Poor legal advice led to AML/CTF breaches at Afterpay
In June 2019, AUSTRAC ordered Afterpay to appoint an external auditor after the agency identified concerns with Afterpay’s compliance with anti-money-laundering laws.
The final report from external independent auditor Neil Jeans was provided to AUSTRAC today. In the final report, Jeans broadly praised Afterpay’s compliance efforts and attributed the breaches to poor advice from an unnamed “top tier Australian law firm”.
The law firm incorrectly decided the buy-now, pay-later company was not providing loans to consumers but providing “factoring services” to merchants. The incorrect classification meant Afterpay’s anti-money laundering controls focused on merchants selling goods, rather than the individual consumers that used Afterpay to finance and pay for goods.
It appears the advice led to a compliance policy that did not reflect Afterpay’s business model.
The key findings of the audit included an assessment that Afterpay is a low risk business in regards to its vulnerability to being used for money laundering or terrorist financing.
Investors welcomed the news by sending the company’s shares soaring 8 per cent on morning trade to above $33.
The AML/CTF Act requires entities providing a defined list of products or services to have an AML/CTF program. The progam must show how the entity addresses the money laundering and terrorism financing risks the business may reasonably face. This means taking into account many aspects including:
- nature, size and complexity
- who the customers are
- the services and products provided
- how the business delivers those services and products
- the foreign jurisdictions with which the business deals
If you are a regulated entity and want to improve your approach to financial crime risk management then please contact the Arctic Intelligence team.