Australia should use the expertise of industry bodies in setting guidelines for risk assessment policies and procedures required by any forthcoming draft anti-money laundering (AML) legislation.

This is one of the conclusions that Ros Grady, a partner in Mallesons Stephen Jaques, and her partner, Andrea Beatty, have drawn from their study of overseas AML laws and practices, which included recent visits to New York, Washington, Toronto, and London.

The Australian government is currently giving consideration to draft AML legislation. The legislation is expected to have a broad impact on the financial services sector as well as legal, property and gaming sectors and dealers in precious metals and stones. Tough new ‘Know your customer’ provisions are expected and this will affect a wide range of business systems with, potentially, the impact being as great as the provisions within the recent Financial Services Reform legislation.

“Australia can benefit enormously from the experience of other countries with their AML laws,” said Ros Grady. “We can develop a best practice model by avoiding over-regulation and concentrating on laws that are practical and workable and will therefore produce effective results without imposing excessive costs on industry and commerce.”

Ros Grady said that the AML risk-based guidelines developed by the UK’s Joint Anti-Money Laundering Steering Committee, representing numerous industry bodies, could be a useful precedent for Australia. However, she said she did not believe industry bodies should have any role in monitoring or enforcing such guidelines.

Overseas experience underlined the importance of a risk-based approach, rather than one based on prescriptive rules, for obligations such as ‘Know your customer’ and reporting suspicious transactions. Another lesson learnt from overseas is the need to ensure organisations are granted a safe harbour from criminal and civil liability for reports made under the new legislation.

There is also a need to clarify the way the new legislation will affect existing laws relating to matters such as terrorist financing, privacy, proceeds of crime, and discrimination. In addition, it must be acknowledged that there are huge difficulties in identifying beneficial ownership of accounts and products (with pragmatic rules needed for these issues), and similar difficulties in identifying a customer’s customer (with minimum requirements desirable in this context - for example, where the customer’s customer has already been identified by another organisation).

Ros Grady said all these issues should be the subject of debate at the 21 July 2005 AML forum of the financial services industry, which was recently announced by the Australian Federal Minister for Justice and Customs, Senator Chris Ellison.

“Australia should give effect to its international AML obligations through a pragmatic approach that is not overly prescriptive, does not place unnecessary and costly burdens on industry and commerce and has an adequate lead time,” she said.

“It is critical that there be an adequate lead time for any new legislation to come into effect. There must be time to consult with industry and for organisations to acquire and introduce new computer systems, develop new processes and procedures, train staff and implement their new AML compliance programs.”