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Two of China’s biggest payment providers, which are also used by thousands in Australia to make payments, are able to bypass local anti-money laundering rules meaning the transfer of funds is virtually undetected.
WeChat Pay and Alipay sit beyond the reach of the Australian Transaction Reports and Analysis Centre despite operating in Australia for nearly a decade. Transactions made by users of these platforms avoid detection by authorities due to gaps in the current anti-money laundering regime.
The Australian is aware of suggestions that WeChat Pay and Alipay have been used by holders of digital wallets on each platform to make transactions to pay for goods and services in Australia, where the transaction has not been disclosed to tax authorities and does not incur GST.
This is largely done by avoiding the point-of-payment terminals in retailers and making direct transactions to the users of the apps, with no visibility of those transactions to Australian regulators.
Similar transactions taking place within the Australian banking environment are accessible to Australian regulators and law enforcement.
However it underscores the challenges that authorities have in keeping ahead of technology when it comes to monitoring transactions outside the traditional banking system.
Alipay and WeChat Pay are used to transfer money out of China through a stepped process that does not provide any visibility to Austrac nor allow the potential for the creation of suspicious matter reports.
Some users of these platforms have been known to use them to transfer money out of China and into Australia in a bid to get around China’s stringent remittance laws.
One of the most common is the transfer of money to a user’s wallet, that user can then use the money in a retailer or swap the transferred funds to another platform user in Australia for cash.
Those users can then spend the money on those platforms or on-send it to another user.
Alipay and WeChat Pay are, with some exceptions, largely available to Chinese residents, passport holders, and westerners living in or visiting China.
The platforms are also used to transfer money out of China through a stepped process that does not provide any visibility to Austrac nor allow the potential for the creation of suspicious matter reports.
University of Sydney Law School lecturer Derwent Coshott said the only records kept on Alipay and WeChat Pay transactions were accessible to Chinese authorities.
“There’s no way on (Austrac’s) end to know if the money that’s being put into Australia is the result of illegal activities,” he said.
“That’s going to be true if you’re looking at foreign funds coming into Australia from any other means.”
“But if it were transferred to a bank there would be a record of that accessible by Australian authorities.”
In its submission to the Select Committee on Foreign Interference through Social Media WeChat said it had 690,000 daily users in Australia, while Alipay declined to provide detail on its user base in Australia.
WeChat Pay functionality is provided through the WeChat platform, which is owned and operated by massive Chinese telco Tencent, which owns a stake in high profile Australian buy-now-pay-later Afterpay.
Transactions from both Alipay and WeChat Pay are handled in Australia by financial providers including Quest Payments and the Commonwealth Bank, however the Australian understands neither provider has much visibility of the nature of the transactions.
The volume of transactions taking place across Alipay and WeChat Pay are potentially huge.
Commonwealth Bank declined to reveal the dollar value of Alipay transactions it handled, but noted it represented less than 0.01 per cent of the more than 52m payments on CBA terminals last year.
WeChat Pay and AliPay have been operating in Australia for years, with offices in Sydney.
But both platforms have declined to domicile their operations and open their books to Australian financial regulators, leaving the two to operate out of China.
An Alipay spokesman said the business complied with all regulations in the market in which it operates “including those in Australia”, but the platform has not signed up to be regulated under the Austrac regime.
“For example, when signing up to Alipay, all users undergo a rigorous identity verification process and we follow compliance requirements in areas such as (anti-money laundering),” he said.
Alipay is provided through the Ant Group of companies which are controlled by Chinese business magnate Jack Ma.
WeChat owner Tencent did not respond to request for comment.
However, despite maintaining it was not in the business’ interests to domicile its operations in Australia, Alipay recently inked a deal that would see it open a bank in Singapore and start offering digital wallets to Singapore residents.
The dangers of money laundering and the interest from Chinese junket operators in laundering money through Australia was exposed in recent investigations by the NSW gambling regulator into the operations of Crown Casino.
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WeChat has recently been pulled up by regulators after an emerging trend of criminal groups paying platform users to make transactions through their accounts to avoid Chinese regulatory scrutiny.
Similar payment platforms, such as the American PayPal have domiciled in Australia and are subject to domestic anti-money laundering controls.
In a sign of how seriously the regulator takes the issue PayPal itself is currently under review by Austrac on suspicion its platform may have been used to facilitate money laundering.
Austrac ordered an external auditor be appointed to examine PayPal’s operations in 2019 amid concern regarding the platform’s compliance with anti-money laundering and counter terrorism financing laws.
Foreign banks which operate in Australia are subject to anti-money laundering and counter terrorism financing laws via their local partners.
In a guidance note to the financial industry Austrac recommends financial institutions to consider the potential for corruption in countries in which their foreign partners operate.
“Financial institutions should, when undertaking assessments, take into account whether the foreign jurisdictions in which their correspondents are based, are regulated by AML/CTF laws comparable to Australia’s,” Austrac said.
Austrac declined to comment further.