Alert

On 16 December 2005, the Minister for Justice and Customs released an exposure draft of the Anti-Money Laundering and Counter-Terrorism Financing Bill (AML/CTF Bill). As expected, the proposed legislative regime will involve legislation, backed up by mandatory rules that will be prepared by AUSTRAC. Three draft sample sets of rules have been released for comment with the Bill, together with industry-specific “frequently asked questions”.

No timeframe is indicated for implementation of the new anti-money laundering laws. The closing date for making submissions on the proposed legislation is Thursday 13 April 2006.

Proposed anti-money laundering legislative regime

The exposure draft AML/CTF Bill contains many of the expected features. Closer inspection may reveal potential areas of concern for particular industries and for your organisation.

The new anti-money laundering (AML)/counter terrorist financing (CTF) regime will replace the current anti-money laundering regime (found in the Financial Transaction Reports Act 1988).

The new legislative regime will be made up of:

• an Act containing high level principles
• Regulations containing technical issues
• legally enforceable Rules, and
• non-binding guidelines.

Key implementation issues:

Coverage

The regime will cover all entities participating in “designated services”. The definitions “regulate the activity, not the person” - so, for example, legal practitioners will be caught by the regime while they provide designated services. As expected, “designated services” covers a far broader group of products than is currently regulated, including:

• deposit products
• loan accounts
• receivables factoring
• finance leasing and hire-purchase
• funds transfer instructions
• securities, derivatives and foreign exchange contracts (including interests in managed investment schemes)
• life insurance, and
• superannuation fund and RSA operations.

Gambling services and dealings in bullion are also regulated.

Customer identification

• Organisations will have to identify all new customers, either immediately or (in limited circumstances) within five days.
• Pre-existing customers will only need to be re-identified if certain “risk triggers” are present - the Rules will set out circumstances that require re-verification.
• Certain designated low risk services will be allowed to use a modified identification process.
• Third party verification will be acceptable subject to certain qualifications.
• Special identification requirements have been made for non-natural customers such as companies, trusts, partnerships, and government bodies.

Suspicious transaction reporting

• The Rules set out 24 separate matters to be taken into account when determining if reasonable grounds exist to form a suspicion about a transaction - in which case, a suspicious report must be made.
• The new laws will require reports to the regulator concerning suspicions that transactions are related to money laundering or terrorism financing. Reports are also required in relation to suspicions concerning tax evasion or offences against Commonwealth laws.
• Details required in suspicious transaction reports are also outlined.
• The present obligations to report international monetary transfers and cash transactions over a threshold of $10,000 (whether or not suspicious) will continue to apply under the new laws -“E currency” transactions would also be caught by this threshold reporting.

AML/CTF programs

• Organisations will be required to develop, implement and maintain an adequate AML/CTF program to mitigate the risk that their designated services might involve money laundering or the financing of terrorism.
• AML/CTF programs must contain a framework for identifying risks and include policies, procedures and controls for customer identification. These must be appropriate and risk based.
• The Rules will specify minimum requirements for an AML/CTF program.
• Provisions must be made for employee screening and ongoing employee training.
• The AML/CTF program must contain an internal audit function.

Penalties

• The new legislative framework contains provisions for both civil and criminal sanctions.
• Some offences will have a two tier system; the offending conduct will determine whether civil or criminal sanctions will apply (criminal sanctions will apply where there is a serious failure to comply with obligations).
• For example, breach of customer identification procedures may result in criminal penalties of up to two years’ imprisonment or civil penalties of 120 penalty units ($13,200).

What do you need to do next?

• Assess the impact of the new AML/CTF Bill on your organisation, and then make submissions to industry bodies and government. The deadline for submissions on both the Bill and the Rules is 13 April 2006. You can email submissions to: aml.reform@ag.gov.au (to comment on the Bill) or to aml_ctf_rules@austrac.gov.au (to comment on the Rules).
• Your AML/CTF compliance preparations should now move into the next phase. Consider performing a gap analysis between your proposed AML/CTF compliance program and the requirements of the AML/CTF Bill.
• Undertake the measures necessary to align your AML/CTF compliance program with the detail of the draft Rules and Regulations.

Additional information is available on the Attorney-General’s Department website