Australian AML/CTF Statutory Review

Australian AML/CTF Statutory Review

The Report on the Statutory Review of the Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) Act 2006 was released on 26th April 2016.

This is widely recognised as a once in a generation opportunity to refine Australia’s AML/CTF regime after a number of years effectively in regulatory limbo.

Through the report AUSTRAC and the Attorney General’s Department are signaling real intent to address well documented issues with the current regime and ensure Australia’s AML/CTF is capable of responding to evolving challenges and opportunities.

The Statutory Review was delayed to address the findings of the 2014 evaluation by the FATF of Australia’s compliance with the international AML/CTF standards. The FATF published its report in April 2015.  The Attorney General’s Department commenced this review in 2013 and undertook consultation with industry between 2014 and 2015.

Overall, the Report acknowledges concerns about the AML/CTF regulatory regime being overly complex, particularly for small to medium businesses, making compliance challenging and costly.

The report made 84 recommendations. The Government will consider the recommendations of the report before announcing its response, which is expected in the next few months.

Whilst broadly concluding that Australia’s AML/CTF regime remains appropriate the report recommends:

  • The AML/CTF Act should be simplified to enable reporting entities to better understand and comply with their AML/CTF obligations.
  • AML/CTF obligations under the AML/CTF Act, Rules and Regulations should be proportionate to the ML/TF risks faced by reporting entities.
  • The scope of the AML/CTF Act should be widened to cover new technologies and payment systems and to adopt a technology neutrality principle and to simplify customer due diligence.
  • The Attorney-General’s Department and AUSTRAC, in consultation with industry, should: (a) develop options for regulating lawyers, conveyancers, accountants, high-value dealers, real estate agents and trust and company service providers under the AML/CTF Act, and (b) conduct a cost-benefit analysis of the regulatory options for regulating lawyers, accountants, high-value dealers, real estate agents and trust and company service providers under the AML/CTF Act.
  • Consider a remit for AUSTRAC to regulate compliance with Targeted Financial Sanctions (TFS).

AUSTRAC has also welcomed the report and recommendations. Paul Jevtovic the CEO of AUSTRAC said:

“The platform of reforms offers us an unparalleled opportunity to position ourselves at the forefront of international efforts to crack down on terrorism financing, financial crime, tax evasion and to help us stop criminals from exploiting weaknesses in the existing framework,”

AUSTRAC’s response to the report highlighted their belief that this presents an opportunity to:

  • Together with business, transform the collective approach to maximising financial intelligence through a genuine partnership framework
  • Bolster AUSTRAC’s compliance and enforcement response
  • Simplify the AML/CTF Act and Rules in areas that have not been effective
  • Provide avenues to expand its ability to provide relief where risks are low
  • Re-assess where risks have changed and, where necessary, address those regulatory gaps
  • Enhance its ability to further safeguard Australia’s economies and revenues
  • Reflect modern global approaches to preventing, detecting and disrupting money laundering and terrorism financing.

The Report and its recommendations are foreshadowing changes that will impact the scope and type of compliance and risk management requirements and expectations on reporting entities and those being brought into the regime:

Simplification of AML/CTF Act and Rules to improve accessibility, understanding and compliance, including consolidating the Financial Transactions Report Act 1988 requirements into the AML/CTF Act.

AUSTRAC to provide greater guidance on how to achieve compliance.

Streamline the AML/CTF Program Part A and Part B requirements for an AML/CTF Program into a single set of requirements for reporting entities that is effective in identifying, mitigating and managing their ML/TF risks.

Introduce serious breach reporting obligations for reporting entities, whereby the entity would be required to notify AUSTRAC of material breaches of the AML/CTF Act and Rules.

Review the validity of the current Section 47 Compliance Reporting and consider the introduction of increased compliance reporting obligations on reporting entities.

Customer Due Diligence (CDD) Requirements should be streamlined and simplified as a priority, using plain language to facilitate ease of use and supplemented by enhanced guidance.

The safe harbour and simplified verification procedures under the AML/CTF Rules should be rationalised into a single simplified customer due diligence procedure.

Expanding the availability of simplified CDD to designated services and customers that have a minimal or low ML/TF risk.

Consider the use of new technologies, as alternatives to the existing ‘know your customer’ requirements.

Expand the ability of reporting entities to rely on customer identification procedures performed by a third party, subject to conditions.

Explicitly allow for the use of self-attestation to identify individual customers using a risk-based approach only as a measure of last resort where a customer’s identity cannot otherwise be reasonably obtained or verified.

Allow reporting entities to accept disclosure certificates certified by an acceptable officer using a risk-based approach.

Require reporting entities to conduct specific enhanced customer due diligence measures (in line with the FATF standards) at the time of pay out where the beneficiary or beneficial owner of a life insurance policy is a politically exposed person and a higher ML/TF risk is identified.

Review the validity of the current International Funds Transfer Instructions (IFTI) Reporting.

AUSTRAC to closely monitor the ML/TF risks associated with new payment types and systems, to ensure gaps do not develop in Australia’s AML/CTF regime.

Amend the AML/CTF Act to:

  • delete the collection and delivery of physical currency as a regulated service and thereby remove Cash in Transit (CIT) from the scope of AML/CTF Act.
  • ensure that digital wallets are comprehensively captured by AML/CTF regulation.
  • expand the definition of e-currency to include convertible digital currencies not backed by a physical ‘thing’. and
  • regulate activities relating to convertible digital currency, particularly activities undertaken by digital currency exchange providers.

AUSTRAC to identify designated services that pose a high ML/TF risk when provided to an Australian customer by an offshore-based business.

AUSTRAC to conduct an assessment of the ML/TF risks posed by:

  • the issuing, selling and cashing/redeeming of traveller’s cheques and whether these services should continue to be regulated under Australia’s AML/CTF regime
  • stored value cards and the continued appropriateness of the thresholds in the stored value card designated services.
  • the services provided by cheque cashing facilities with a view to regulating these services under the AML/CTF Act if they are determined to pose a high ML/TF risk.

Clearly, there is a lot of work that still needs to be undertaken by AUSTRAC and undoubtedly all stakeholders to address the recommendations.

It is vital that all interested parties participate in the consultation process which both the Attorney General’s Department and AUSTRAC have committed to in the report.

This will ensure we grasp the opportunity we are all being presented with to ensure Australia’s AML/CTF regime is world class.

Initialism will actively participate in the consultation process.