Anti-Money Laundering and Counter-Terrorism Financing - What you should know

Money laundering constitutes the act of processing criminal profits/ or illegitimate funds to disguise their illegal origin. Article 3.1. of the UN Vienna Convention 1988 defined it thus:

the conversion or transfer of property, knowing that such property is derived from any offense(s), for the purpose of concealing or disguising the illicit origin of the property or of assisting any person who is involved in such offense(s) to evade the legal consequences of his actions.1

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About 2-5% of global GDP or US$800 billion - US$2 trillion is estimated to be laundered annually.2 Terrorism financing involves the use of legitimate or illegitimate funds to support the activities of terrorists.

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In line with the global drive towards addressing these crimes, commonwealth of Australia enacted the Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) Act 2006; Anti-Money Laundering and Counter-Terrorism Financing Rules Instrument 2007 (No. 1); and Anti-Money laundering and Counter-Terrorism Financing (Prescribed Foreign Countries) Regulations 2018. These legislations essentially seek to regulate financial transactions in a manner that helps to identify, mitigate, and manage money laundering and terrorism financing risks. The Australian Transaction Reports and Analysis Centre (AUSTRAC) is the government agency responsible for administering the Act, instrument and regulations.

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The AML/CTF Act applies to the following businesses.3

Financial institutions e.g., banks, building society and credit union
Digital currency exchange providers
Financial planners
Foreign currency exchange providers
Investment services providers
Life insurance companies
Remittance service providers
Superannuation fund managers or providers
Bullion dealers
Betting agencies or bookmakers
Casinos
Pubs, clubs and hotels
Trading bullion

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There are some exemptions which apply in limited circumstances. By way of example, a custodial or depositary service provided in the ordinary course of carrying on a law practice is exempted from the AML/CTF Act.4 However, solicitors must report all cash transactions of AU$10,000 or its foreign currency equivalent to AUSTRAC. This reporting obligation is not required for electronic funds transfers.

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If your business falls under any of the categories listed above and if your services have a geographical link to Australia, then you have obligations under the Act. Your business is deemed to have a geographical link to Australia if:

it provides a designated service at or through a permanent establishment that is located in Australia; or
it is resident in Australia and the designated service is provided at or through its permanent establishment that is located in a foreign country; or
it is resident in Australia and the designated service is provided at or through its permanent establishment that is located in a foreign country; or

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These obligations include:

A. Enrolment. You must enrol with AUSTRAC by making an application in writing to the AUSTRAC CEO within 28 after commencing the designated service and providing the prescribed enrolment details.5 The relevant information will vary depending on the type of service your business renders.

B. Develop an AML/CTF Program.6 You are required to have an AML/CTF program in place before the commencement of your business. Furthermore, you are required to update your AML/CTF through regular independent reviews. Depending on the level of risks and the size of your business, you are expected to undergo the independent review every 2-3 years This is a document that essentially explains how you identify, mitigate, and manage the risks of your products or services being misused for money laundering or terrorism financing. Your business must have this program in place prior to providing the designated services.

C. Reporting of certain transactions and suspicious matters. Basically, there are four types of transactions you may be required to report to AUSTRAC.

Threshold transaction reports (TTR) for transfers of physical currency or digital currency (cryptocurrency) of A$10,000 or more (or the foreign currency equivalent).7
International funds transfer instruction reports (IFTIs) for instructions to send or receive money overseas. IFTIs must be reported for transfers of any value sent electronically or by a remittance service provider.8
Cross-border movement reports about carrying, mailing or shipping physical currency valued at A$10,000 or more to or from Australia.9
Suspicious matter reports (SMR) for any transaction or interaction that makes you suspicious that someone is acting illegally.10

D. Submission of Compliance reports. You are required to submit compliance between 1 January and 31 March of each year, which cover activities for the previous calendar year.11 The compliance report has to be in the approved form and contained such information as is required in the approved form.12 The report must be signed or authenticated and given to the AUSTRAC CEO in a manner set out in section 28A of the Acts Interpretation Act 1901 or in such form and manner as otherwise approved.13 Failure to provide an AML/CTF may amount to a civil penalty.14

E. Record-keeping. You are required to keep and secure an up-to-date record on how you are meeting your AML/CTF obligations.15 This record includes transactions, electronic fund transfers, customer identification procedures, and your AML/CTF program. Breach of this provision may result in a civil penalty.16

F. Informing AUSTRAC of changes in enrolment details. You must inform AUSTRAC within 14 days of changes to the details provided during enrolment/registration.17 This includes changes to the service you provide, the structure of business or organisation (including occurrence of mergers), contact details, names and contact details of key personnel and your annual earnings. For remittance service providers and digital currency exchange providers, you are required to provide additional information to AUSTRAC. These include a declaration that a police check has been obtained for your new key staff, notification of AUSTRAC if key personnel have been charged, prosecuted or found guilty of an offence, such as money laundering, terrorism financing, fraud

G. Ongoing customer due diligence. You must identify and verify the identity of your customers and ensure an ongoing monitoring of transactions.18

H. Ongoing training. You must provide and conduct regular AML/CTF Risk awareness training program for employees of all your regulated entities.19 AUSTRAC expects you conduct this training at least once a year.

I. Compliance Officer. You must designate a staff not below the level of management as the AML/CTF compliance officer.20 The management staff should be someone who can make a binding decision and enforce compliance on behalf of the company.

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Please note that any transaction involving you and a party that is a resident of Iraq and North Korea is generally limited or prohibited.21

The severity of non-compliance with the provisions of the AML/CTF and its regulations is underscored by the fine imposed on Commonwealth Bank (CBA) in 2018 for the sum of AU$700 million for breaching anti-money laundering and counter terrorism financing.22 Amongst other things, the CBA admitted to the late filling of over 50,000 reports of transactions of AU$10,000 more.23

If your business fall under the category discussed, then compliance with the AML/CTF Act and its associated regulations is important to avoid liability and the associated penalties. Depending on the type of breach, it may amount to civil penalty for up to 10,000 penalty units and/or imprisonment for up to 10 years.

Please get in touch if you have any queries or if you have been contacted by AUSTRAC and need guidance or assistance with any of the matters raised in this article.

Solomons Legal provides AUSTRAC licencing and compliance services, including the development of AML/CTF programs, AML/CTF trainings for employees and conduct of independent reviews.

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DISCLAIMER

This article does not create a Client/Attorney relationship neither is it a legal advice. The information contained in this article is for information purposes only. Readers are advised to seek from qualified Legal Practitioners, legal counselling to any questions or concerns arising from their specific factual situation. You can reach Solomons Legal at info@solomonslegal.com.au or +61 7 3117 9433 and our team will be happy to assist you with meeting your obligations under these laws.

1 United Nations Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances (signed 20 December 1988; entered into force on 11 November 1990)

2 United Nations Office on Drugs and Crime <https://www.unodc.org/unodc/en/money-laundering/overview.html>

3 Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act), ss 5 and 6.

4 AML/CTF Act, s 5 and Anti-Money Laundering and Counter-Terrorism Financing Rules Instrument 2007(No. 1) (AML/CTF Instrument 20070, ch 40.

5 AML/CTF Act, ss 51B (1) b and 51E.

6 AML/CTF Act, s 81

7 AML/CTF Act, s 43.

8 AML/CTF Act, s 45.

9 AML/CTF Act, ss 53-55.

10 AML/CTF Act, s 41.

11 AML/CTF Act, s 47 (2); AML/CTF Rules Instrument 2007 (No.1), reg. 11.2

12 AML/CTF Act, s 47(3).

13 AML/CTF Act, s 244.

14 AML/CTF Act, s 47(4).

15 AML/CTF Act, s 106.

16 AML/CTF Act, s 106 (4).

17 AML/CTF Act, s 51G (10 & (2).

18 AML/CTF Act, s 36.

19 AML/CTF Rules Instrument 2007(No. 1), Ch.8, part 8.2

20 AML/CTF Rules Instrument 2007(No. 1), Ch.8, part 8.5

21 Anti-Money laundering and Counter-Terrorism Financing (Prescribed Foreign Countries) Regulations 2018

22 Matthew Doran and Michael Janda, 'Commonwealth Bank to pay $700m fine for anti-money laundering, terror financing laws breaches', ABC NEWS (online at 4 June 2018) <https://www.abc.net.au/news/2018-06-04/commonwealth-bank-pay-$700-million-fine-money-laundering-breach/9831064>

23 Matthew Doran and Michael Janda, 'Commonwealth Bank to pay $700m fine for anti-money laundering, terror financing laws breaches', ABC NEWS (online at 4 June 2018) <https://www.abc.net.au/news/2018-06-04/commonwealth-bank-pay-$700-million-fine-money-laundering-breach/9831064>.