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Afterpay Investigated Over Compliance With Anti-Terrorism And Money Laundering Laws

Buy now, pay later service Afterpay is being audited after financial intelligence agency AUSTRAC ordered an external investigation of its compliance with anti-terrorism and money laundering laws.

The order was issued last week and demands an external auditor examine Afterpay's compliance with the Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) Act.

The Australian company, which was founded in Melbourne four years ago, offers customers the ability to purchase items for a fraction of the full amount, and then make fortnightly payments without any upfront fees or interest.

Source: AAP Photos.

The order came three days after executive directors Nick Molnar, Anthony Eisen and David Hancock sold more than $103 million in company shares.

The AML/CTF act is part of Australia's national security legislation and focuses on the financial sector.

Across Australia, about 14,000 banks, cryptocurrency companies, casinos and pay now pay later companies are obligated by the AML/CTF Act to report to AUSTRAC with suspicious customer activity. This includes laundering behaviours and refusal to hand over identification.

AUSTRAC receives over 400,000 of these reports per day which are added to a large intelligence database that's accessible to law enforcement agencies.

If Afterpay are found to have breached these security laws, it will be vulnerable to a maximum penalty of $42 million.

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AUSTRAC chief executive officer Nicole Rose said the agency "will not hesitate to take action where an organisation is failing to appropriately protect itself and Australia's financial system from criminal activity".

Afterpay have stated that its business model "has several features that help to control our money laundering and terrorism financing risk, including the implementation of strict spending limits (up to a maximum of $1,500 per transaction)."

Last year, governance advisory service Ownership Matters conducted an investigation into Afterpay's services and found it was possible to set up an account under a fraudulent name using a prepaid VISA giftcard, a prepaid sim and a disposable email address.

The report also found that it was possible to purchase $300 worth of alcohol as a minor.

Afterpay said it will be working "closely and constructively" with AUSTRAC, and that it will use the formal process as an opportunity to ensure its AML/CTF compliance is "robust".

The independent auditor now has 127 days to report back to AUSTRAC with their findings.