Australia orders audit of credit provider Afterpay on money-laundering concerns

SYDNEY (Reuters) - Australia’s financial crime watchdog ordered an audit of buy-now-pay-later company Afterpay Touch Group, citing suspected non-compliance with anti-money-laundering and counter-terrorism financing laws, hammering shares across the sector.

The government agency AUSTRAC has told the company to hire an external auditor at its own expense and report back in 60 days, adding it hopes this will remind new financial service players to take their money-tracking obligations seriously.

“This action is taken where AUSTRAC has reasonable grounds to suspect non-compliance,” an AUSTRAC spokesman told Reuters.

“This action has followed a period of ongoing engagement with Afterpay where AUSTRAC has identified concerns,” he said in an email on Thursday, without giving any more details.

The move puts an element of doubt into a sector that has become a favorite of stock analysts due to its global expansion and the ability to benefit from the growth in online shopping.

Buy-now-pay-later (BNPL) players like Afterpay let shoppers purchase products without paying upfront, and without the regulatory hurdle of applying for a credit card or loan. They typically make money by receiving fees from vendors.

Afterpay shares have soared to nearly 30 times their A$1 issue price just two years since listing - despite never posting a net profit - amid an ambitious plan to grow in the United States, fuelling a spike in shares of rival BNPL companies.

But the stock fell 13% after the audit order, the biggest drop since October, in a flat broader Australian market.

Afterpay said it had “proactively engaged” with AUSTRAC for months about its compliance with anti-money-laundering and counter-terrorism financing laws and had offered to hire an external auditor before the agency formally requested it.

The company has measures in place to comply with the law, including strict spending limits, it added.

BNPL “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 in a transparent and cooperative manner”, it said in a statement.


Australian media had raised concerns about the BNPL model in 2018, with reports that shoppers had made purchases without needing to give their names.

BNPL represented about a sixth of the A$23 billion Australians spent shopping online in 2018, analyst reports show.

The AUSTRAC audit “puts a negative overhang on the business in Australia”, said Jason Teh, chief investment officer at Vertium Asset Management.

Shares of other BNPL providers slipped on the Afterpay news, with newly listed Splitit Ltd down 6%, Zip Co Ltd down 5% and FlexiGroup Ltd down 3%.

Zip told Reuters it was not in any dialogue with AUSTRAC about compliance, and that it did credit and identification checks on every applicant. A Flexigroup spokesman confirmed the company was not in any dialogue with AUSTRAC.

Splitit was not available for comment.

Reporting by Byron Kaye and Wayne Cole; Editing by Stephen Coates and Himani Sarkar