WATER licences could be used by international organisation to launder money under the nation's current foreign investment laws.
Unlike other commodities, large foreign purchases of water are not referred to the Foreign Investment Review Board (FIRB).
Murray Darling Basin interim inspector general Mick Keetly believes water has been "overlooked" in the nation's foreign investment rules and will raise the issue with the Department of the Treasury this week.
"I understand the need for foreign investment, but I don't think anybody considered the value of water could be same as other commodities, like gold, when the rules were made," Mr Keetly said.
"It currently doesn't meet the threshold of reporting to the FIRB and perhaps it should."
As it stands now, foreign entities purchasing water must self-report it to the Australian Tax Office (ATO), who place them on a register that is not public.
However, the ATO says it's had "limited opportunities" for compliance activity since the register was established and to date no penalties have been issued.
"Nobody checks to see if it's an individual enterprise or a state-owned entity investing in the water," Mr Keelty said.
"There's no compliance or background checks on these people. In affect, we have no idea about the details for some of these water holders."
Mr Keetly, a former Australian Federal Police commissioner, said the current rules left the door open to criminal activity.
"The other things it lends itself to is money laundering," he said.
"Because we're not checking the credentials of these people, because of its value and its unregulated trade, it could be very simply and easily be a backdoor to money laundering."
Mr Keelty said irrigators and farmers expected foreign companies to have a "level of transparency that matches their own".
"I don't think self reporting is the correct way to do it, it needs tighter governance, and the ATO needs to do some sort of compliance checks," he said.
National Farmers Federation chief executive Tony Maher said water policy was often divisive and complex.
"For us, transparency is one tool we can use alleviate concerns in the community," he said.
Mr Maher pointed out foreign investment had an important place in the nation's agriculture sector.
"Agriculture benefits from foreign investment, but it's got to be balanced with accountability, transparency, reporting and compliance," he said.
The story Foreign investment laws leave water open to money laundering first appeared on Farm Online.