Afterpay faces audit over money laundering and terrorism finance compliance

Afterpay will be forced to appoint an external auditor to run the ruler over its compliance with money laundering laws after regulator AUSTRAC “identified concerns” with the fast-growing company.

The buy-now-pay-later giant has been ordered to allow scrutiny of its governance and oversight decisions as they relate to anti-money laundering and counter-terrorism finance laws.

An auditor will now examine how the company verifies the identity of its customers and reports suspicious activity to the regulator.

AUSTRAC chief executive Nicole Rose said buy-now-pay-later has been growing rapidly in recent years and the decision to order an audit “reminds” new financial services businesses of their legal obligations.

“The audit will help identify if Afterpay has developed and implemented the systems and controls it needs to ensure it complies with its obligations. These laws are in place to protect businesses, the financial system and the Australian community from criminal threats,” Rose said in a statement.

An audit report is expected to be handed down within two months and will inform whether AUSTRAC will take further regulatory action against the company.

“AUSTRAC will continue to work with Afterpay to assist the company to mature and strengthen its compliance processes, staff training and suspicious matter reporting,” Rose said.

“We will not hesitate to take action where an organisation is failing to appropriately protect itself and Australia’s financial system from criminal activity.”

In a note to investors yesterday, Afterpay said it had been in discussions with AUSTRAC for a “number of months” but was not aware of the impending order until it received official notice on Wednesday evening.

“We recognise that buy-now-pay-later is a new and maturing sector not only for our customers, but also for regulators, and we will continue to work closely with AUSTRAC to develop a leading compliance regime specific to our business,” the company said.

Afterpay also said its spending limit, set at $1,500, helps minimise the risk criminals will try to launder money or finance terrorism using its service.

The AUSTRAC order has marred an otherwise positive week for the company, which raised $317 million from investors earlier this week to turbocharge its growth plans at home and abroad.

It’s not the first time Afterpay has run into regulatory scrutiny though. Earlier this year it and competitor Zip were subjects of a Senate inquiry into their business model.

The inquiry examined whether Afterpay should be subject to consumer credit laws, but senators concluded an expansion of ASIC’s product intervention powers was sufficient.