Afterpay shares jump after final audit handed to AUSTRAC

The auditor notes Afterpay's compliance with its AML/CTF obligations was based on legal advice he believes to be incorrect from top tier Australian law firms.

An independent audit of Afterpay (ASX: APT) has been handed to Australian authorities confirming the company's alignment with the Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) Act.

Shares in the buy-now-pay-later (BNPL) sensation have surged by more than 8 per cent to $33 each in early trading after Afterpay confirmed the final report from external independent auditor Neil Jeans had been received and provided to AUSTRAC.

"The Independent Auditor has confirmed that Afterpay's current program is aligned with the AML/CTF Act and that Afterpay is a low risk business in regards to its vulnerability to be used for money laundering or terrorist financing," Afterpay states in a release.

"The Auditor also notes that Afterpay has a strong compliance culture and recommends Afterpay continues to maintain its current level of Board and senior management oversight of AML/CTF compliance as the business grows.

"Afterpay reaffirms that it has not identified any money laundering or terrorism financing activity via our systems to date."

The report concluded the majority of historic non-compliance matters had been addressed, with the remainder covered in its recommendations.

The auditor notes Afterpay's compliance with its AML/CTF obligations was based on legal advice he believes to be incorrect from top tier Australian law firms.

Even though Afterpay has a compliance-focused culture, Jean claims following its initial legal advice resulted in the company's non-compliance with AML/CTF.

"The initial legal advice concluded that Afterpay's business model resulted in the provision of the AML/CTF Designated Service factoring receivables from merchants. I am of the opinion this initial legal advice was incorrect," Jeans says in the report.

"The initial legal advice provided to Afterpay did not reflect Afterpay's business model. Having fully analysed Afterpay's buy-now pay-later business, it is my opinion that Afterpay have never provided the factoring receivables Designated Service.

"The Designated Service being provided by Afterpay is that of loans to consumers (which are designated under the AML/CTF Act) in order to purchase goods from merchants and this activity constitutes the provision of a loan and repayment of a loan."

He says Afterpay's systems and controls are now "appropriate, focused and continue to be adequately resourced as customer numbers and loan volumes increase".

"From the work undertaken as part of the Audit, it is evident that there is a continued commitment by the Board to ensure the business and supporting AML/CTF functions are provided with adequate funding, staff and technical support in order to comply.

"As a result of the increased resource allocation, Afterpay's transaction monitoring system is now effective, efficient and intelligent. Afterpay's work in this space and the results generated contribute to the submission of suspicious matter reports."

Jeans states that even though Afterpay's actual money laundering and terrorism financing risks are low, its increasing transaction volumes do heighten the risk of misuse of its BNPL service.

"As a result, the Board should maintain a focus on AML/CTF compliance and ensure AML/CTF managers continue to be proactively supported and appropriately equipped to deal with these challenges," he says.

In its statement today, Afterpay says it fully accepts and is actioning all recomendations from the independent auditor.

"AUSTRAC will now consider the Report and determine whether it will take further action. The Company will continue to fully cooperate with AUSTRAC both in relation to the Report and our AML/CTF compliance more generally.

"The Company has benefited from the independent audit process which has enhanced the Board and management's knowledge and understanding of Afterpay's AML/CTF compliance generally."

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