AML/CTF Bill Presented To Parliament

The long-awaited Anti-Money Laundering/Counter Terrorist Financing Bill (AML/CTF Bill) was introduced into Federal Parliament on Thursday, 2 November 2006. This followed an extensive consultation period between the Government and industry.

The legislation is expected to be passed this year with staged commencement (see below).

Any entity which provides a designated service is a reporting entity and is obliged to comply with provisions of the AML/CTF Bill. These obligations include requirements to "know your customer" through customer due diligence, monitoring of transactions and reporting of threshold and suspicious transactions, maintenance of records of designated services, identification procedures and on-going customer due diligence and the implementation of an AML/CTF Program.

The most important designated services for the mortgage industry are:

• "making a loan where the loan is made in the course of carrying on a loans business" – item 6 of table 1; and
• "in the capacity of lender for a loan, allowing the borrower to conduct a transaction in relation to a loan where the loan was made in the course of carrying on a loans business" – item 7 of table 1.

The new AML/CTF Bill makes it clear that businesses making one-off loans will no longer be required to comply with the legislation (as was the case with previous drafts).

Item 54 of table 1 defines a new designated service of "arranging by Australian Financial Service Licensees (AFS Licensees) for a person to receive a designated service". The Explanatory Memorandum suggests that this item is designed for financial advisors who provide "personal advice" to clients in respect of the acquisition or disposal of a financial product but would not otherwise be caught by the AML/CTF Bill because the financial adviser does not actually acquire or dispose of the financial product.

Reporting entities will now be permitted to appoint an agent to conduct customer due diligence on their behalf. Earlier drafts of the AML/CTF Bill restricted the delegation of this responsibility to "agents", "sub-agents" and "sub-sub agents". These restrictions have now been removed. Reporting entities will also be permitted to appoint another reporting entity to conduct customer due diligence on their behalf. Any bias against intermediarisation in the mortgage industry has therefore been removed.

Reporting entities will be required to undertake on-going monitoring of customers with a view to identifying, mitigating and managing the risk that the designated services provided to the client are used in the financing of terrorism or involve money laundering activities.

Reporting entities are obliged to:

• report suspicious matters to AUSTRAC within three business days (unless the suspicion relates to the financing of terrorism in which case the reporting entity must provide the report to AUSTRAC within 24 hours);
• report threshold transactions (transactions over A$10,000) to AUSTRAC within ten business days;
• report details of international funds transfer instructions within ten business days; and
• provide periodic compliance reports to AUSTRAC.

A reporting entity must develop a "standard", "joint" or "special" AML/CTF Program.

A standard AML/CTF Program is a program which applies to a particular reporting entity. A joint AML/CTF Program is a program is a program which applies to reporting entities within a designated business group. The definition of designated business group has been expanded from earlier drafts of the AML/CTF Bill so that such groups are no longer required to be related corporations.

A special AML/CTF Program is a program adopted where the only designated service provided by the reporting entity is the designated service contained in item 54 of table 1 (the "arranging for a person to receive a designated service by an AFS Licensee). This AML/CTF Program is a reduced program and only needs to set out the applicable customer identification procedures for that reporting entity.

Although the above changes to the AML/CTF Bill are welcome. Full details of how the legislation will work is to be set out in the AML/CTF Rules. The revised draft Rules are yet to be released.

Industry had hoped for a two- to three-year transition period for adoption of the new legislation. Instead, the AML/CTF Bill foreshadows a four-phased introduction of the AML/CTF Bill over the next two years. This phase-in regime will include:

• the adoption of some provisions the day after royal assent (on a date yet to be specified but probably sometime in 2007);
• a six month transition period for AML/CTF compliance reports;
• a 12 month transition period for customer identification procedures, the development of AML/CTF Programs and record keeping in respect to these obligations; and
• a two-year transition period for the development of procedures such as on-going customer due diligence, reporting on threshold and suspicious matters and compliance with on-going customer due diligence.

gadens lawyers can provide regulatory and compliance advice to assist you in understanding how your business may be affected by the new legislation.

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