Changes to AML/CTF laws and impact on reporting obligations

Effective 17 June 2021, amendments to the Anti-Money Laundering & Counter-Terrorism Financing Act 2006 (Cth) (AML/CTF Act) came into effect.

These reforms are an outcome of the statutory review of the AML/CTF Act in 2016 by the Attorney General’s Department, as well as criticisms of the AML/CTF Act by the Financial Action Task Force (FATF). Additionally, AUSTRAC has proposed changes to the AML/CTF Rules, which amend Chapters 10, 24 and 34, repeal Chapters 25 and 26, and add Chapter 81.

This blog outlines the key changes to the AML/CTF Act, impacts on transactions and information sharing, and amendments proposed by AUSTRAC.

What were the key changes to the Act?

Broadly speaking, the amendments covered customer identification procedures, correspondent banking relationships, tipping-off offences, access to information and cross border movement of money. Whilst most of the changes are already in effect, the changes to cross border movement of money will commence on 18 June 2022.

A key focus of the amendments was the creation of ‘third party reliance’; safe harbour provisions under the AML/CTF Act to enable one reporting entity to rely on the customer due diligence of another.

Under Division 7 of the AML/CTF Act, a reporting entity is ultimately responsible for the actions of anyone else who conducts customer due diligence on its behalf. Practically, the Act deems that ‘anyone else’ to be the agent of the reporting entity.

Prior to these amendments, customers entering a transaction with multiple reporting entities may have needed to undertake customer due diligence with each entity involved in the transaction. The amendments have expanded the circumstances under which a reporting entity may rely on third parties’ customer due diligence, reducing this need. Reporting entities are still required to satisfy the record-keeping requirements under Part 10 of the Act.

It is important to understand that the new ‘safe harbour’ provisions don’t entirely mitigate a reporting entity’s compliance burden. Firstly, the safe harbour provision is only available if the third party in question is:

Another reporting entity regulated under the AML/CTF Act;
An entity is a ‘suitable foreign entity’, meaning the party is located in a foreign country that is subject to equivalent customer due diligence and record-keeping obligations as those under the AML/Act in Australia.

There are two scenarios where third-party reliance is available, each offering different degrees of protection:

Where there is an arrangement or agreement
On a case-by-case basis

Scenario 1: Where there is an arrangement or agreement

A written agreement between a reporting entity and a relevant third party will provide the reporting entity the best protection. Safe harbour protection will be available as long as:

The reporting entity carries out regular assessments of the arrangements, and
The reporting entity has reasonable grounds to believe the third party is satisfying the customer due diligence requirements under the AML/CTF Rules at the time of the arrangements.

Reporting entities will need to ensure written agreements are carefully drafted and should include clear outlines of each party’s responsibilities under the arrangement, provisions to enable the reporting to obtain all required know-your-customer (KYC) information relating to identifying any customers in question and obtain verification details readily.

Scenario 2: On a case-by-case basis

More limited protection may be available to a reporting entity where a third party has undertaken customer due diligence procedures prescribed under the AML/CTF Rules on a case-by-case basis, and a reporting entity has reasonable grounds to believe it is appropriate to rely on those procedures having regard to the risks of financial terrorism and money laundering it faces.

Under these circumstances, reporting entities are required to make written records of:

The third party’s status as a reporting entity, or suitable foreign entity,
The third party having obtained all appropriate KYC information and that this is available to the reporting entity, and
The reporting entity’s consideration of the risk factors set out in s7.3.3 of the Act to support its conclusion that it has ‘reasonable grounds’.

Reporting requirements

Under the amendments, there is now a requirement to report:

Cross-border movements worth AU$10,000 or more; and
Receipt of AU$10,000 or more from overseas.

Breaches of these reporting requirements now attract higher penalties.

Correspondent banking relationships increased restrictions

The amendments have tightened restrictions on correspondent banking relationships, as these are deemed especially susceptible to money laundering and terrorism risks. Correspondent banking relationships (CBRs) are cross-border arrangements between financial institutions which enable one institution to provide banking services to another institution (and their affiliated customers) in another country. The expanded restrictions include:

Extending existing prohibitions on CBRs to prohibit financial institutions from entering into CBRs that allow accounts to be used by shell banks;
Removing the defence that the financial institution has not been reckless due to its correspondent banking arrangements, and;
Requiring that banks undertake initial and ongoing due diligence assessments of CBRs.

There was previously a gap in the AML/CTF Act, identified by the Financial Action Task Force (FATF), which meant that prior to the amendments, financial institutions were not required to satisfy themselves that the other institutions did not allow its accounts to be used by shell banks. This will bring Australia in line with existing international banking practices.

New Exceptions to the prohibition on ‘tipping off’

It is a crime under the AML/CTF Act for a reporting entity to ‘tip off’ or disclose information about a Suspicious Matter Report (SMR) made about one of their clients, including the fact that an SMR has been made. The exception to this is disclosure to an AUSTRAC trusted person.

The amendments have expanded the previously very limited exceptions to this prohibition, allowing reporting entities to share SMR-related information with:

External auditors reviewing the reporting entity’s AML/CTF Program, and
Foreign members of a designated business group or corporate group outside of Australia, for the purposes of disclosing risks involved in dealing with a particular customer.

External auditors can only disclose the SMR information in connection with the audit, and foreign members must be regulated by a foreign regime that enacts some or all of the FATF recommendations. It is recommended that businesses seek legal advice as to whether a foreign member is in a jurisdiction that is regulated by the laws of a foreign country that enact some or all of the FATF recommendations before proceeding to share information, because they will bear the burden of proof in these matters under the Criminal Code s.13.3(3).

Reporting entities are now permitted to communicate information about compliance concerning an AUSTRAC section 49 notice to an AUSTRAC entrusted person.

Enhanced domestic and international information sharing

There will be greater information sharing between AUSTRAC and government agencies due to these amendments, enabling greater cooperation between agencies to investigate money laundering and associated criminal activity.

The AUSTRAC CEO will be empowered under section 125 to authorise federal state and territory government agencies to access ‘AUSTRAC information’ to carry out the agency’s duties and functions and exercise its powers. Section 127 will also permit the AUSTRAC CEO and government agencies to disclose AUSTRAC information to foreign entities and governments where appropriate.

What are AUSTRAC’s proposed changes to the Rules?

The proposed changes reflect Phase 1.5 to Part 4 of the AML/CTF Act which commence 17 June 2022. The proposed amendments are detailed below.

Amendment to Chapter 10

The proposed amendment to Chapter 10 of the Act implements changes to the National Consumer Protection Framework (the Framework). Currently, the Commonwealth, State and Territory governments are responsible for implementing the National Framework. The proposed amendments address the timeframe in which an online wagering provider is required to verify their customers’ identity.

It is now proposed that reporting entities be required to carry out the applicable identification procedures in relation to online gambling accounts within 72 hours, down from the current 14 days. This follows on from amendments made in 2019 to Part 10.4 of the AML/CTF Rules, which proposed changes down from 14 days.

The proposed amendment takes effect from 2 May 2022 for entities providing online gambling services to a customer on or after this date. Where reporting entities commenced to provide online gambling services to a customer prior to this date, the specified period remains 14 days.

Repeal and replacement of Chapter 24

It is proposed to repeal the currency Chapter 24, which requires the reporting of physical currency movements of $10,000 or more into or out of Australia be reported to the AUSTRAC CEO, a customs officer or police officer. Currently, persons must also disclose whether they are carrying bearer negotiable instruments, such as travellers cheques, valued at $10,000 or more when requested by a police or customs officer at the border.

The new Chapter 24 would support the creation of a single reporting requirement for the cross-border movement of monetary instruments by substituting the existing Chapter 24 and repealing Chapters 25 (rules for receipts of physical currency from outside Australia) and Chapter 26 (rules for movements of bearer negotiable instruments into or out of Australia).

Additionally, the proposed Chapter 24 will set out the information required in reporting by both travellers and recipients of monetary instruments as set out in subsections 2 and 4 respectively of Part 4 of the AML/CTF Act, as well as required timing under subsection 3.

Changes to Chapter 34

The proposed changes to Chapter 34 seek to revise the form and contents of notices about reporting obligations that can be affixed in ports to inform travellers of reporting obligations. These revisions will reflect the Phase 1.5 reforms to Part 4 of the AML/CTF Act.

Introduction of Chapter 81

Phase 1 changes to the AML/CTF Act introduced as part of the AML/CTF Amendment Act 2017 expanded the scope of the AML/CTF regime to include regulation of digital currency exchange (DCE) service providers. This meant DCE service providers have since then been required to enrol on the Reporting Entities Roll (RER) and the DCE register.

The proposed Chapter 81 will remove the requirement for financial institutions to register on the Digital Currency Exchange Register. Financial institutions will not be exempt from any other obligation or provision under the AML/CTF Act other than this instance specified and will still be required to enrol on the RER. The background to this exemption is the Revised Explanatory Memorandum for Phase 1, which states that financial institutions provide a DCE service under item 50A will not be required to register on the Digital Currency Exchange but will be subject to other relevant obligations under the AML/CTF Act when providing this service.

How we can help

The changes and proposed amendments to the AML/CTF Act and Rules impact a number of the reporting obligations for entities. This is likely to have a flow-on impact on internal systems, policies and processes.

Hall Advisory can help you implement the necessary changes to comply, including:

Independent reviews of your Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) programs,
Drafting AML/CTF policies,
Establishing AML/CTF frameworks, including setting up the structure and processes for money-laundering and terrorism financing risks, and
Providing AML/CTF compliance officer outsourced services.

If you need support in any of these areas, contact us for a confidential, no-obligation consultation.