In this blog series, we examine the important obligations of companies and businesses bound by the AML/CTF Act when lodging suspicious matter reports with AUSTRAC.

A client of ours was recently the subject of an AUSTRAC desk audit. The client was showing AUSTRAC how accounts were opened, including a list of new accounts. One new account was in the name of "Joe Bloggs". When questioned by AUSTRAC, our client advised that the account was merely "a competitor testing our on-boarding process". AUSTRAC then asked our client "did you lodge a suspicious matter report? You should have." Read on to find out why...

AUSTRAC has a multi-faceted role as an overseer of compliance, as well as a financial intelligence unit. AUSTRAC analyses reports to uncover patterns of criminal activity including money laundering or terrorism financing (ML/TF), and people smuggling. The resulting financial intelligence is disseminated to partner agencies for use in criminal investigations and other operations. AUSTRAC also analyses transaction reports to identify risk indicators for use in its compliance functions.

What is a suspicious matter?

According to section 41 of the AML/CTF Act, a suspicious matter report should be lodged with AUSTRAC if an entity bound by the AML/CTF Act (reporting entity) forms a suspicion on reasonable grounds that:

  • a person (or their agent) is not who they claim to be (this should include Joe Bloggs);
  • the reporting entity has received information from a person that may be:
    • relevant to investigate or prosecute that person for:
      • evasion or attempted evasion of a tax law; or
      • an offence against a Commonwealth, state or territory law; or
    • of assistance in enforcing:
      • the Proceeds of Crime Act 2002; or
      • a state or territory law that corresponds to that Act or its regulations;
  • providing a designated service to that person may be:
    • preparatory to committing an ML/TF offence; or
    • relevant to the investigation or prosecution of a person for an ML/TF offence.

The obligation to report a suspicious matter arises when a reporting entity commences or even proposes to provide a service to a person. This means that the obligation to report suspicious matters include situations where the person is not yet your client, or has simply lodged an application with your company, or provided your company with information, and you have not yet performed any services or processed any transactions.

Reporting a suspicious matter does not mean that you need to know or be able to prove the exact nature of any possible or potential criminal offence, nor do you need to show that particular funds or property have been acquired via criminal or unlawful means. You are not required to step into the shoes of law enforcement or the Australian Federal Police.

Rather, the suspicion must simply be based on reasonable grounds, that is, based on all of the circumstances and information available, that a reasonable person must have a real suspicion of the relevant matters, and the suspicion must be based on matters or evidence that support the truth of the suspicion.

How do you identify a suspicious matter?

The AML/CTF Act and Rules require reporting entities to have in place an AML/CTF Program which sets out the entity's risk-based systems and controls to identify, assess and control the risk of its business being used to facilitate ML and TF. These systems and controls should enable the entity to identify and investigate suspicious activity and behaviour, and also to ensure that this behaviour is reported to AUSTRAC.

The AML/CTF Program should include indicators which are relevant and applicable for the entity's business, which would or could alert the business that a suspicious matter has arisen.

Examples of triggers or indicators include:

  • using aliases, or becoming aware that false ID has been used;
  • comments by the customer about tax evasion or other illegal activity;
  • unusual business dealings in circumstances that are difficult to explain;
  • customers who are resident in high risk or secrecy jurisdictions; or
  • complex customer structures which have no commercial basis.

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.