Anti-Money Laundering and Counter-Terrorism Financing: Draft Bill Released

On Friday 16 December 2005, the Attorney-General’s Department released the much anticipated draft exposure Anti-Money Laundering and Counter-Terrorism Financing Bill. The bill paves the way for a new risk-based approach to anti-money laundering and counter-terrorism measures which will bring Australia into line with requirements already introduced in other jurisdictions.

The bill itself contains the principles behind the draft legislation, however, the specific requirements will be contained in the Anti-Money Laundering / Counter-Terrorist Financing (AML/CTF) Rules and Regulations. These AML/ CTF Rules will be developed by the Australian Transaction Reports and Analysis Centre (AUSTRAC) in consultation with industry participants and will be legally binding.

The new measures cover a much broader audience than the previous regime under the Financial Transaction Reports Act (FTRA)..

Activities covered by the draft legislation are called "designated services". There are 64 "designated services" defined in the bill. These services cover a range of financial services, bullion dealing services and gambling. They include traditional banking services such as transactions over bank accounts and deposits, as well as other financial services such as dealing or advising in securities, derivatives and foreign exchange, lending activities and supplying goods under a finance lease or hire purchase arrangement.

Persons such as lawyers, accountants and real estate agents will only be caught by the proposed legislation if they are providing a specified financial or gambling service or dealing in bullion. However, once the initial reforms have been introduced the Federal Government may consider a second tranche of reforms covering services provided by these other sectors.

"Reporting entities" replace the concept of "cash dealer" and "Bullion dealer" in the FTRA. "Reporting entities" have the following key obligations under the draft legislation:

• verifying the identity of new customers;

• monitoring customers and their transactions;

• reporting specified transactions and suspicious matters; and

• implementing and maintaining AML/CTF Programs.

The AML/CTF Rules will specify the applicable customer identification requirements. "Reporting entities" will be also be permitted to engage third parties to identify customers on their behalf (although the "reporting entity" will be responsible for ensuring that the third party has adequate procedures for customer identification in place).

Organisations will be required to rank customers according to the level of risk associated with that customer. "Reporting entities" will need to identify high risk customers, high risk services, high risk service delivery methods, high jurisdictional risks, high risks faced by overseas breaches and subsidiaries and "politically exposed persons".

Where customers and services are low risk there will be scope for reduced identification requirements. In addition, in certain situations "reporting entities" will be permitted to identify new customers within five days of the services being provided for the first time (instead of requiring identification prior to the initial transaction). "Reporting entities" will not be required to re-identify" existing customers.

However, there will be increased disclosure requirements for "reporting entities" involved in providing international and domestic funds transfers on behalf of customers.

"Reporting entities" must undertake continuous monitoring of customers and their transactions. In addition, "reporting entities" are required to monitor and report the following to AUSTRAC:

• suspicious transactions;

• transactions involving cash or "e-currency’ over A$10,000 or the foreign equivalent (this amount may be varied by regulation); and

• international funds transfers for amounts over the amount prescribed by the regulations.

It will be an offence to "tip off" a customer or disclose to any person the fact that a report has been provided to AUSTRAC to any person.

Under the draft bill, all "reporting entities" will be required to establish and maintain an Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) Program. The AML/CTF Program must include appropriate risk-based systems and controls designed to effectively identify and materially mitigate the risk that a "designated service" will facilitate a transaction that is connected with a money laundering offence or the financing of a terrorism offence.

The AML/CTF Rules will specify the minimum requirements for:

• risk identification and mitigation;

• customer due diligence including enhanced customer due diligence for high risk customers and transactions;

• AML/CTF risk awareness training programs;

• employee and third party due diligence; and

• compliance programs and record keeping.

Oversight of the AML/CTF Program will rest with the Board and periodic, independent reviews of the AML/CTF Program will also be required.

The draft legislation provides both civil penalties and criminal offences. Pecuniary penalties may apply in respect to a breach of the civil penalty provisions. Criminal penalties may include imprisonment. The Federal Court will have power to grant injunctive relief for breaches of the law and customs officers and police will have search, seizure and arrest powers in the case of cross border movements of physical currency or negotiable instruments.

All organisations providing financial services should consider the impact of the new legislation, particularly those organisations who have not previously been regulated by the FTRA. The Attorney-General’s Department has provided all affected parties to make submissions on the proposed bill and draft AML/CTF Rules. Industry participants have until 13 April 2006 to provide these submissions.
By Vicki Grey.

This publication is provided to clients and correspondents for their information on a complimentary basis. It represents a brief summary of the law applicable as at the date of publication and should not be relied on as a definitive or complete statement of the relevant laws.