On 16 December 2005, the exposure draft of the long anticipated Anti-Money Laundering (AML) and Counter-Terrorism Financing (CTF) Bill (Bill) was released for public comment.
The Bill applies to 'reporting entities'. A reporting entity includes a trustee of a superannuation fund which provides the following ‘designated services’:
- accepting a contribution, rollover or transfer in respect of a new or existing member of the fund, and
- cashing, rolling over or transferring an interest held by a member of the fund.
How will the Bill affect the superannuation industry?
The superannuation industry is awaiting clarification of the extent to which the various players in the industry will need to comply with the requirements of the Bill.
ASFA and IFSA have both made submissions in relation to the Bill calling for exemptions to apply to superannuation funds, other than SMSFs, due to the ‘low risk’ aspects of superannuation, resulting from:
- the preservation requirements
- the limitations on the persons to whom benefits can be paid
- members generally having little day-to-day control over the operation of their superannuation or the investments made on their behalf, and
- the link to employment.
Senator Ellison has publicly stated that concessions will be made under the Bill for superannuation products because of the lower risk nature of superannuation. However, ASFA, in its ASFA Action Issue No 277, has indicated its understanding that superannuation funds will not be completely excluded from the regime. It is anticipated that superannuation fund trustees will need to comply with many of the requirements under the Bill.
Summary of the Bill in its current form
The Bill imposes the following obligations on reporting entities:
- know your customer and others
- report suspicious matters
- keep records, and
- develop an AML/CTF compliance program (including training and independent audit).
Know your customer
The general rule under the Bill is that a reporting entity is to carry out a verification procedure before providing a designated service to a customer; that is, the member of a superannuation fund. However, there are limited exceptions to this rule which cover:
- identification after the provision of the designated service
- certain customers with whom the reporting entity has a 'continuous relationship'
- modified identification procedures for certain categories of 'low risk' customers.
There will also be identification procedures for agents with authority to act on behalf of customers.
Reporting entities will also have ongoing obligations to carry out risk-based customer due diligence, which will include risk classification and transaction monitoring of customers. Risk classifications are assigned at the outset of the business relationship by the reporting entity, and then reviewed at 'appropriate intervals'—for example, if there has been a material change in the customer’s circumstances (of which the reporting entity is aware) or there has been a material change in the nature of the business relationship with the reporting entity or in the customer’s transaction behaviour.
… and others
As a reporting entity, the Bill is currently drafted so as to require a superannuation trustee to implement an employee due diligence program, which includes screening of prospective employees who may be in a position to facilitate the commission of a money laundering or terrorism financing offence.
A superannuation trustee will also need to carry out due diligence on a third party whenever the trustee proposes to enter into an arrangement with that third party for the provision of any services which have a connection with a designated service.
Due diligence assessments will also need to be carried out in respect of correspondent banking relationships, taking into account certain factors listed in the Bill. Such an assessment will need to be conducted 'regularly'.
Under the Bill, a reporting entity has an obligation to report to AUSTRAC if it has reasonable grounds to suspect that the information that the reporting entity has in its possession may be relevant to the investigation or prosecution of an offence against the law of the Commonwealth or a territory (including taxation and financing of terrorism offences).
The draft rules for suspicious matter reporting set out the factors to be taken into account in determining whether there are reasonable grounds for forming a suspicion. These include factors such as the size, complexity, structure or pattern of any transaction, whether any element of disguise is involved in the customer’s dealings with the reporting entity and the customer’s demeanour or behaviour.
Further, under the Bill, a report must be made on the provision of a designated service that involves a ‘threshold transaction’, which involves a physical transfer of currency where the total amount transferred is $10,000 or more.
The Bill contains certain rules in relation to the keeping of records, including records of customer information, customer generated transaction documents, records of identification procedures and of due diligence assessments.
A superannuation trustee as a reporting entity will also need to develop, maintain and comply with an AML/CTF program which:
- is designed to identify and materially mitigate the risk that the provision by the reporting entity of designated services might involve or facilitate an AML or CTF offence
- monitors the provision of designated services
- includes a system directed towards ensuring the reporting entity’s compliance with the AML/CTF legislation
- complies with other requirements of the AML/CTF regulations, and
- takes such action as specified in the AML/CTF Rules in relation to the provision of designated services to politically exposed persons.
The draft AML/CTF program regulations also address matters including:
- 'appropriate' AML/CTF risk awareness training programs
- 'appropriate' record keeping
- board oversight—all components of a reporting entity’s AML/CTF program must be approved by its governing board and senior management. The board and senior management must also have ongoing oversight of all components of the AML/CTF program, and
- independent review—a reporting entity must ensure that its AML/CTF program, including each of its components, is subject to regular independent review.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.