorist financing activities. 

Additionally, DNFBPs are expected to:

• Ensure relevant policies, procedures, processes, and controls are communicated to all relevant employees.
• Establish an ongoing employee training program to keep those employees informed of new developments.
• Regularly conduct independent reviews of the firm’s Money Laundering and Terrorism Financing Prevention Program (MTPP).
• Document risk assessments and findings.
• Designate a compliance officer of senior management status with the authority and mandate to ensure day-to-day compliance with its AML/CTF obligations.
• Create a system that will first establish and then record the full identity of their customers and risk assessment results.
• Perform risk-based CDD, requiring enhanced due diligence (EDD) for customers posing a high risk of ML/TF and permitting reduced due diligence for customers posing a low risk.
• Identify and verify the identity of the beneficial owners.
• Establish and record the identities of the immediate family members and entities if publicly known to be related to a politically exposed person (PEP). 

Key Takeaways

The BSP’s memo demonstrates the progress made regarding the country’s effective risk-based supervision of DNFBPs. While the Philippines’ next MER has yet to be announced, firms can keep up-to-date by reviewing the FATF’s global assessment calendar.

For firms looking to enhance their DNFBP due diligence measures, a robust customer screening and monitoring tool can help compliance staff obtain a true picture of who their doing business. By prioritizing a solution that screens against a real-time database of people and companies, firms can streamline their onboarding process and reduce the time and cost spent on alert remediation by up to 80 percent. 

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The company processes approximately 100 million payment transactions per year across a portfolio of more than 19 million properties located throughout the U.S. As a payments provider, RealPage has an obligation to its banking partners, clients, and residents to monitor transactions processed through its payment services and to identify and reduce instances of fraud and other illicit activities.

The challenge

“The biggest challenge we have is keeping up with constantly growing levels of fraud. Just when you get used to certain patterns and volumes, they change again,” explains Blanca Rojas, Transaction Risk Manager at RealPage. The risks and typologies RealPage need to account for are driven by its atypical business model. For example, it has to screen across business-to-business and business-to-business-to-consumer relationships – both real estate firms and their customers – while also analyzing how money moves between them.

RealPage designed specific scenarios designed to capture illicit activities such as card testing fraud. However, the COVID-19 pandemic also introduced new fraud typologies that also had to be considered. As outlined in a FinCEN report (FIN-2021-NTC1) released on February 24, 2021, financial institutions, including payments companies, had to comply with reporting requirements on COVID-19 fraud activity. With such complex, fast-changing requirements, speed is essential. As a result, a reliance on manual reviews of customers and transactions would not deliver the scalability and efficiency RealPage requires.

The solution

While RealPage did engage in a “buy vs build” debate, the firm quickly made the decision to partner with an external vendor. “We felt it was important to work with a company that had expertise in transaction monitoring, could understand our regulatory requirements, and how to apply these to our unique business model,” explains Rojas. ComplyAdvantage appealed to RealPage because its transaction monitoring and fraud detection client base extends beyond traditional financial institutions.

“Other software providers we looked at just had generic scenarios that were geared towards traditional financial institutions, rather than payment companies. Our business model is different even to other payment providers. The flexibility to build custom scenarios was important for us. Many vendors do not have the same level of flexibility. When we built our custom fraud scenarios, they were very targeted, and we knew exactly what we were looking for. We would not have been able to do this if we’d gone with another provider using out-of-the-box scenarios built for a traditional financial institution.“

– Blanca Rojas, Transaction Risk Manager, RealPage

During the implementation process, RealPage met with ComplyAdvantage’s development team to explore the best way to implement its unique rule set. This included the need to follow individuals across different properties and state jurisdictions, as well as identifying connected individuals. “One of the ComplyAdvantage developers suggested a way to achieve our rule objectives which was eye opening. It helped us to see our challenges in context,” Rojas noted.

Once live, the RealPage team worked with ComplyAdvantage to tune the logic of its rules, simplifying the number of data points they were screening. This included a range of above and below the line testing and assessing the potential impact of raising/lowering risk thresholds.

“I am seeing the activity in close to real-time – seconds. I have worked with different software providers at different institutions, and the rapid response to alerts is the biggest benefit I have seen.”

– Blanca Rojas, Transaction Risk Manager, RealPage

For Rojas, the biggest benefit of the ComplyAdvantage transaction monitoring and fraud detection platform is its near real-time capabilities. “I am seeing the activity in close to real-time – seconds. I have worked with different software providers at different institutions, and the rapid response to alerts is the biggest benefit I have seen.” This means RealPage can immediately review alert activity and act as necessary to prevent significant losses for its clients. Rojas’ team tracks cases and bad actors frequently and can see what they are able to achieve with the platform, and which rule sets are most effective at preventing illicit activity.

The case management functionalities in the transaction monitoring platform are also “streamlined and easy to use,” improving the efficiency of Rojas’ team and ensuring that all investigation documentation is properly logged and easily accessible.

Managing and triaging alerts effectively, escalating from junior analysts where necessary, is also seamless. “The dashboard reporting helps us to monitor the whole department so we can make sure alerts are cleared on time and we’re not getting behind on anything,” said Rojas. “The color coding means we can immediately see if there’s something that’s past due.”

Ongoing support provided by ComplyAdvantage’s customer success manager is critical. “She is hands-on, she has learned our system, and knows the ins and outs of RealPage’s business model. This means she can produce innovative ideas, communicate those to development, and explain why we need them,” said Rojas. Regular scheduled meetings enable the team to review issues and plan for new scenarios the team would like to implement. Quarterly success meetings provide RealPage with reporting on how its scenarios are performing, providing an external set of checks and balances on internal tests.

Next steps

RealPage is now working with ComplyAdvantage to ensure its transaction monitoring and fraud detection program scales with its rapidly growing business. The firm recently integrated a new segment of its business into the platform and is working with its customer success manager to assess next steps based on projected dollar and transaction volume amounts. Above all, Rojas says, we are “ensuring there’s room for growth, so the product can grow with us.”

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The Senate committee report focuses on the failure to expand the scope of AML measures to cover designated non-financial businesses and professions (DNFBPs) such as lawyers, real estate agents, casinos and other gambling service providers, auditors and dealers in precious metals and stones.

“Australia is a laggard on the world stage, one of only three states to fail to enact any regulation in relation to DNFBPs,” the report says, adding that delays are “exposing Australians and the Australian economy to harm and risking Australia’s credibility.”

Gaps in AML legislation for DNFBPs have been blamed for billions of dollars being laundered through Australia’s housing market, and “serious and systemic non-compliance” by casino operators.

Timely implementation of Tranche 2 needed

While Australia has committed to introducing AML reforms for DNFBPs, its tranche 2 reforms have remained on the back burner for over a decade. The 2008 financial crisis, subsequent shifts in political priorities and fierce opposition from lawyers have all been cited as reasons for the delay.

The report notes that none of the key bodies sharing insight with the committee have been consulted in relation to tranche 2 reforms since 2017. “The need for action cannot be ignored, and the government has dragged its feet for too long,” the report says.

In 2015, the Financial Action Task Force’s (FATF) Mutual Evaluation Report (MER) found that Australia was largely non-compliant or only partially compliant with recommendations relevant to DNFBPs. In the FATF’s 3rd Enhanced Follow-up Report & Technical Compliance Re-Rating (3rd Enhanced Follow Up Report), Australia was assessed as remaining largely non-compliant with recommendations related to DNFBPs. As such, Australia remains in enhanced follow-up.

Contributors to the report note that Australian banks have already had to provide additional information to foreign financial services firms to assuage doubts caused by Australia’s non-compliance with FATF DNFBP recommendations.

The report recommends that Australia accelerate its consultation on the timely implementation of tranche 2 reforms. It also advises that regulator AUSTRAC be provided with adequate resources to effectively implement and manage the tranche 2 regime. 

AUSTRAC has argued that for tranche 2 reforms to be useful in detecting money laundering through DNFBPs, the quality of reporting is critical. 

Concerns have been raised about the cost of more stringent compliance rules for DNFBPs, but the report notes that other jurisdictions, including New Zealand and the UK, have managed this, and that technology is reducing the cost and burden of Know Your Customer (KYC) and Customer Due Diligence (CDD) checks

Introduction of a beneficial ownership register

The report also notes the importance that introducing a beneficial ownership register would be an important enabler of tranche 2 reforms. This has been highlighted as an area where Australia is behind the US, UK and parts of Europe. Suggestions included collecting this information centrally in the annual statement that Australian companies are required to complete.

“The committee acknowledges the evidence that the development of a robust beneficial ownership register would both mitigate the burden on small business by enhancing and simplifying ‘know your customer’ searches and at the same time would reduce Australia’s vulnerability to money laundering,” the report says.

More widely, the report recommends considering how technological innovation could streamline regulatory processes and lower costs, alongside streamlining the existing “unnecessarily complex” AML/CFT framework, which makes it hard for firms to understand their obligations. 

It calls for Section 242 of the AML/CFT Act 2006 to be amended, to ensure the proper operation of legal professional privilege. 

2022 milestones: FATF review & federal election

FATF is likely to review progress against Australia’s 2015 MER this year and while it is unlikely that Australia will be placed on the gray list, it is clear that gaps in legislation are creating opportunities for criminals and those seeking to hide assets. For example, the Tax Justice Network specifically calls out Australia in an article about oligarch assets and the lack of beneficial ownership registration.

A federal election has also been called for May 21st, which will likely slow down any legislative progress on these issues as the government campaigns, and then post-election as the newly elected/re-elected government sets its priorities.

While additional pressure is building for reform, it is therefore unlikely that any legislative reforms will be introduced imminently. Compliance teams should use this time to review the report – and its proposed recommendations in particular – and map these against their own risk and control procedures. This will help to ensure that, should amendments to Australia’s AML/CFT program be introduced, they are well placed to adapt.

Find out more about the state of financial crime in 2022 with our global guide.

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ACIC deputy chief executive Matthew Rippon told a Senate inquiry into Australia’s money laundering laws that criminals were exploiting the skills and expertise of professional facilitators in order to conduct transnational, serious and organized crimes (TSOC).

The commission was carrying out multiple intelligence operations involving professional facilitators laundering the proceeds of crime, he said.

It had found that lawyers, accountants, real estate agents, liquidators, stockbrokers, bankers, luxury car dealers and offshore services providers were either actively complicit or coerced into providing services for TSOC groups.

“They are critical enablers of TSOC to drive profit and apply strategies to generate an appearance of legitimacy.” Mr Rippon said.

The Senate’s Legal and Constitutional Affairs References Committee was tasked in June with reviewing the adequacy and efficacy of Australia’s anti-money laundering and counter terrorism financing (AML/CFT) regime. In October, the inquiry’s reporting date was moved from December to March 2022.

Australian banks and fintechs have previously told the inquiry that they back the closure of major loopholes in the country’s AML legislation and warned that gaps in the current framework impact the country’s international reputation.

They outlined support for ‘Tranche 2’ legislation that would see Designated Non-Financial Business and Professions (DNFBPs) such as law firms, accountants, and real estate agents subject to similar laws to banks, emitters, and wagering companies in relation to AML/CTF.

The Financial Action Taskforce (FATF) has made it a priority for DNFBPs to be regulated across jurisdictions, and has made repeated recommendations in Mutual Evaluation Reports (MERs) on Australia since 2005.

Only Australia, Haiti and Madagascar have yet to expand their AML/CFT laws to include “professional facilitators”.

The FATF’s 2018 report ‘Professional Laundering’ includes instances where DNFBPs have facilitated money laundering and has some key insight on the subject for compliance professionals.

In Australia’s 2015 mutual evaluation report, FATF briefly explored DNFBPs in Australia, stating: ‘A concern is that the regulatory framework gives reporting entities substantive discretion for applying the AML/CTF requirements and allows simplified measures for all medium and low risk situations, yet there is only limited guidance for identifying high risk customers or situations.”

In 2018, in its 3rd Enhanced Follow-up Report and Technical Compliance Re-Rating, Australia was assessed as remaining largely non-compliant with recommendations related to DNFBPs and remains in enhanced follow-up.

Organized crime in Australia

Australian Federal Police (AFP) say that the country has become a “lucrative” market for organized crime and told the inquiry that of the $187m in assets it seized in the 2021 financial year, $116m was in real estate assets.

“Money laundering poses a serious, significant and growing threat to Australia’s national security,” AFP deputy commissioner Ian McCartney said. “We’ve acknowledged, and other agencies have acknowledged, the vulnerability in this space.”

The Australian Transaction Reports and Analysis Centre (AUSTRAC) estimates that in 2020, Chinese interests laundered $1bn through Australian real estate.

Property is an attractive vehicle for criminals to use to launder money. Illicit funds can be parked in the form of property and where property prices increase, can mean criminals making further gains on illicit funds.

In a 2015 strategic analysis brief, AUSTRAC highlighted the risk of property being used to launder funds. Compliance teams should find the brief’s 10 common ‘methods’ of money laundering through real estate particularly useful.

Method nine focuses on the use of professional facilitators or ‘gatekeepers’ and the services they can provide to criminals, including establishing complex loans and other credit arrangements, and introducing criminals to financial institutions.

Find out more about the state of compliance in 2021 with our latest on-demand webinar.

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The Australian Banking Association, the Reserve Bank of Australia, Bendigo and Adelaide Bank, and Fintech Australia, are among respondents to a Senate inquiry into the adequacy and efficacy of the country’s anti-money laundering and counter-terrorism financing (AML/CTF) regime. 

The organizations have outlined support for ‘Tranche 2’ legislation that would have Designated Non-financial Business and Professions (DNFBPs) such as law firms, accountants, and real estate agents coming under similar laws to banks, emitters, and wagering companies in relation to AML/CTF. This has been repeatedly recommended by the FATF/Asia Pacific Group (APG) in their Mutual Evaluation Reports (MERs) on Australia.

DNFBPs are known as ‘gatekeepers’ for their role in facilitating individuals or companies entering the financial system, as they can play a vital role in preventing money laundering. 

“The current arrangements of not covering DNFBPs arguably have placed an additional burden on those parts of the financial system that are already captured by the regime and are working with AUSTRAC and law enforcement to address financial crime,” said Bendigo and Adelaide Bank Chief Risk Officer Taso Corolis.

He added that expanding legislation to meet global benchmarks was “crucial for Australian business to maintain its reputation and access to the international financial market.”

The story so far

The FATF has made it a priority for DNFBPs to be regulated across jurisdictions. Back in 2005, the FATF’s Mutual Evaluation Report (MER) found Australia was non-compliant or only partially compliant with recommendations pertinent to DNFBPs. Ten years later, the 2015 MER found Australia was still largely non-compliant or only partially compliant with the same recommendations.  

“A large concern is that no legislative or regulatory measures have been promulgated to mitigate the high risks identified with certain DNFBPs (accountants, lawyers, trust and company service providers and real estate agents),” the report said.

And in the FATF’s 3rd Enhanced Follow-up Report and Technical Compliance Re-Rating in 2018, Australia was assessed as remaining largely non-compliant with recommendations related to DNFBPs. As such, Australia remained in enhanced follow-up.

In 2016, AUSTRAC estimated that $1bn was laundered through real estate in Australia from China alone. In 2017, Transparency International called Australia “the world’s worst money laundering property market.”

Australia’s Anti-Money Laundering and Counter-Terrorism Financing Act 2006 only incorporated businesses dealing in financial services, gaming, and precious metals.

A revision of the Act (Tranche 2) that would include DNFBPs, mooted in 2007, was originally pushed back due to the global financial crisis, and further delayed by subsequent changes in government and priorities. Arguments against the imposition of Tranche 2 include concerns that smaller entities or sole traders would face an adverse compliance burden if they had to comply with the Act.

In June, reforms to strengthen Australia’s AML/CFT rules came into force. Dubbed Tranche 1.5, these reforms targeted customer due diligence, correspondent banking, information sharing, and cross-border payment reporting. Tranche 2 is still being considered by the government.

Fintech Australia warned in its submission to the Senate inquiry that Australia is seen as a “light touch” for criminals seeking to funnel money into the country. It stated that the cost of Tranche 2 would be far outweighed by the benefits of bolstering the AML/CFT framework.

The inquiry’s report is due at the end of the year.

It is crucial that compliance teams are keeping a close eye on developments in Australia and thinking about how the possible implementation of Tranche 2 legislation could mean a rethink about their client base, in order to reassess risks. Procedures and policies would need to be updated, along with staff training. It could also be a challenge for compliance teams in smaller firms.

Explore the latest global trends in financial crime, sanctions, and crypto from the year so far, by downloading our new mid-year financial crime review report.

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• Implementing licensing requirements and ownership criteria for casinos. 
• Introducing effective monitoring systems to ensure DNFBP compliance with AML/CFT requirements. 
• Preventing criminals and their associates from owning or controlling DNFBPs.
• Implementing proportionate and dissuasive sanctions to deal with Designated Non-Financial Businesses and Professions compliance violations. 

In most jurisdictions today, Designated Non-Financial Businesses and Professions are regulated in much the same way as credit and financial institutions. Some financial authorities have tailored their AML/CFT regulations to counter the unique money laundering threats posed by different types of DNFBP.

DNFBP AML regulatory challenges

Many criminals exploit regulatory uncertainty around DNFBPs to commit financial crimes such as money laundering. The specific AML challenges that firms face when dealing with DNFBPs often vary depending on the national regulatory environment and industry. 

DNFBPs: Regional challenges

DNFBP AML compliance is a global regulatory concern and deficiencies in national regulation offer criminals attractive opportunities to commit financial crimes. 

Governments and national authorities frequently take action to raise awareness of DNFBP money laundering as it relates to specific criminal trends. In Australia, for example, the Senate recently released a report focusing on the country’s failure to expand its AML regulations to DNFBPs – which has led to billions of dollars being laundered through the housing market and the “systemic non-compliance” of casino operators. The report stated that “Australia is a laggard on the world stage, one of only three states to fail to enact any regulation in relation to DNBPs.”

Australia originally proposed updated DNFBP AML legislation in 2008, but the financial crisis delayed the relevant reforms, which shifted the government’s political priorities. In 2015, a FATF Mutual Evaluation Report (MER) found Australia largely non-compliant with Recommendation 24. As a result, the FATF recommended that Australia accelerate its legislative reforms. It stressed that the government should introduce a beneficial ownership register to catch up with Western peers like the US, the UK, and the EU. 

DNFBPs: Industry challenges

Certain industries pose a higher DNFBP AML compliance risk than others. Examples of recent AML/CFT incidents that highlight industry-specific risks of DNFBPs include: 

Casinos 

Australia: In March 2022, the Australian Transaction Reports and Analysis Center (AUSTRAC) started civil proceedings against Australia’s largest casino operator, Crown Resorts, citing “serious and systemic non-compliance” with AML/CFT laws. The AML/CFT failures that AUSTRAC identified included: 

• Poor governance and risk management
• Failure to maintain a compliant AML/CFT program
• Failure to carry out appropriate customer due diligence and enhanced due diligence
• No framework for senior management to provide AML/CFT oversight

United States: The US casino industry also faces AML/CFT challenges. A scam artist who used casinos to launder thousands of dollars through a Cincinnati casino is currently featured on the FBI’s most-wanted list. In perpetrating his criminal activity, Ismail Shalash would visit casinos to convert cash obtained through fraud and then launder that money by cashing out in credits. Between May and August 2021, Shalash cashed in $464,796 and cashed out the significantly larger amount of $789,541. 

Precious metals and stones

North Korea: Many criminals, and even rogue states, are exploiting DNFBPs in the precious metals and stones industry. In January 2022, the Royal United Services Institute (RUSI) released a report warning that North Korea was targeting DNFBPs to evade sanctions imposed against it. One of North Korea’s key targets was dealers in precious metals and stones (DPMS). RUSI found that jewelry is featured in 25% of North Korea’s sanctions evasion cases, while diamonds are featured in 5%. Similarly, gold was the most frequently mentioned precious metal, appearing in 60% of the DPMS sanctions evasion cases. 

RUSI identified DPMS mining and production as a prominent target of North Korea’s sanctions evasion attempts (accounting for 21% of cases) and wholesale and trading (34% of cases). Under current FATF record-keeping and CDD requirements, RUSI points out that DPMS only have to apply AML/CFT measures to cash payments over $15,000. Similarly, the FATF’s AML/CFT standards do not define ‘precious metals and stones.’ 

Real estate 

United States: In 2021, the US Financial Intelligence Network (FinCEN) issued an advance notice of proposed rulemaking (ANPRM) in response to money laundering and corruption threats to DNFBPs in the real estate industry. In the US, real estate businesses do not have particularly stringent reporting requirements, especially for transactions that do not require a mortgage. FinCEN found that over 50% of those transactions involved politically exposed persons (PEP), along with their relatives and close associates, and that many illegal transactions involved using shell companies to conceal beneficial ownership. 

Accordingly, the ANPRM emphasized the need to implement anti-corruption regulations in the US. FinCEN stated it would take “aggressive aim at those who would exploit anonymous shell corporations, front companies, and other loopholes to launder the proceeds of crimes, such as corruption, drug, and arms trafficking, or terrorist financing.” 

Australia: The 2021 inquiry by the Australian Senate revealed that criminals were exploiting the country’s real estate industry to launder billions of dollars through the housing market. The Australian Federal Police (AFP) revealed that $116 million of illegal real estate assets were seized in 2021 – accounting for over half of the total assets seized in that year ($187 million). Similarly, FATF Mutual Evaluation Reports (MER) have repeatedly recommended that Australia address DNFBP exploitation. Its 2015 MER noted that Australia’s regulatory framework gave DNFPBs ‘substantive discretion’ for applying AML/CFT requirements and offered only ‘limited guidance’ for high-risk customers. 

Following input from Australian banks and financial institutions, the senate inquiry found that Australia’s AML legislation had major loopholes. Those deficiencies were helping criminals to launder money and hurting the country’s international reputation. Accordingly, the Senate recognized the urgent need for legislation that would subject DNFBPs to the same AML/CFT regulations as banks and other financial institutions.

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