The Australian Transaction Reports and Analysis Centre, the country's main financial intelligence agency, has appointed an external auditor to investigate concerns around layby finance giant Afterpay's compliance with anti-money laundering laws.
AUSTRAC said in a formal notice on Thursday that it has reasonable grounds to suspect that Afterpay has contravened and/or is contravening sections 32 and 81 of the Anti-Money Laundering and Counter-Terrorism Financing Act of 2006.
The involuntary sweep by an external auditor will probe Afterpay's customer identification and verification, as well as how the finance company handles its suspicious matter reporting obligations.
The move by AUSTRAC follows a compliance dragnet run through banks that uncovered systemic breaches and resulted in the Commonwealth Bank of Australia copping $700 million in fines, with the banks former CEO Ian Narev later falling on his sword.
The rapacious pursuit of growth of the shadow lending market has become a matter of growing concern for regulators, especially around whether operators are staying within governance boundaries.
Afterpay's governance and oversight of decisions around its anti-money laundering and counter-terrorism financing framework is a key matter of interest for AUSTRAC.
The finance company's AML/CTF prorgram will also come under scrutiny, along with Afterpay's money laundering and terrorism financing risk assessment.
Shadow lending is regarded as a prime candidate for laundering activity to shift into because it offers easy access to large pools of money that can be quickly and easily cycled through.
Afterpay will also have to foot the bill for the probe, with the external auditor's remit being set by AUSTRAC..
A preliminary report into Afterpay's AML/CTF Act compliance must be provided to AUSTRAC within 60 days by the external auditor, and a final version within 120 days.
The appointment of an external auditor follow's AUSTRAC's announcement last week that it would investigate Afterpay for AML/CTF compliance.
Afterpay said [pdf] that it has to date not identified any money laundering or terrorism financing activity via its systems.
The company said its business model has features that help control money laundering and terrorism financing risks, including strict spending limits of $1,500 maximum per transaction.
Under the AML/CTF Act, companies found to have contravened the law can be fined a maximum of $1,575,000. Individuals can be penalised with up to 25 years in prison, and fines of up to $315,000 if the offence involves proceeds of crime with a value of one million dollars or more.
Afterpay Touch Group claims over 4.3 million active users and this week announced that it had raised $317.2 million in capital through a share issue.