After ten years of Australia's Anti-Money Laundering and Counter Terrorism Financing Act 2006, the Government has been presented with a raft of recommendations aimed at making the regime stronger, simpler, and more streamlined.
The Report on the Statutory Review of the Anti-Money Laundering and Counter Terrorism Financing Act 2006 and Associated Rules and Regulations, tabled on Friday, 29 April 2016, is the result of a review of the AML/CTF Act, required by the Act itself, which began in December 2013.
The basic shape of the proposed AML/CTF reforms
The report follows ‒ and addresses ‒ some of the issues raised in the Financial Action Task Force's (FATF) Mutual Evaluation Report into Australia's AML/CTF regime which was released in April 2015.
Broadly, it's advocating making the AML/CTF Act simpler and more principles-based, and the AML/CTF Rules rationalised and more user-friendly. This extends to improving their readability and accessibility, to enhance reporting entities' understanding of their AML/CTF obligations.
The risk-based approach which involves reporting entities' understanding, managing and mitigating their ML/TF risks should be clarified via enhanced AUSTRAC guidance and targeted feedback on compliance outcomes.
Both the AML/CTF Act and Rules should also adopt a technology-neutral approach.
These reforms should be co-designed by industry and Government.
Finally, the Financial Transactions Reports Act should be repealed, and its reporting requirements for travellers cheques, motor vehicle dealers and solicitors brought into the AML/CTF Act as an interim measure while more consideration is given to how these matters ought to be regulated.
New payment methods, new risks
The report recommends that the AML/CTF Act should regulate digital wallets and e-currencies (with the current definition broadened to include convertible digital currencies not backed by a physical thing).
AUSTRAC should closely monitor the ML/TF risks associated with new payment types and systems, particularly:
- traveller's cheques (with the possibility of removal from AML/CTF regulation if they're found to be low ML/TF risk);
- stored value cards, and how appropriate the thresholds in the stored value card designated services are, given the emerging risks of these cards. The Attorney-General's Department, AUSTRAC and the Department of Immigration and Border Protection should investigate the feasibility of establishing cross-border reporting obligations in relation to stored value cards;
- cheque cashing facilities (which are not regulated under the current regime which only covers cheques and chequebook services); and
- designated services provided to an Australian customer by an offshore-based business. An appropriate model should be developed for applying the AML/CTF obligations where such services with a high ML/TF risk are identified.
The next step for these recommendations, if accepted, would be for the Attorney-General's Department and AUSTRAC, in conjunction with the industry, to develop options and conduct a cost-benefit analysis of the options for regulating lawyers, conveyancers, accountants, high-value dealers, real estate agents and trust and company service providers under the AML/CTF Act.
Customer due diligence
The AML/CTF Act should be simplified to explicitly require reporting entities to implement the core customer due diligence obligations and streamline the AML/CTF Rules through plain language and supplementary guidance.
This could include AUSTRAC streamlining safe harbour procedures for verifying medium or low ML/TF risk customers who are individuals, and simplified verification procedures for certain low ML/TF risk companies and trusts, into a simplified customer due diligence procedure for designated services and customers with a minimal or low ML/TF risk.
There could also be some relief for reporting entities to allow them to rely on customer identification procedures performed by a third party. This, unsurprisingly, would be subject to some conditions:
- where the third party agrees to be relied on, the relying business remains ultimately responsible for customer due diligence measures; and
- where the third party is outside of Australia, it must be subject to appropriate regulation and similar customer identification requirements to those in Australia.
On the other hand, the report recommends reporting entities should be explicitly prohibited by the AML/CTF Act from providing a regulated service if the applicable customer identification procedure cannot be carried out; they should also be required to consider making a suspicious matter report in those situations.
Transaction reporting obligations streamlined and simplified
Any simplification or streamlining transaction reporting obligations should include:
- considering extending the funds transfer chain definition to providers of designated remittance arrangements;
- reviewing the value of requiring transaction reports to be submitted by two entities involved in the one transaction; and
- allowing threshold transaction reports and international funds transfer instructions that relate to the same transaction to be submitted as one report.
AUSTRAC is to assess the viability and impacts of changes to the international funds transfer instructions (IFTI) reporting regime to:
- exempt IFTIs below a certain threshold, relating to specific low ML/TF risk designated services;
- expand IFTI reporting requirements to include transactions undertaken using credit/debit cards; and
- increase the scope of information reported to AUSTRAC.
AML/CTF programs: Parts A and B merged and streamlined
Parts A and B of the AML/CTF program should be merged and streamlined, to help reporting entities to develop, implement and maintain a program that follows a risk-based approach.
It is proposed that reporting entities be required to:
- incorporate information provided by AUSTRAC or relevant authorities on high ML/TF risks into their risk assessments;
- clarify the AML/CTF compliance officer's roles and functions;
- guarantee the independence of the reviewer of the AML/CTF programs;
- identify, mitigate and manage the ML/TF risks posed by new technologies;
- apply AML/CTF measures to its foreign branches and subsidiaries that are consistent with requirements under the AML/CTF Act where the AML/CTF measures in the other country are less strict than Australia's requirements; and
- inform AUSTRAC where the foreign country of its branch and subsidiaries does not permit the proper implementation of these AML/CTF measures.
Correspondent banking obligations
In a manner consistent with the FATF standards, the correspondent banking obligations under the AML/CTF Act and Rules should be simplified and streamlined and a one-step process established for conducting due diligence assessments on respondent financial institutions. In addition, the AML/CTF Act should be amended to:
- broaden the definition of correspondent banking;
- require specific due diligence in relation to payable-through accounts; and
- prohibit financial institutions from entering into a corresponding banking relationship with an institute able to enter such relationship with a shell bank.
Registration framework for remitters
A government-industry working group should be established to strengthen regulatory oversight of remitters including existing enforcement power and penalties.
The AUSTRAC CEO's powers should be strengthened:
- to de-register remitters that are not conducting remittance activities (as evidenced by lack of reporting or other relevant activity);
- ban individuals from involvement in the management or business of a remitter based on a demonstrated lack of suitability, fitness or propriety; and
- publish refusals and notices detailing the circumstances of a cancellation of the registration of a remitter.
Cross-border reporting regime
The existing cross-border reporting regime should be replaced with a consolidated requirement to report "cash" (defined as physical currency, bearer negotiable instrument, bullion and an object or instrument specified in the AML/CTF Rules) of AU$10,000 or more. The current definition of a bearer negotiable instrument should be expanded to include gaming chips, tokens, plaques or letters of credit.
Secrecy and access provisions
The Attorney-General's Department and AUSTRAC along with other government agencies should develop a simplified model for sharing information collected under the AML/CTF Act that:
- is responsive to the information needs of agencies tasked with combating ML/TF and other serious crimes;
- supports collaborative approaches in relation to combating ML/TF at a domestic and international level;
- establishes appropriate safeguards and controls that are readily understood and consistently applied; and
- permits reporting entities to disclose suspicious matter report-related information to foreign parent entities.
The AML/CTF Act should be amended to allow for any pecuniary penalty that may apply to a self‑reported breach to be reduced in a way, where appropriate, and be accompanied by AUSTRAC guidance.
This should include expanding:
- AUSTRAC's compliance testing tools in consultation with industry and government stakeholders.
- AUSTRAC's remedial directions power to direct reporting entities to remedy past contraventions of AML/CTF reporting obligations.
- the use of infringement notices for minor regulatory offences established under the AML/CTF Act.
- the powers of existing agencies who can issue notices to a person or reporting entity under the AML/CTF Act to enable them to issue infringement notices or apply for civil penalties if that person or entity fails to comply with such a notice.
- the sanctions for breaches of the AML/CTF Act or Rules beyond reporting entities to include senior managers and directors in appropriate circumstances.
Exemptions process through a more proactive approach
When determining exemptions, there should be specific matters that the AUSTRAC CEO must take into account with the key consideration being the level of ML/TF risk posed.
The application process for seeking exemptions from AML/CTF obligations should be streamlined and supporting guidance on this new process should be provided.
AUSTRAC should amend its Exemption Policy to specify timeframes for determining exemption applications and reviewing the continued appropriateness of exemptions granted.
Other AML/CTF compliance changes
AUSTRAC should develop, in consultation with industry, a new compliance reporting process that is relevant to AUSTRAC's information needs and reduces unnecessary reporting.
Businesses should be required to retain for seven years sufficient records to reconstruct individual transactions.
The Federal Government is currently considering the report's recommendations. Reporting entities should keep an eye out for the Government's response and understand how any legislation amendments could affect them.