On 7 December 2006, the Parliament passed the Anti Money Laundering and Counter Terrorism Financing Act 2006 (Cth) (Act). The new Act is the culmination of two public exposure drafts and two Senate Inquiries. The result is a new regime for regulating financial service providers, the gambling industry and bullion dealers that is intended to prevent money laundering (ML) and terrorism financing (TF).

The Act changes the way that financial service providers interact with clients. It requires reporting entities to identify and verify clients, which means they are likely to need to collect more personal information about clients. The Act also imposes monitoring, reporting and compliance obligations on regulated entities, which will require significant changes to systems and process and training of staff.

Significant unresolved issues

The Parliament passed the Act without change since the last draft of the Bill was released in November. Nor has the Government taken on a number of key recommendations by the Senate Inquiry in its report and issues raised in submissions. These include:

  • Delaying commencement: Although the Government will not delay commencement by 3 months as recommended by the Senate, it will extend the 'prosecution free' period by a further three months (ie from 12 to 15 months) for all obligations in the Act

  • Rules: AUSTRAC's rule making powers will not be restricted to technical matters

  • Civil penalty provisions: risk-based obligations could still lead to prosecution with a lower burden of proof and high penalty amounts.

What next?

The Government intends to release a policy principles paper which will explain its policy direction in relation to the Act and AUSTRAC's regulatory directives during the 24 month transition period and beyond.

The Government also intends to introduce a technical amendments Bill in the first quarter of 2007 to rectify any technical errors already identified by the Senate Committee, including:

  • Stored value cards: clarifying that gift cards will constitute a stored value card and not a debit card

  • Funds management: dealing with the problems associated with the capture of selling securities

  • Community banks: ensuring community bank branches are included in the definition of 'owner-managed branch' in clause 12.

The Government has indicated that this amendment Bill is only intended to deal with technical issues and not significant policy issues that have previously been raised.

However, the Government has accepted the Senate Inquiry's recommendation to include further threshold value limits, to exclude low risk, low value services (eg traveller's cheques and foreign currency transactions). These amendments will be implemented by regulations or by Rules made by AUSTRAC.

Rules

We understand that the Government will release Rules in accordance with the following timetable:

Rule relating to:

Timing

Day 1 obligations (1 January 2007)

Customer transaction records and electronic fund transfer records (Part 10, Divs 1, 2, 4 and 7)

Cross-border currency (etc) movement reports (Part 4)

Electronic fund transfer instructions (Part 5)

Registration requirements for designated remittance services providers (Part 6)

Counter measures for non-compliant countries (Part 9)

Secrecy and access, offences, audit, enforcement, information gathering powers, administration, vicarious liability and miscellaneous provisions (Parts 11 to 18)

End of 2006

Definition of designated business group (1 January 2007)

January 2007

6 month (1 July 2007) obligations

AML/CTF compliance reports (Part 3, Div 5)

Correspondent banking requirements (Part 8 & Part 10, Div 6)

12 month (1 Jan 2008) obligations

Identification procedures (except ongoing customer due diligence) (Part 2 & Part 10, Div 3)

AML/CTF program requirements (including record-keeping requirements) (Part 7 & Part 10, Div 5)

March 2007

24 month obligations (1 Jan 2009)

Ongoing customer due diligence requirements (Part 2, Div 6)

Suspicious matter reporting, threshold transaction reporting and International funds transfer instruction requirements (Part 3, Divs 1 to 4 and 6)

July 2007

Seeking relief

It appears that reporting entities will need to consider making relief applications to AUSTRAC to deal with any significant problems with compliance, given that the Government has made it clear that it is only willing to consider technical amendments in its proposed amending Bill.

Day 1 obligations

While reporting entities will already keep most customer records, they will need to verify that all such records are retained. This obligation also applies where a reporting entity 'commences' to provide a designated service which may mean records relating to prospective customers also need to be retained, which will be a bigger challenger. While a prosecution free period is proposed, it will only do so if 'best endeavours' are made to comply.

We will continue to update clients as new Rules and Government policy papers are released.

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.