Foreign exchange control (FEC) is a measure that restricts foreign transactions in Australia.
This has been in place since the country joined the Commonwealth in 1997.
FEC is a voluntary system that can be used to stop foreign entities or individuals from buying and selling Australian shares, and to help prevent money laundering.
It has come under increasing pressure in recent years, as regulators and the Reserve Bank of Australia have tightened the rules.
But a new report from a financial services industry lobby group warns the system is being used by criminals and foreign governments to launder money.
It said that foreign exchange control was one of the major drivers of illicit capital flows out of Australia.
Foreign Exchange Control: A warning to all Australians article In a report, Australian Financial Services Association (AFSA) and the Australian Institute of Company Directors (AICD) said foreign exchange controls were being used to lop off a significant amount of the funds that flowed out of the country in the first quarter of this year.
They say foreign exchanges could be used for drug dealing, money laundering and other illicit activities.
The report says foreign exchange restrictions, while effective, were not always being used as intended.
It says the illicit capital flowing out of foreign jurisdictions could have been prevented if FEC had been in force before March, when the country’s Reserve Bank took action to reduce the countrys black market for foreign currency.
AFSA says foreign control is an ‘essential tool’ for controlling the flows of illicit money.
The AICD says foreign currency controls should be a ‘central focus’ of foreign exchange regulation and that they should be extended to prevent illicit flows of capital.
The Reserve Bank says FEC should be implemented and expanded to allow banks and financial institutions to manage foreign exchange and other foreign exchange transactions in a way that minimises the risk of money laundering or terrorist financing.
The AICA also says foreign exchanges should be restricted to only transactions authorised by law.
A foreign exchange account, for example, would not be allowed to facilitate money laundering, it says.
AFSA says FRC can also be used as a tool to prevent the flow of illicit funds out of financial institutions, and also as a means of stopping foreign entities from accessing credit to buy and sell Australian shares.
AICDA warns that foreign currency restrictions can be circumvented by foreign financial institutions by using an ‘associate’ account.
If a financial institution does not have an associate account, it will not be able to access the foreign exchange market.
When it comes to foreign exchange regulations, the AICDA says foreign money is not being used for legitimate purposes.
It also says it is important that FRC is not used to limit the amount of foreign currency transactions that can occur in Australia, or to control the flow out of funds.
“There is also a risk that foreign entities could use foreign exchange as a source of revenue,” the AACS said.
“FRC will not only have an impact on the flowout of foreign funds, but it will also have an adverse impact on legitimate investment activities.”
It says foreign currencies could also be laundered through other means.
According to AFSA, foreign exchange is a ‘significant part’ of illicit flows.
It adds: “The Government’s own financial data shows that overseas cash flows are a major contributor to illicit financial activity, with $15.4 billion of illicit cash flowing out into Australia each year.”
The Government should take steps to tighten the rules on foreign exchange so that foreign firms are not using foreign exchange to larp and facilitate illegal activity.
“AFS says FERC should be expanded to include non-financial foreign exchange markets and should be reviewed on a case-by-case basis.
In addition to FRC, AFSA has called for the Government to introduce the Australian Banking Act to require foreign exchange exchanges to be registered with ASIC.
And in its submission to the Senate Banking, Investment and Financial Markets Committee, AFS said foreign exchanges need to be monitored to ensure that foreign money flows do not cross borders and disrupt the functioning of financial markets.
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