- Now that the final parts of the AML Act are in operation, businesses must be sure they comply.
The implementation of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (the AML Act), which applies to financial services, gambling services and the buying and selling of bullion, has been phased in over a period of two years. On 12 December 2008, the remaining provisions dealing with ongoing customer due diligence obligations (found in Part 2, Division 6 of the AML Act) and the suspicious matters and threshold reporting obligations (Part 3, Divisions 1 to 4 and 6), came into operation.
So now may be a good time to review the compliance obligations imposed on reporting entities by the AML Act, and to also look at some of the advice AUSTRAC has given regarding these obligations.
Compliance obligations under the AML Act can be divided into three categories:
- obligations which have commenced, and for which the prosecution-free period has expired;
- obligations which commenced on 12 December 2007, and for which the prosecution-free period expires on 11 March 2009; and
- obligations which commenced on 12 December 2008, and for which the prosecution-free period expires on 11 March 2010.
The obligations falling into this category are set out in the following table:
Obligation/Parts of Act
End of prosecution-free period
13 December 2006
Records of transactions, reports about cross-border movements of currency and negotiable instruments, and various administrative Parts (Parts 1, 4, 5, 6, and 10 [Division 1, 2, 4 and 7], 11 to 18 and Schedule 1 of the AML Act).
12 March 2008
12 June 2007
Reporting obligations of reporting entities: AML/CTF compliance reports (Part 3, Division 5), correspondent banking (Part 8) and records about due diligence assessments of correspondent banking relationships (Part 10, Division 6).
11 September 2008
The first compliance report, covering the period from 13 December 2006 to 31 December 2007, was due to be submitted to AUSTRAC by 31 March 2008.
In July 2008 AUSTRAC said that of the 13,000 reports it had expected to receive, it had received (or expected to receive shortly) 11,000 reports, leaving 2000 reporting entities that had not contacted AUSTRAC.1 The chief executive of AUSTRAC, Mr Neil Jensen, also said that it had received responses from about 800 mainly smaller entities advising that the entity did not need to submit compliance reports. It seems that AUSTRAC believes some of these entities may not appreciate their obligations under the Act, because Mr Jensen indicated attention would be focussed on them.2
Entities which have not contacted AUSTRAC have been sent letters requiring them to either lodge a report or advise AUSTRAC that they are not required to do so.
AUSTRAC's view regarding which entities are required to lodge a compliance report is set out in Public Legal Interpretation 4 - What Constitutes a Reporting Entity?
As businesses issuing or selling interests in managed investment schemes were not subject to the AML Act prior to 31 January 2008, AUSTRAC has indicated that such businesses only have to lodge a compliance report if they also provided other designated services.
So far, no date for the submission of the second compliance report has been advised, but it seems likely this report will be due on 31 March 2009, and will cover the period from 1 January 2008 to 31 December 2008.
From 12 December 2007, Part 2 of the AML Act which deals with the identification of customers (except the ongoing customer due diligence provisions in Division 6 and in Part 10, Division 3) and the provisions requiring a reporting entity to have an AML/CTF program (Part 7 and Part 10, Division 5) came into operation. The prosecution-free period for these obligations ends on 11 March 2009.
These are substantial compliance obligations. A key to meet these (and other) compliance obligations under the Act is the appointment of an appropriate person as AML/CTF compliance officer.
All reporting entities must have a compliance officer, though in a small entity, the compliance officer may also have other duties. AUSTRAC guidance note 08/02 AML/CTF Compliance Officers sets out issues to consider when deciding who should be appointed as compliance officer and a list of suggested duties. The guidance given on these subjects has a familiar ring to it, which is because (as might be expected) it is similar to the guidance given by the Australian Standard on compliance, AS 3806-2006: Compliance Programs.
As mentioned above, on 12 December 2008, the ongoing customer due diligence obligations and the suspicious matters and threshold reporting obligations came into operation.
Ongoing customer due diligence (OCDD) is a new obligation - there is no equivalent requirement under the Financial Transaction Reports Act 1988.
How this obligation is implemented will be important, because it is potentially expensive to administer, and may be perceived by customers as an intrusion into their privacy.
OCDD requires an entity to have a transaction monitoring program and an enhanced customer due diligence program. AUSTRAC's Regulatory Guide sets out the three steps involved in a transaction monitoring program:
- Monitor all customer transactions in accordance with the reporting entity's policies, systems and procedures.
- Identify suspicious transactions.
- Take appropriate action.
Appropriate action may include enhanced customer due diligence. Steps that may be taken under an entity's enhanced customer due diligence program include:
- seeking further information from the customer or other sources regarding the customer's know your client (KYC) information (to clarify, update or obtain any further KYC information);
- verifying or re-verifying the customer's KYC information;
- seeking further information from the customer or other sources to clarify the nature of the customer's ongoing business with the reporting entity;
- undertaking more detailed analysis of the customer's KYC information;
- undertaking more detailed analysis and monitoring of the customer's past and future transactions; and
- lodging a suspicious matter report in accordance with section 41 of the AML Act.
Delayed implementation does not equal reduced compliance responsibilities
It is AUSTRAC's view that if an entity is not fully compliant on the date an obligation comes into operation, it does not mean that the entity has a reduced compliance responsibility. In relation to the reporting requirements which came into operation on 12 December 2008, AUSTRAC's AML/CTF Act Reporting Implementation Policy states:
There is an exception to this principle for reporting entities who are also cash dealers under the Financial Transaction Reports Act. The Financial Transaction Reports Amendment (Transitional Arrangements) Act 2008 allows for reports of significant cash transactions, suspect transactions and international funds transfer instructions to continue to be made under the Financial Transaction Reports Act until the reporting entity becomes compliant with the AML Act requirement, or until 11 March 2010, whichever occurs first.
So although entities are allowed a 15 month non-prosecution period to become fully compliant with a particular obligation, entities must eventually be fully compliant with that obligation from the date it came into operation.
The cost and difficulty usually associated with backcapturing data should provide a continuing incentive for entities to push ahead as quickly as possible with AML/CTF implementation programs.
1 A Midalia, "Take notice, AUSTRAC may come knocking", The Australian Financial Review, 23 July 2008, page 3.
2 M Jacobs, "AUSTRAC finds poor compliance", The Australian Financial Review, 19 June 2008, page 5.
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.