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Key features of the anti-money laundering and counter-terrorism financing reforms

15 November 2006

As we previously reported, the anti-money laundering and counter-terrorism financing (AML/CTF) reforms were introduced into the House of Representatives on 1 November 2006. The reforms aim to bring Australia into line with international best practice to deter money laundering and terrorism financing. 

The framework for the reforms consist of principles-based legislation which provides for the development of operational rules by the Australian Transaction Reports and Analysis Centre (AUSTRAC).

The reforms currently consist of: 

The Bill and Consequential Bill implement the first of two tranches of the reforms. The first tranche covers a wide scope of services provided by the financial services sector, gambling service providers and bullion dealers. The second tranche will focus on lawyers, accountants, real estate agents and jewellers. 

Scope of the reforms

The Bill applies to those entities called ‘reporting entities’ who provide ‘designated services’ to customers. The designated services are defined broadly and, in general, are services which carry a risk of exposure to money laundering or terrorism financing. 

More specifically, in relation to financial services, designated services include: 

For the gambling sector, designated services includes:

For bullion dealers, designated services means buying or selling bullion.

Risk-based approach to regulation

Under the reforms, reporting entities must adopt and then comply with an AML/CTF program which is developed in accordance with operational rules. There are two parts to each AML/CTF program, namely Part A and Part B. Part A deals with identifying, mitigating and managing the risk that a reporting entity may reasonably face that a designated service may involve or facilitate money laundering or financing of terrorism. Part B of the program outlines the customer identification procedures for the reporting entity’s customers. A joint AML/CTF program may be used by reporting entities who are members of a ‘designated business group’.

AUSTRAC will assess the reasonableness of the reporting entity’s adopted AML/CTF program and will ensure that the reporting entity complies with it. 

Implemented in stages

The provisions of the Bill will be implemented in stages. Certain parts of the Bill will become effective on the date of royal assent which is expected to be 1 January 2007.  

The phases of implementation are listed below: 

There will be a prosecution-free period of 12 months from the date a section becomes active, provided that the reporting entity has taken reasonable steps towards compliance. Heavy penalties may be imposed on reporting entities for noncompliance, including civil penalties. 

General overview of the obligations imposed on reporting entities

The Bill imposes numerous obligations on reporting entities including requiring reporting entities: 

First phase of implementation

Under the first phase of implementation which is likely to be effective from 1 January 2007, the following provisions will come into operation: 

The 1 January 2007 provisions have more significant implications for designated remittance service providers who, technically, will need to ensure that their names are entered on the Register of Providers of Designated Remittance Services on 1 January 2007 if they wish to continue to provide a registrable designated remittance service after that time. Despite the proposed 12 month prosecution-free period, an unregistered provider will commit a strict liability offence if it continues to provide registrable designated remittance services from 1 January. This could have significant consequences for the provider (for example, the provider may find it is in breach of contractual undertakings it may have given to its financiers or others if it has committed an offence).

The next three phases of obligations—but mainly those obligations which come into effect on 1 January 2008—will be most burdensome from a compliance perspective for other reporting entities. Generally, in particular for most financial institutions, the 1 January 2007 provisions are, broadly, either ‘business as usual’ requirements, in that they are consistent with requirements already in place under other legislation (for example, the Financial Transaction Reports Act), or alternatively, mainly administrative in nature and, as a consequence, should not impose any significant additional operational burden.

The Consequential Bill

The Consequential Bill amends various Commonwealth Acts of parliament to allow the provisions of the Bill to operate effectively including amending the: 

We will provide further updates in relation to the other stages of implementation of the reforms in due course. 

This article was written by Angela Quintarelli, Special Counsel and Conor Seenan, Articled Clerk.

For more information please contact  



Alan Peckham
Name : Alan Peckham
Title : Partner
Office : Melbourne
Phone : +61 3 9288 1539
Fax : +61 3 9288 1567
Email : alan.peckham@freehills.com

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