Australia: Reporting Obligations, Disclosure Certificates And Corporate Treasury

There have been some significant developments for the Australian anti-money laundering regime in September:

• the Government introduced the Financial Transactions Reports (Transitional Arrangements) Bill 2008 (Transition Bill) to Parliament relating to transitional arrangements for the reporting requirements due to commence on 12 December 2008

• AUSTRAC also released guidance on complying with these obligations in the form of its Reporting Implementation Policy and Public Legal Interpretation No. 6 which deals with suspicious matter reporting

• AUSTRAC published draft rules relating to disclosure certificates and corporate treasury activities.

Transitional legislation

The Transition Bill proposes transitional arrangements for entities that are cash dealers under the Financial Transactions Reports Act 1988 (FTR Act) and reporting entities under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act).

The Transition Bill covers the transition from:

• reporting significant cash transactions under the FTR Act to reporting threshold transactions under the AML/CTF Act

• reporting suspect transactions under the FTR Act to reporting suspicious matters under the AML/CTF Act

• reporting international fund transaction instructions (IFTIs) under the FTR Act to reporting them under the AML/CTF Act.

If the Transition Bill is passed, cash dealers who are also reporting entities under the AML/CTF Act will be able to continue to report significant cash transactions, suspect transactions and IFTIs under the FTR Act until they comply with their reporting obligations under the AML/CTF Act or until the 11 March 2010.

Guidance on reporting obligations

The Reporting Implementation Policy and PLI No. 6 are intended to assist reporting entities to implement policies and procedures that address their reporting obligations that start on 12 December 2008.

Significantly, the Reporting Implementation Policy states that reporting entities must begin making threshold transaction, IFTI and suspicious matter reports from 12 December 2008, regardless of the application of the 'assisted compliance period' provided by the Policy (Civil Penalty Orders) Principles 2006.

AUSTRAC recognises not all reporting entities will be compliant with their reporting obligations by 12 December 2008, and states reporting entities will be able to rely on the 'assisted compliance period' where they demonstrate they are taking reasonable steps to reach compliance. However, the Policy does not provide guidance in what amounts to 'reasonable steps'.

Reporting entities who are not compliant with their threshold transaction or IFTI reporting obligations from 12 December 2008 will be expected to retrospectively report all relevant transactions that occurred from 12 December 2008. This does not apply to suspicious matter reporting.

Based on the Transition Bill, it appears that compliance with the suspect transaction reporting obligations under the FTR Act amounts to 'reasonable steps' to reach compliance. It remains unclear what will amount to 'reasonable steps' for reporting entities that are not cash dealers.

Public Legal Interpretation No. 6 (PLI No. 6)

PLI No. 6 provides practical guidance for reporting entities in the process of implementing policies and procedures to address their suspicious matter reporting obligations. PLI No. 6 explains the differences between the suspect transaction reporting requirements contained in the Financial Transactions Reports Act 1988 (FTR Act) and the suspicious matter reporting requirements contained in the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) (AML/CTF Act). For example, the PLI states that AUSTRAC considers the suspicious matter reporting obligations are more comprehensive as they require reporting entities to lodge reports where they have doubts as to the identity of a customer.

Investigating suspicions

In addition, PLI No. 6 provides an interpretation of what amounts to a 'reasonable suspicion'. Importantly, PLI No. 6 confirms the suspicious matter reporting provisions in the AML/CTF Act allow for a reporting entity to investigate a suspicious matter before forming a reportable suspicion. This interpretation is based on the fact that a reporting entity must make a suspicious matter report where it forms a 'reasonable suspicion' in relation to the matters specified in section 41 of the AML/CTF Act. A 'reasonable suspicion' must be based on the facts and information available to the reporting entity. The AML/CTF Act contemplates that in some circumstances a reporting entity will not have formed a reasonable suspicion that a matter specified in section 41 of the AML/CTF Act has arisen, unless it has conducted an investigation into the customer's behaviour or information.

When implementing policies and procedures to address their reporting obligations, reporting entities should develop procedures for investigating potential suspicious matters, including contacting the customer or third parties to obtain information which may be required if a suspicious matter report is lodged.

Agents

PLI No. 6 provides guidance in relation to the use of agents and the obligation to report suspicious matters. PLI No. 6 states that if an agent of a reporting entity is involved in providing a designated service and forms a suspicion in relation to the customer, the knowledge of the agent is not imputed to the principal. This is because the principal must form the requisite assessment of whether the suspicion is 'reasonable' and therefore reportable.

AUSTRAC concludes that agents of reporting entities have a fiduciary duty to communicate all material facts regarding potential suspicious matters to the principal. It recommends the reporting entity put in place appropriate AML/CTF Programs to address the obligations of the agent, particularly in relation to suspicious matter reporting. In addition, reporting entities should ensure their agents are contractually bound to report suspicions to their principals. The PLI therefore suggests that agents are not able to make suspicious matter reports on behalf of reporting entities as it is up to the reporting entity itself to form the relevant suspicion.

Reporting entities who intend to use agents to discharge their suspicious matter reporting obligations will need to consider those arrangements carefully and may need to review and update their AML/CTF Programs and outsourcing agreements to ensure they are consistent with PLI No. 6. Reporting entities may also need to consult with AUSTRAC regarding their arrangements with agents where they deviate from the PLI.

New draft rules

Disclosure certificates

AUSTRAC has re-released a draft rule relating to disclosure certificates for further consultation. Under the draft rule, reporting entities may only use disclosure certificates:

• to verify the information specified in the draft rule (see below)

• if the customer has not already provided the information

• where the reporting entity has considered the risk-based systems and controls in place under its AML/CTF program and concluded the information is not otherwise reasonably available. (All of these requirements must be met)

Disclosure certificates cannot be used to verify all information about a customer. For example, a disclosure certificate can only be used to verify the names and addresses of beneficial owners of a domestic proprietary company. It cannot be used to verify the registered name and address of the company or its ACN.

Corporate treasury

AUSTRAC released a draft rule exempting corporate treasury activities from the operation of the AML/CTF Act. The draft states the AML/CTF Act does not apply to a designated financial service that is provided by domestic or foreign companies resident in Australia to a related company.

However, the exemption only applies if:

• the companies are related as a result of both ownership and control (unlike under the Corporations Act where either element is sufficient to establish that companies are related), and

• unless the related company is resident in Australia, the 'reporting entity':

This is an exemption we and other industry participants have been seeking since the Bill was first released. It is therefore a welcome development. The risk assessment and mitigation requirements for overseas related companies do however seem to impose some unnecessary burdens on corporate groups.

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.