On 14 February 2007, the Australian Transaction Reports and Analysis Centre (AUSTRAC) released a second consolidated draft of the Anti-Money Laundering (AML) and Counter-Terrorism Financing (CTF) Rules (Rules). It is anticipated that AUSTRAC will finalise and register those Rules by April, during which time it will consult with, and receive submissions from, industry on further refinements. Other draft Rules relating to ongoing due diligence and compliance reports to AUSTRAC are yet to be released.
Coinciding with the further release of draft Rules, the Government introduced a technical amendments Bill to amend the Act on 15 February 2007. The Bill addresses some of the technical issues raised by two Senate Inquiries late last year. The Bill does not address significant policy issues.
This News Alert sets out some of the key changes in the new consolidated draft Rules and the technical amendments Bill.
Reduced electronic verification requirements for individual client safe harbour
In relation to low and medium risk clients that are individuals, reporting entities need only verify either the customer's address, date of birth or transaction history (and not all of those matters) if relying on the electronic verification safe harbour. For example, it is now sufficient to verify only an individual customer's date of birth using reliable and independent electronic data from one data source.
There is still no indication whether reporting entities can combine the documentary and electronic safe harbours.
Verification safe harbours for clients that are companies and trustees (simplified verification procedure)
The Rules now provide a non-risk based verification safe harbour for clients that are either:
- listed companies (and their subsidiaries) or licensed companies that are subject to Australian regulatory oversight or
- trustees of a trust that is:
- a registered managed investment scheme (or unregistered scheme that deals only with wholesale clients and does not make small scale offerings)
- licensed and subject to Australian regulatory oversight
- a government superannuation fund.
The simplified procedures serve as a type of checklist, which if followed deems the verification requirements to have been complied with. This means that the reporting entity need not make a further assessment of any other verification information which may be required in addition to the prescribed minimum in order to comply.
New requirements if relying on ID procedure carried out by another reporting entity
The Rules now impose additional obligations and limit the circumstances under which reporting entities can rely on an ID procedure performed by another reporting entity. The restrictions and requirements apply in the following circumstances:
- ID procedures performed by Item 54 arrangers – It appears that an item 54 arranger will need to separately identify the same client for each reporting entity. If this is the intended result and given that intermediaries are likely to act on behalf of a number of reporting entities in relation to the same client, this condition would seem to create unnecessary duplication.
- ID procedures performed by a member of a Designated Business Group – A reporting entity can only rely on an ID procedure performed by another member of a designated business group if the ID procedure was performed when the reporting entity was a member of the designated business group. This means that if the ID procedure was performed before the reporting entity joined the designated business group, other members of the group cannot rely on the ID procedure.
In addition to those requirements, a reporting entity that relies on another ID procedure must also obtain a copy of the record of that procedure and assess whether it is appropriate to rely on the procedure have regard to the money laundering (ML) and terrorism financing (TF) risk faced in the provision of the designated service. Product issuers and other secondary reporting entities will therefore need to second guess planner groups and others. This will increase the compliance burden and mean that intermediaries will be accountable not only to AUSTRAC but also multiple secondary providers.
Re-verification requirements which previously only applied in relation to suspicions about client ID, have now been extended to any suspicion formed about pre-commencement customers and prescribed low-risk service customers (none are prescribed). This means that the reporting entity need not re-verify post-commencement customers (that have undergone an identification procedure), even where a suspicious matter reporting obligation arises (presumably enhanced customer due diligence may apply).
Enhanced customer due diligence
The requirement to have in place an enhanced customer due diligence program where ML/TF risk is high or where a suspicion has been reported has been removed. However, it is possible that enhanced customer due diligence will form part of the ongoing due diligence Rules, which have yet to be released.
At this stage, there is no requirement for the customer identification component (Part B) of the AML/CTF program to be independently reviewed. However, a note in the Rules indicates that such a requirement is being considered.
Technical amendments Bill
The Anti-money Laundering and Counter-Terrorism Financing Amendment Bill 2007 (Cth) proposes the following key amendments to the Act:
- Joint or special AML/CTF program for item 54 arrangers : the prohibition against item 54 arrangers from adopting a joint-AML/CTF program has been removed. This means that item 54 arrangers can choose to adopt either a special or joint AML/CTF program and join a designated business group where a joint-AML/CTF program is adopted. It is not clear whether item 54 arrangers who adopt a joint program will need to comply with both Part A and Part B.
- Suspicious reporting obligation for item 54 arrangers : item 54 arrangers will now have obligations to make suspicious matter reports to AUSTRAC.
- Amendment of offence provisions: some absolute liability offences have now been changed to strict liability offences (which means that the defence of mistake of fact is available) and some offences relating to electronic funds transfer instructions have been removed.
- Review Role for the AAT : the Administrative Appeals Tribunal will have power to review a decision by AUSTRAC that requires the reporting entity to undergo an external audit or take remedial action.
- Designated services amendments : clarification that an 'account provider' for the purposes of the issue of debit cards must be a bank (or the like). Also, issuing a debit card to additional card holders will now constitute a designated service.
- Publication of enforceable undertaking : AUSTRAC will have a specific power to publish enforceable undertakings on the Internet which means that AUSTRAC will be able to adopt the name and shame approach which has proved so popular with regulators in recent times and produced a very cautious and low risk regulatory audience.
What else is new?
Consultation draft Designated Business Group Rules
AUSTRAC has previously released draft Rules for public comment on designated business groups. The draft Rules limit persons that may join a designated business group to related entities (including joint-venturers) that are reporting entities (or would be reporting entities in the case of foreign companies that provide designated services in another country).
Prosecution-free period (ministerial policy principles)
The Minister has issued AUSTRAC with policy principles that provide for a 15 month prosecution free period from any civil penalties under the Act, if a reporting entity has taken reasonable steps to comply with the Act. In deciding whether or not a reporting entity has taken reasonable steps, AUSTRAC must consider:
- whether the entity has previously failed to take such steps
- any steps that the entity has taken to comply with its obligations under the Act
- whether the entity complied with any obligations it may have had under the Financial Transaction Reports Act 1988 (Cth)
- any discussions and agreements that the reporting entity has had with staff of AUSTRAC
- any explanation given by the reporting entity to AUSTRAC.
AUSTRAC has finalised and made Rules relating to Movements of bearer negotiable instruments, registration by providers of designated remittance services and movements and receipts of physical currency into or out of Australia.
We will continue to provide updates as new Rules are released and other developments occur.
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.