Overview

Introduction

Successfully navigating the new anti-money laundering legislative and regulatory regime, while still having regard to an organisation’s commercial goals, as well as keeping the practicalities of compliance in mind, requires experience and skill. Freehills’ cross-disciplinary anti-money laundering team brings together the range of legal disciplines organisations require to meet their anti-money laundering and counter-terrorism financing obligations, as well as expertise in compliance structures and programs to support organisations in their compliance efforts.

New reforms

New widespread reforms to Australia’s anti-money laundering and counter-terrorism financing (AML/CTF) laws, commenced on 12 December 2006. Because of the breadth of the reforms, the new laws are being implemented in stages. A second tranche of reforms is expected to commence in 2009, however the new laws comprising Tranche 2 have only been released in draft from.

Under the new laws, organisations are required to identify, monitor and mitigate the risk that provision of services by the organisation might involve or facilitate money laundering or the financing of terrorism. In order to achieve this, the new laws impose various obligations on organisations, including:

• undertaking significant customer due diligence
• developing, maintaining and complying with an AML/CTF Program
• reporting certain matters to AUSTRAC
• creating and retaining records.

Our expertise

Our legal team can provide assistance to organisations in developing customer due diligence processes, policies and procedures. Drawing on legal, practical and operational experience, both as external advisers and in-house counsel, as well as domestic and overseas experience with clients, we can also assist organisations in developing compliance frameworks to meet their legislative and regulatory obligations.

Other ways in which our cross-functional team of banking and finance and corporate securities lawyers and litigators can assist you are as follows:

• Based on considerable experience advising cash dealers on the anti-money laundering regime contained in the Financial Transaction Reports Act, we can provide advice on the requirements of the new legislation, including guidance on the extent to which existing contracts will need to be amended to deal with anti-money laundering obligations.
• Draft new standard form contracts, and provide ongoing advice for new commercial transactions, to ensure your organisation complies with its anti-money laundering disclosure obligations.
• Dealing with regulators, and managing regulatory issues, including, where necessary, complex regulatory litigation.
• Dealing with other disputes which may arise out of compliance with the anti-money laundering regime, including discrimination disputes, as well as building and advising on appropriate complaints resolution processes.

More information

If you would like more information on the new laws, please see our summary of the obligations under the new laws.

To access other Freehills publications on this topic please click here

You can also visit the AUSTRAC Website which contains the new legislation as well as guidance material.

Summary of the new laws

The new laws apply to ‘reporting entities’. A reporting entity is any person who provides a ‘designated service’. There are numerous designated services, which fall into three categories – financial services, gambling services and bullion dealing.

Currently, the designated financial services include services such as: 

• opening an account
• effecting a transaction in relation to an account
• making a loan in the course of carrying on a loans business
• supplying goods to a person under a hire-purchase agreement
• issuing a bill of exchange, promissory note or a letter of credit
• issuing a debit card or a stored value card
• issuing or selling a security or derivative in the course of carrying on a business of issuing or selling securities or derivatives
• sending and receiving electronic funds transfer instructions, and
• exchanging one currency for another.

For the gambling sector, designated services includes: 

• receiving or accepting a bet
• placing or making a bet on behalf of another person
• paying out winnings in respect of a bet
• allowing a person to play a game on an electronic gaming machine, and
• exchanging money for gaming chips or tokens.

For the bullion sector, designated services means buying and selling bullion.

Further reforms, which are expected to commence in 2009, propose expanding the list of designated services to capture certain services provided by:

• real estate agents
• dealers in precious metals and stones
• legal professionals, notaries and accountants, and
• trust and company service providers.

The Australian Transaction Reports and Analysis Centre (AUSTRAC) is responsible for enforcement of and monitoring compliance with the new laws, as well as providing guidance to and developing operational rules for industry.

Stages of reform

The new laws will be implemented in stages. The staged implementation process was adopted to give industry the necessary time to have processes in place to adjust to and to comply with the new reforms.

The phases of implementation are listed below: 

• 13 December 2006 – obligations with respect to certain transaction records and various administrative Parts commence
• 12 June 2007 – compliance reporting, correspondent banking and certain record-keeping requirements commence
• 12 December 2007 – identification and verification procedures, AML/CTF Programs and other record-keeping requirements commence
• 12 December 2008 – other ongoing identification procedures and reporting obligations commence
• 2009 – expected commencement date for Tranche 2 of the reforms.

In addition to the staged implementation process, there is a 15 month ‘grace period’ which may apply in respect of an organisation’s non-compliance with their obligations under the new AML/CTF laws if the organisation can demonstrate they have taken reasonable steps to comply. In circumstances where this applies, AUSTRAC will not take certain action against an organisation for non-compliance during the 15 month period after the obligation commences.

Overview of obligations imposed on reporting entities

The new AML/CTF laws impose various obligations on reporting entities when they provide designated services. These include: 

• The identification and verification of customers – reporting entities will need to identify customers usually before the provision of the designated service to the customer. There are minimum requirements regarding the collection of information from customers to confirm their identity (called ‘Know Your Customer’ information) which differ depending on the type of customer (eg, individual, company, trustee, partnership etc). Each reporting entity will need to have a procedure to verify certain information it has collected from customers. 
• Building, maintaining and complying with an AML/CTF Program – this program must be designed to identify, mitigate and manage the money laundering and terrorism financing risk faced by the reporting entity in providing the relevant designated services. It must also outline the reporting entity’s customer identification and verification procedures for those customers to whom it is providing a designated service. Reporting entities which form part of the same corporate group can elect to join a designated business group which can then have a joint AML/CTF Program. This is essentially the same as a standard AML/CTF Program except that the joint AML/CTF Program can make different provision for the different members of the designated business group.
• Ongoing customer due diligence – this will often involve setting up transaction monitoring processes with a view to identifying complex, unusually large transactions or unusual patterns of behaviour, which have no apparent economic or visible lawful purpose. 
• Keeping certain records for 7 years – this includes retaining a record of the AML/CTF Program and records of the identification procedures adopted by the reporting entity including the information obtained in the course of carrying out the customer identification procedure. 
• Making reports to AUSTRAC – this includes reports of suspicious transactions and reports regarding compliance with obligations under AML/CTF laws. 
• Appointing an AML/CTF compliance officer – this must be someone at management level of the reporting entity who will essentially be the point of contact between the reporting entity and AUSTRAC.

Consequences of non-compliance

There are a range of consequences which may apply where an organisation fails to comply with their obligations under the new AML/CTF laws, including the imposition of significant monetary penalties.

AUSTRAC has a broad range of powers to facilitate investigation of compliance with and enforcement of the new regime.

Background to the reforms

Australia is a founding member of the Financial Action Taskforce on Money Laundering (FATF) – an international body which develops and promotes international policies to combat money laundering and terrorism financing. FATF revised the global anti-money laundering standard in June 2003. This standard is known as the Forty Recommendations. Together with the Nine Special Recommendations on Terrorist Financing, the FATF documents form the framework for the Australian anti-money laundering regime.

The AML/CTF reforms are Australia’s response to the 49 recommendations dealing with money laundering and terrorism financing risks released by FATF. The federal government has engaged in a process of consultation with the industries likely to be impacted by the new laws. It is intended that the new laws meet the international standards set by FATF.

For more information on FATF and to access the recommendations click here.