Client Alert

On Thursday 31 January 2008, the Anti-Money Laundering and Counter-Terrorism Financing Regulation 2008 will take effect under the Anti-Money Laundering and Counter Terrorism Financing Act 2006 (AML/CTF Act).

The Regulations change the AML/CTF Act so that the issue of interests in managed investment schemes (MIS), and options to acquire such interests, will be a designated service under the AML/CTF Act. Issuers of interests in MIS will need to comply with the AML/CTF Act. Relevant obligations include implementation of an AML/CTF compliance program and an identification process for subscribers.

At this stage, it is not clear whether any relief will be given for listed MIS.

MIS issue a designated service

Under the AML/CTF Act, the issue by a company of securities of thecompany is exempt from being a designated service. In December 2007, the Australian Transaction Reports and Analysis Centre (AUSTRAC) published guidance stating that the issue of interests in MIS was not a designated service under the AML/CTF Act, but it was intended that these issues should be regulated.

The Regulation amends the exemption under Item 35(b) of the financial services table in section 6 of the AML/CTF Act so that any issue of interests in an MIS, and related options, will be a designated service. As a result, all issuers of MIS interests (within the meaning of the Corporations Act 2001) are “reporting entities” under the AML/CTF Act.

When does this start?

The Regulation takes effect from 31 January 2008.

A media release from AUSTRAC dated 25 January 2008 suggests that issuers of MIS’ interests have had sufficient lead time to develop compliant systems and procedures as it was always the Government’s intention that to cover the issue of interests in MIS. However, AUSTRAC has said that it will take into account the immediate start date of 31 January 2008 when determining the extent to which a reporting entity has taken reasonable steps to comply with the AML/CTF Act, AML/CTF Rules and regulations. In particular, AUSTRAC has said that it understands that there are lead times for implementation that may mean that entities cannot comply with customer identification immediately.

Reporting entities are referred in this context to the AUSTRAC guidance on the 15 month assisted compliance period covered by the Policy (Civil Penalty Orders) Principles 2006.

Will the AML/CTF Act apply to listed MIS?

At this stage it is not clear whether there will be any relief for interests in MIS that are listed on a recognised Australian market. The Regulation captures the issue of both listed and unlisted MIS.

AUSTRAC released draft AML/CTF Rules in August 2007 which indicated that some relief from obligations under the AML/CTF Act would apply to certain listed securities. It is not clear whether the draft AML/CTF Rules will be amended to provide any exemption for interests in listed MIS.

AUSTRAC released further draft Rules in December 2007. These draft Rules set out “special circumstances” where the issue of a security is a designated service. If the special circumstances Rules are made, the issuer of a security (including an interest in an MIS) will have 5 days after the security is issued to carry out an applicable customer identification procedure.

Public comments have been sought in relation to both these draft AML/CTF Rules, and it is not currently clear when final versions will be made.

EFTI proposal

Reporting entities should also carefully note the draft AML/CTF Rules relating to “electronic funds transfer instructions” (EFTI). Under the AML/CTF Act, as currently in place, banks, building societies, credit unions and authorised deposit taking institutions provide a designated service whenever they send an EFTI, and are subject to requirements about the content of the instructions.

The draft EFTI Rule will significantly expand the scope of the EFTI requirements to include all loans businesses, and all issuers or sellers of securities (including interests in MIS) where the issue or sale is in the course of a business. If made in the proposed form, the EFTI Rule could cause significant changes to the business processes of many financial services providers. Developments should be closely monitored.

Additional assistance

Additional publications on the requirements of the AML/CTF Act are available at the Mallesons website.