09 February 2004
Key Points:
If you provide, deal in or handle a financial product, new money laundering laws will affect your business.
The Financial Action Taskforce on Money Laundering (FATF), of which Australia is a founding member, revised the global anti-money laundering standard, known as the Forty Recommendations, in June 2003. Australia will be implementing these revised guidelines. As well as the traditional bodies affected by anti-money laundering laws, the guidelines extend them to casinos, real estate agents, dealers in precious metals and stones, accountants, trust and company service providers, legal professionals and notaries. Additionally, the reporting and record-keeping requirements have been significantly changed. While the revised guidelines require an overhaul of businesses' existing reporting systems which are more geared to cash transactions, and its record-keeping systems, there are still many grey areas for business. As part of the implementation process, there is a consultation period and an Issues Paper identifying practical difficulties with implementation. The Issues Paper looks at four main themes for the industry:
In this article we'll look at some of the main changes proposed by the Government and some queries thrown up by the Issues Paper. From money to financial products AML laws were originally drafted when money laundering involved taking plastic bags of cash into the local bank branch. As consumer banking and financial services have increased in sophistication, so have the means for laundering. The revised guidelines extend reporting obligations "financial institutions"; instead, the Government is looking at imposing the obligation on a person who provides, deals in or handles a 'financial product', which is broadly defined and closely parallels the definition in the Corporations Act. Keeping an eye on the customer… Under the revised guidelines, customer due diligence would not be confined to the start of the business relationship, but will be ongoing. Institutions would also be required to check not only the identity of their customers, but also that of any beneficial owners. Ongoing customer due diligence would require an overhaul of record-keeping systems. Some of the information the Government suggests might be relevant are:
Also proposed are higher levels of scrutiny for "Politically Exposed Persons", who are individuals from a foreign country with prominent public functions, such as Heads of State or of Government, senior politicians and important party officials, senior Government officials, judicial or military officials, and senior executives of state owned corporations. Financial institutions will therefore have to be able to identify PEPs, take reasonable measures to establish the source of their wealth or funds; and monitor them more closely during the business relationship. …and on third parties The revised standards require greater vigilance in business conducted with or through third parties. Non-complying countries: The Issues Paper notes the higher level of scrutiny required, and says that "consideration should be given to the respective roles of financial sector businesses and the anti-money laundering regulator in identifying countries of concern and implementing suitable systems for scrutinising transactions with such countries." : The Issues Paper notes the higher level of scrutiny required, and says that "consideration should be given to the respective roles of financial sector businesses and the anti-money laundering regulator in identifying countries of concern and implementing suitable systems for scrutinising transactions with such countries."Correspondent banking: The revised guidelines say that financial institutions should look more closely at their foreign counterparts, and should not enter into, or continue, correspondent banking relationships with shell banks and should also guard against establishing relations with respondent foreign financial institutions that permit their accounts to be used by shell banks. Financial institutions will not only have to satisfy themselves that they are suitably diligent with their 'customer' bank but also that their customer bank is performing effective due diligence on its own customers. : The revised guidelines say that financial institutions should look more closely at their foreign counterparts, and should not enter into, or continue, correspondent banking relationships with shell banks and should also guard against establishing relations with respondent foreign financial institutions that permit their accounts to be used by shell banks. Financial institutions will not only have to satisfy themselves that they are suitably diligent with their 'customer' bank but also that their customer bank is performing effective due diligence on its own customers.Overseas branches and subsidiaries: Wherever possible, financial institutions should apply the same anti-money laundering principles to domestic operations and to overseas branches and majority owned subsidiaries, especially where those branches or subsidiaries operate in countries that do not or insufficiently apply the guidelines. : Wherever possible, financial institutions should apply the same anti-money laundering principles to domestic operations and to overseas branches and majority owned subsidiaries, especially where those branches or subsidiaries operate in countries that do not or insufficiently apply the guidelines.Intermediaries/third parties: Although financial institutions can use intermediaries and third parties to introduce or process new business, they must Although financial institutions can use intermediaries and third parties to introduce or process new business, they must
Wire / fund transfers These have been identified not only as money laundering risks but also as a means of financing terrorism. Under the guidelines, they must now contain complete ordering customer information, and that this information must be maintained through the signal chain or routing of the instruction through the messaging system. This requirement obviously will increase the compliance burden on originating, intermediary and beneficiary institutions. Risk based industry partnership Instead of using direct centralised regulation, the Government is considering a risk-based industry partnership. This means that industry bodies would develop guidance for members to implement appropriate detection systems and monitor effectiveness, while the anti-money laundering regulator would set principles and guidelines, and approve anti-money laundering programs. As for the risk-based part of the Government proposal, this means, for example, that a business would have to consider the money laundering risk of each customer, or compliance reporting would be more strategically targeted based on the assessment of risk particular to a product or sector. As the revised guidelines increase compliance and due diligence burdens on businesses, this is a sensible concession. What now? The Commonwealth Attorney General's Department has an implementation team, which includes Treasury and AUSTRAC officials. Representatives of selected industry associations will form a Ministerial Advisory Group, which in which they'll discuss implementation options for Australian industry as a whole and for each of the affected industry sectors. Public comment is invited on the Issues Paper, and consultation forums will be held. After this, it's expected that a draft exposure bill will be released in April 2004 for further consultation. | |
