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Reporting Suspicious Transactions
A LEGAL REQUIREMENT
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Author DR JACKlE JOHNSON,
06partment of ACcDunting & Finance;
University of Westem
T
he FTR Act is designed to
assist in the detection of
laundered money originating
from tax evasion, the sale of illegal drugs
and other criminal activities. It places a
number of obligations on cash dealers I
who must report to the Director of
AUSTRAC any cash transactions
equivalent to ASl 0,000 or more and all
international funds transfer instructions.
Account signatories must also be verified
and it is prohibited for accounts to be
opened or operated in a false name.
In addition, section 16 of the Fm Act
and section 243D of the Australian
Securities and Investments Commission
Act 1989 require that cash dealers submit
reports of transactions (completed or not),
where the cash dealers have reasonable
grounds to suspect that the transactions
may be related to Commonwealth, State
or Territory offences.' Difficulties arise in
the identification of suspicious
transactions, and AUSTRAC has tried to
address these by publishing gUidelines to
help cash dealers.
Even so, reporting officers canvassed
in a recent survey still have difficulties
completing Suspect Transaction Reports
with only approximately 25 per cent
indicating "'no problems".
The number of reports of suspect
transactions submitted to Australian
authorities has increased steadily over
the years, and almost half continue to
come from the big four banks. The other
half is split between the remaining banks
and nonbank cash dealers (NBCDs).
Report numbers are summarised in Table 1.
Although the number of reports filed by
the smaller banks and NBCDs has
generally increased over the last six
years, there has been a significant decline
in the number of reports submitted by
the big four banks over the last year.
This could be due to a number of factors.
There may simply be less laundering
through the major banks as launderers
move to other smaller institutions within
the financial sector. However, if training
is not kept up to date then less
suspicious activity may not be identified
and/or reported.
There is no way of knowing what the
"'right number"' of suspect transaction
reports should be, and no benchmark
against which to measure reporting levels
and the efficiency of the rep'orting
officers. Yet somehow the funds being
laundered must be intercepted before
they enter the financial system, before
they pass the teller'S window or the
solicitor's desk. Only with well-trained,
vigilant, careful. honest and alert reponing
officers is this even remotely possible.
If these same officers are ill-prepared,
careless, dishonest or corrupt then the battle
against money laundering will be lost .
Given the importance of recognising
and recording suspicious activity and
submitting suspect transaction reports,
the aim here is to observe reporting
officers' attitudes to the reporting
requirements, taking into consideration
their employing institution and the
anti-money laundering training they
have received.
Data
In September 1999,434 questionnaires
covering a range of money laundering
issues were sent to 120 Australian cash
dealers for distribution to their reporting
staff. There were lIS responses: 60 from
Continues next page ' ...
lE1 ......
11
Journal of BANKING & FINANCIAL SERVICES - June 20CXJ
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the banking sector and 58 from a range the responses of bank and NBCD officers.
... ,:'. --j, , .... j' ,'.;,' .......
')1, ques!ionnaire Interestingly, the mean response for
;" .,;1.aiigffedus to trained officers is higher than for
untrained omcees, implying that trained
'.,' I
. officers on average find more problems
1 in completing the forms than do
fr: _ 1,_' .<l ... , .:' i
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all .. .... ,"':1 that the difference IS
I not sIgmfIcant.
a sevc;.n:pomtJ.[ke.;scale the Jtr"ngth .
or;diSagreemerit, With
t-,'-:: -' , " . '.. -
a partii:ularstatement:"The statements in .
left hand side
;<-. ' ... ',,,.. .'" '1 '.- <'.
. of .Tables\2.and ."< ..... ... T ........... '. "
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Reslilts,. ''cc.:
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attitudes, responses were grouped by
"virtue of theil employing 'instltutiori'and'
their training. Training 'here to any
anti-money laundering training the
reporting officers received; a respondent
classified as "'untrained" never received
any laundering related
training. This grouping of respondents is
designed to test the findings of Coates
(1995)4 that compliance officers' attitudes
depend on tpeir employing institution,
and that of Bosworth,Davies (1998)5
that there is a major difference in attitude
between trained and untrained officers.
Attitudes To
Suspicious Activity Reporting
I With regard to acquiring the
11 necessary information to complete their
reporting obligations, a number of
; respondents indicate that it is a lengthy
; process (Table 2, panel B). This would
apply mainly to the reporting of
suspicious transactions, as other
reporting requirements are mostly
recorded and reported electronically.
The difficulties with the paperwork also
feature in the comments made
concerning common reporting problems,
as do the difficulties associated with
identifying suspicious activity.
Judging from the responses, for some
untrained officers getting hold of
guidelines covering their reporting
obligations is a problem (Table 2, panel C).
AUSTRAC does supply guidelines in the
form of newsletters, circulars and other
publications to help officers fulfil their
reporting obligations. All of these are
available in hardcopy and from the
AUSTRAC web site.
b
However, while
reporting staff may use a computer at
work it is not necessarily available for
them to access the Internet and retrieve
information from the AUSTRAC web site.
Reporting officers would be unlikely
to use their own time and resources to
access this information outside of their
working environment.
Even so, with an AUSTRAC liaison
officer at each cash dealer, guidelines
should be available. Yet we find a huge
difference in the responses of trained and
untrained officers (Table 2, panel C). The
mean response for trained officers is 6.00
and for untrained officers only 4.81.
Quite dearly, training plays a significant
role in equipping officers with the
necessary tools for meeting their reporting
obligations. Without proper training or
guidelines, untrained officers are less likely
to recognise suspidous activity, given that
money launderers especially will want
their activity to look as normal as possible.
Response differences of this magnitude are
not evident when comparing the
responses of bank and NBCD staff.
When we look at the perception that
reporting suspicious activity helps deter
money laundering (Table 2, panel D),
we find trained officers have a very high
mean response of 6.09, Significantly
higher than untrained officers at 5.14.
This obviously has much support from
trained officers, and their support is vital
because reporting obligations are more
likely to be met by those officers who
Although most significant cash
transactions and international transfers
are recorded and reported electronically,
officers must still make decisions
regarding the reporting of suspicious
transactions. Of the 118 respondents,
TABLE 1
79 have filed a suspect transaction
report. FOrty of these were reporting
officers employed by banks, and 39
NBCD reporting officers; 26 were trained
and 53 untrained.
From their responses (Table 2, panel A)
we can conclude that approximately 75
per cent have faced some problems in
completing these forms, with only 20 of
the 79 indicating "no problems'. The
Kruskal,Wallis (KW) statistic indicates
that there is no significant difference in
SUSPECT TRANSACTION REPORTS RECEIVED BY AUSTRAC
Non-Bank Total
", T. ,- ''::. CashOealers
1993,94 1793 853 890 3536
1994-95 1954 1012 1048 4014
1995-96 2125 1143 1924 5192
1998,97 3155 1196 1421 5772
1997,88
3507 * 1513 * 1857 * 6877
1998,99 3000 * 1570 * 1971 * 6541
+ The big 4 banks are the Commonwealth Bank of Australia, National Australia Bank, Westpac and the ANZ.
* Report numbers have been estimated from the percentages given in the 199798 and 199899
AUSTRAC Annual Reports.
Source: AUSTRAC Annual Reports
Cont:inues psge 16 ..
Journal of BANKING & FINANCIAL SERVICES - June 2000
Reporting Suspicious TransactiDns - A Legal Requirement
Continued from page 14
support the legislation, In fact, all 32 trained
respondents agree that this reporting
requirement is able to deter money
laundering, Yet only 76 per cent of the
untrained officers support this legislation.
With regard to knowing your
customer (Table 2, panel E), all group
response means are greater than five
with most disagreement coming from the
untrained sector, where 16 out of 72
(22.2 per cent) believe that it is not
necessary to know your customer in
order to identify suspicious activity.
As for detecting/deterring money
laundering (Table 2, panels F and G), all
groups on average believe that disclosure
requirements help and that money
laundering is being detected andlor
deterred by the FTR Act and the actions
of AUSTRAC, Trained officers have a
significantly stronger belief than
untrained officers in the ability of the
FTR Act and AUSTRAC to do their jobs,
Suspect transaction reports
as they apply to tax evasion
When AUSTRAC receives a
suspect transaction report, it is analysed
TABLE 2
SUSPECT TRANSLATlON REPORTING
to determine the type of activity
involved based on the grounds for
suspicion detailed in the cash dealer's
report. The major categories are false
name accounts, money laundering,
tax evasion, structuring; and social
security fraud.
Suspected tax evasion and
structuring, which is indicative of other
serious criminal activity, are consistently
the two largest activities and represent
more than half of all the suspicious
activity reported in 1998-99. Suspect
transaction reports are disseminated to
",,'_ff, ," ,,-,', ,,,,_w,,,,,,'<c,,c.-, "IS'._
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A I have faced many problems in Trained: 6 8 1 1 7 1 2 26 3,23 2,01 0.09
completing the Suspect Transaction Un--Tr: 14 15 5 3 8 4 4 53 3,07 1,99
Report,
Banks: 12 13 1 2 6 3 3 40 2.95 2,04 1,01
NBeDs: 8 10 5 2 9 2 3 39 3,31 1,94
B Riling in the report forms is a lengthy Trained: 5 17 6 6 6 2 0 32 3.22 1,54 0,31
and cumbersome process.
Un-Tr: 19 18 6 7 8 10 3 71 3,13 1,86
Banks: 9 10 8 8 6 7 1 49 3,35 1,77 1,38
NBeDs: 15 15 4 5 8 5 2 54 2,98 1,89
C I have been provided with an adequate Trained: 1 1

2 3 9 16 32 6,00 1,48 9,94-
set of guidelines. which advises when Un--Tr: 6 6. 7 10 10 16 18 73 4,81 1,95 a-0,001
reporting is necessary.
Banks: 3 3 2 6 6 10 21 51 5,41 1,87
6
N8CDs: 4 4 5 6 7 15 13 54 4,94 1,91 2.32
0 The requirement, to report suspicious Trained: 0

0 0 7 15 10 32 6,09 0,73 6,73-
transactions, is able to help deter un-rr: 6 2 3 6 18 20 16 71 5,14 1,75 a=O,009
money laundering.
Banks: 2 1 0 4 12 14 17 50 5,66 1,47
5
N8eDs: 4 1 3 2 13 21 9 53 5,22 1,65 2,08
E In practical day-to-day operations, having Trained: 1 3 3 2 6 8 9 32 5,16 1.80 0,30
some knowledge of a customer and their Un-Tr: 6 3 7 2 12 16 26 72 5,26 1,94
financial affairs is very important when
Banks: 3 2 6 2 8 11 19 51 5,33 1,86 0,40
identifying suspicious transactions.
NBCDs: 4 4 4 2 10 13 16 53 5,13 1,93
F The FTR Act and AUSTRAC are Trained: 0

2 5 12 12 7 38 5045 1,11 3,87-
detecting and countering money Un-Tr: 3 5 5 19 19 16 13 80 4.83 1,58 a-0,049
laundering
Banks:

2 2 17 15 14 10 60 5,12 1,28
0
NBCDs: 3 3 5 7 16 14 10 58 4,93 1,65 0.02
G The disclosure requirements of the FTR Trained: 0

1 3 16 10 8 38 5,55 1,01 4,90-
Act are able to deter money laundering. Un--Tr: 2 7 5 15 22 16 13 80 4,85 1,58 a-O,02s
Banks:

3 2 10 22 10 13 60 5,22 1,33
8
NBCDs: 2 4 4 8 16 16 8 58 4,93 1,57 0,46
" The two groups being compared using the Kruskal-Wallis test, are different at the a level indicated. To be classified as significantly different a
should be :S 0.05 (5%). The smaller the a level the more sure you are that the difference is significant.
+ Respondents indicate on a scale of 1 to 7 their level of agreement or disagreement with a particular statement .
. 1, Journal of BANKING & FINANCIAL SERVICES - June 20CXJ
TABLE :J
REPORTING SUSPICIOUS ACTIVITY RELATING TO SUSPECTED TAX EVASION
The Fm Act should apply to money
laundered to evade tax.
Banks: 1 0 0 1 6 12 -39 60 6.37 1.1B
NBCDs:
2 1 3 4 2 17 30 58 6.02 1.48 2.14
The current requirements of the
Trained:
0 0 1 B 15 11 3 38 5.18 0.95 7.08*
FTR Act are able to capture money
Un-Tr: 2 5 8 25 22 11 7 BO 4.51 1.40a=0.0078
laundered to evade tax.
Banks:
0 4 2 23 15 10 6 60 4.72 1.28 0.26
NBCDs:
2 1 7 10 22 12 4 58 4.74 1.35
* The two groups being compared using the Kruskal-WaJlis test are significantly different at the a level indicated .
.. Respondents indicate on a scale of 1 to 7 their level of agreement or disagreement with a particular statement.
relevant partner agencies. but all repons
which relate to profit-motivated crime.
not just those initially identified as tax
evasion. are referred to the Australian
Taxation Office,
Boswonh-Davies (1998) observes a
resistance among reponing officers of
British financial institutions to any
anti-money laundering legislation being
used in the detection of tax evasion.
In Australia this is not the case.
Bank and NBCD reporting officers,
whether trained or untrained, believe
that the FTR Act should apply to
money which is laundered to evade tax
(Table 3, panel A). The response from
trained officers is Significantly stronger
with a mean of 6.63. and not a single
trained officer indicated that the FTR
Act should not apply to tax evasion,
With reference to the reporting
officers' confidence in the current
legislation being able to capture money
which is laundered to evade tax. the
study f o u n ~ more support for the
legislation from trained officers than
untrained officers (Table 3, panel B).
This would appear to indicate that with
more knowledge comes a greater
understanding of the legislation. its
aims. objectives. remedies and
penalties. Indeed. this is rather
comforting given that anecdotal
evidence could lead us to conclude that
many Australians take a rather "liberal"
view of tax evasion.
8
Conclusion
Australian cash dealers' reporting offi-
cers certainly report suspicious activities,
but how much of the total illegal activity
is being reported is impossible to
determine. Attitudes towards reporting
requirements and the FTR Act in general
are important, for they are likely to
impact on the likelihood that an
individual will comply with the legislation.
The major difference in attitudes
towards reporting suspicious transactions
is evident in the responses of trained and
untrained officers. Money laundering
training appears to be a significant factor.
Little difference was observed in the
responses of bank and NBCD staff and
we find no evidence [0 support Coates
(1995). Given that a number of
Australian NECDs have been included in
the anti-money laundering legislation
since its inception, it is likely that
attitudes have matured and there is not
References
I Cash dealers, as defined in the FeR Aa. include banks,
building societies and credit unions, financial corpora-
tions, insurance companies, insurance intermediaries,
securities dealers, futures brokers, cash carriers. managers
and trustees of unit uusts, firms that deal in travellers
cheques and money orders. currency dealers. bullion
dealers, casinos, gambling houses. rotalisator agency
boards and bookmakers.
2 AUSTRAC Annual RqJort, 199899, p. 65.
3 This questionnaire was Initially used by J.PJ. Wong.
Department of Accounting and Finance, The Uninrsity
of Western Australia. Details of the questionnaire are
available from the author, on request.
4 Coates, D .. ~ 1995), MMo1i(}' Laundmng SUM/(}'M, Credit
Control. Vol16, No 3, pp. 2831.
5 Bosworth-Davies, R .. (1998), "Living with IIu Law: A Survt}'
()f MoneyLaundmng Rrporting O/fll:m and 'I'Mir AttitwU
Towards- rht Monry-Laundtring Rtgu/atiJmsM. Journal of
Money Laundering Control Vol. I. No. 3, pp. 245-253.
the general ignorance observed by
Coates (1995). AUSTRAC has also
audited a number of cash dealers. so
compliance levels and understanding of
the FTR Act should be greater than the
knowledge levels observed by Coates
(1995) in Britain prior to 1995.
Training is the key. Identifying
suspicious activity is the area where up-
to-da te training is essential. Money
laundering trends change. and reporting
officers must be aware of changing
scenarios. This not only applies to the
banking sector but also the NBCDs
because as regulations tighten. money
launderers will move to cash dealers that
they perceive may be less able to identify
suspicious transactions.
If the responses to this questionnaire
are typical of reponing officers in the
whole financial sector. the lack of
training in the NEeDs will pose a major
problem in Australia's continuing fight
against money laundering.
6 AUSTRAC web site: http://www.austrac.gov.au
7 Structuring is the arrangement 01 cash deposits so that
individually they fall below the AS I 0,000 reportable
limit but in total exceed this amount.
S There Is an endless supply of newspaper reports of tax
evasion. FollOwing is a sample taken from Australian
newspapers over a recent three month period:
Buffini, F., MShamt and Hamt Strial TlU" EvadtTS '/CA-,
Australian Financial Review, 211112000, p. 5;
Harvey, M., "GST to Fix TlU" Chats", Herald Sun,
121112000, p. 12;
Chandler, M .. M ATO Swoop on Buildm Afttr Missing
ASlOOm," Australian Financial Review. 2511111999, p. 38;
Adams, w .. "Tax-dodging a Fair Prict Fur Libmy - Privacy
Gr()upM, Australian 22flll1999, p. 2;
. * "TlU" DodgtTS a Fair TarStt-. Sun Herald, 14/11 fl999, p. 2;
Culrurt 4tht TlU"Chtau". The Mercury, 29/1011999.p. 4.
Journal of BANKING & FINANCIAL SERVICES - June 2000 _Ira.-