Client Alert

On Friday 2 May 2008, the much awaited Anti-Money Laundering and Counter-Terrorism Financing Rule relating to securities dealing was made by the Acting CEO of AUSTRAC (Securities Rule). The Securities Rule contains important exemptions from the Anti-Money Laundering and Counter-Terrorism Financing Act (AML/CTF Act) relating to securities issuing and trading.

The AML/CTF Act

The AML/CTF Act imposes obligations on “reporting entities” that provide certain “designated services” related to financial services, bullion dealing and the gaming sector. Many services relating to the issue and sale of securities are “designated services”, meaning that the provider has obligations under the AML/CTF Act.

On-market transactions

Under the Securities Rule, the issue or sale of securities or derivatives will not be a designated service where the issue or sale occurs on a “prescribed financial market” within the meaning of the Corporations Act.

This means that, where securities or derivatives are traded on one of Australia’s four prescribed financial markets (the Australian Stock Exchange, the Australian Pacific Exchange, the Bendigo Stock Exchange and the Stock Exchange of Newcastle), the seller will not provide a designated service under Item 35. This avoids a requirement for the seller to identify the purchaser.

Transactions through a broker or other agent

The Securities Rule also exempts a sale of securities or derivatives where the sale is done through an agent as part of the agent’s business of disposing of securities or derivatives as agent for another person. For example, an off-market sale through a stockbroker would be exempt under the Securities Rule, so far as the seller is concerned.

In this situation, the agent will be a reporting entity under Item 33 of the financial services table in section 6. The agent will have an obligation (among other things) to carry out an identification procedure on its principal, the seller.

Issue of interests in managed investment schemes (MIS)

On 31 January, the issue of interests in MIS became a designated service, as described in our earlier Alert.

Initial public offerings and rights issues

The issue of interests in an MIS will now be exempt where:

• the interest is, or is to be, listed on a prescribed financial market, and
• the issue is in accordance with fundraising requirements of the Corporations Act 2001 (for example, relating to an initial public offering and a rights issue).

Dividend or distribution plan

The issue of an interest in an MIS will also be exempt where:

• the interest is listed on a prescribed financial market, and
• the interest is in accordance with Corporations Act requirements relating to a dividend or distribution plan (also known as a dividend reinvestment plan).

What’s next?

AUSTRAC continues to discuss with industry groups whether additional exemptions under the AML/CTF Act should be made. It is possible that future rules may clarify the treatment of secondary market dealing in debt securities and foreign listed securities.

Reporting entities should assess the impact of the new Rules on their business, and consider whether there are other exemptions that should be discussed with AUSTRAC.

Issuers of MIS interests should consider whether the exemption will apply to their future proposed issuing activity.

Additional information

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