The revised Anti-Money Laundering and Counter-Terrorism Financing Rules (AML/CTF) issued under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Act) were registered on 13 April 2007 (available from the AUSTRAC website) and relate to:
- the definition of a ‘designated business group’;
- correspondent banking;
- customer identification;
- AML/CTF programs; and
- gambling services.
The Rules relate to most of the AML/CTF Act obligations that commence on 12 June 2007 and 12 December 2007. As a result, providers of designated services (reporting entities) can now commence to develop their AML/CTF Programs which must be adopted by 12 December 2007.
Further rules are expected to be released in relation to ongoing customer due diligence (released in draft) and compliance reports to be provided to AUSTRAC.
Designated Business Groups
The definition of a Designated Business Group (DBG) is important as certain reporting entity obligations can be discharged by another member of a DBG. Members of a DBG may enter into a joint AML/CTF program with other members of that DBG and members may rely on a member of the DBG to discharge identification and verification, ongoing due diligence, compliance reporting and record keeping obligations imposed under the Act.
The Rules generally provide that each member of a DBG must be:
- related as defined in s.50 of the Corporations Act and either:
- a reporting entity; or
- a company in a foreign country which if it were resident in Australia would be a reporting entity; or
- providing a designated service pursuant to a joint venture agreement, to which each member of the group is a party.
A DBG is formed when the approved form is provided to AUSTRAC (or such other date nominated in the form) by a Nominated Contact Officer.
AML/CTF Programs and Customer Identification
From 12 December 2007 all reporting entities must have in place an AML/CTF Program. An AML/CTF Program is made up of Part A and Part B.
Part A
The primary purpose of Part A of an AML/CTF program is to identify, manage and mitigate money laundering or terrorism financing (ML/TF) risk a reporting entity may reasonably face in relation to the provision by the reporting entity of designated services at or through a permanent establishment in Australia.
The Rules contemplate a risk based approach and provide that when determining and putting in place appropriate risk-based systems or controls, the reporting entity must have regard to:
- the nature, size and complexity of its business; and
- and the type of ML/TF risk that it might reasonably face.
In identifying its ML/TF risk a reporting entity must consider the risk posed by the following factors:
- its customer types, including any politically exposed persons;
- the types of designated services it provides;
- the methods by which it delivers designated services; and
- the foreign jurisdictions with which it deals.
Part A also requires the inclusion of the following matters:
- risk awareness training for staff;
- employee due diligence program;
- oversight by the board and senior management;
- the appointment of an AML/CTF Officer;
- independent review of the Program; and
- a mechanism to take into account AUSTRAC feed back.
Part B
The primary purpose of Part B is to set out the reporting entity’s applicable customer identification procedures.
Customers must ordinarily be identified before a reporting entity commences to provide a designated service. The identity of pre-commencement customers needs to be verified within 14 days where a suspicious matter reporting obligation arises.
The Rules require a reporting entity to verifycertain information about a customer's identity depending on the type of customer (e.g. individuals – name, date of birth and address). There are detailed provisions in the Rules for each type of customer with minimum threshold information that must be obtained. In addition, reporting entities must determine which further know your client information they will gather based on the level of AML/CTF risk attaching to the designated service.
There are safe harbour provisions that apply where the AML/CTF risk is medium or lower.
A reporting entity must also have in place procedures to deal with discrepancies between information provided by customers and verification sources.
Amendments Bill
The Anti-money Laundering and Counter-Terrorism Financing Amendment Act 2007 received royal assent on 12 April 2007. This Act has a number of technical amendments. The amendments include:
AFSL holders that arrange for another designated service to be provided to their customers
These arrangers:
- can now adopt either a special or joint AML/CTF Program and join a designated business group; and
- will now have obligations to make suspicious matter reports to AUSTRAC.
Offence Provisions
Some of the absolute liability offences have been amended to strict liability offences.
Review
Most of the decisions made by AUSTRAC can now be reviewed by the Administrative Appeals Tribunal.
Enforceable Undertakings
AUSTRAC is given the power to publish enforceable undertakings on the internet.
Prosecution Free Period
The minister has released Policy (Civil Penalty Orders) Principles 2006 which provide that AUSTRAC will only apply for civil penalty orders in the 15 month period after each stage of the Act takes effect, if the AUSTRAC CEO is satisfied that the reporting entity has failed to take reasonable steps to comply. Notably, these principles do not apply to criminal proceedings.
In determining whether a reporting entity has failed to take reasonable steps to comply with a civil penalty provision, the AUSTRAC CEO must have regard to all relevant matters, including:
(a) whether the entity has previously failed to take such steps; and
(b) any steps that the entity has taken to comply with its obligations under the Act; and
(c) whether the entity complied with any obligations it may have had under the Financial Transaction Reports Act 1988; and
(d) any discussions and agreements that the reporting entity has had with staff of AUSTRAC; and
(e) any explanation given by the reporting entity to AUSTRAC.
We understand that there are currently a number of industry initiatives to standardise certain AML compliance obligations, particularly in relation to identification and verification to promote consistency and efficiency in the industry. This is particularly important to product issuers who plan to rely on financial planners to undertake identification and verification on their behalf. It would be administratively cumbersome and inefficient for financial planners to be required to follow different procedures for the same clients investing in different products.
Our previous articles providing an overview of the AML/CTF Act and framework can be found here.
FURTHER ENQUIRIES
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