How do you report a suspicious matter?

Once a suspicious matter has been identified, it must be reported to AUSTRAC within:

  • 24 hours after forming the relevant suspicion, if the suspicion relates to terrorism financing; or
  • 3 business days after forming the suspicion, in all other cases.

The time of forming the suspicion is not when the employee alerts management of the potentially suspicious behaviour. AUSTRAC accepts that the suspicion may be 'formed' after the AML/CTF compliance officer has investigated the matter, which may include undertaking additional KYC checks.

Ideally, the AML/CTF Program should include details of the escalation process (that is, the process by which suspicions are escalated through the organisation), as well as details of the investigation process, and the steps to be taken once the AML/CTF compliance officer has formed an opinion regarding the reporting of the suspicious matter.

The report must be in the prescribed format, and AUSTRAC may require you to provide additional information about a suspicious matter report even after it has been lodged with AUSTRAC.

What are the penalties for failing to report a suspicious matter?

AUSTRAC can apply to the Federal Court for a penalty to be ordered against a company or a non-corporate entity for failing to lodge a suspicious matter report, or for lodging one late. The maximum penalty payable by a company is $17 million, and for a non-corporate entity is $3.4 million.

(Although not as a result of failing to lodge a suspicious matter report, in February 2015 and in 20 May 2015, AUSTRAC fined Moneygram Payment Systems Inc $122,400 and $336,000 respectively, for providing money remittance services through unregistered remittance businesses. This is just one example of AUSTRAC's increasing willingness to act against entities who do not comply with the AML/CTF Act).

The prohibition on tipping-off

This is really important. The reporting entity must not disclose to any person (other than AUSTRAC) that it has formed a suspicion about a customer or lodged a suspicious matter report. Thus, care must be taken not to alert the customer that the suspicious matter report has been lodged or even that a suspicion has been formed. The entity cannot even disclose specific details about suspicious matter reports to its external independent reviewer.

However, if the reporting entity is part of a designated business group, the members of the group can share suspicious matter reporting information. Also, if the disclosure complies with requirements under another law of the Commonwealth, state or territory, or if it is to an Australian government body responsible for law enforcement, then the tipping-off prohibition does not apply. Further, entities can disclose suspicious matter reports to their legal practitioners for the purpose of obtaining legal advice. We sometimes find that large corporate groups are breaching their obligations by sharing this kind of information with other parts of the group who are not part of a designated business group.

Can you continue to provide services to a customer after a suspicious matter report about them has been lodged with AUSTRAC?

This can be a dilemma for companies. As noted above, the obligation not to tip-off the customer about your suspicions means that even once the report is lodged with AUSTRAC, you should often continue to provide your services to the customer.

However, the forming of a suspicion about a customer, or the lodging of a suspicious matter report, will trigger an obligation for reporting entities to conduct enhanced customer due diligence.

Practically, this means that in order to comply with your Program, and with the requirements of the AML/CTF legislation, appropriate additional KYC checks and procedures must be conducted before you can continue to provide services (which could mean completing the transaction or providing another service). Further, care must be taken to ensure that the enhanced due diligence procedures do not in themselves tip-off the customer that a suspicion has arisen.

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.