AML/CTF Legislation

The Australian Federal Government introduced anti-money laundering and counter-terrorism financing legislation (“AML/CTF”).

The relevant piece of legislation is the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) (“Act”). The Act substantially replaced the previous Financial Transaction Reports Act 1988 (Cth).

This Act, with the sections that are relevant to lenders are already in existence and introduced radical changes to the Australian anti-money laundering and counter-terrorism financing regime.

Who is affected by this Legislation?

The Act will primarily affect parties that provide “designated services”. Lending is a designated service. If you are a lender and you: (a) have not registered with AUSTRAC; and/or (b) do not have an AML/CTF compliance officer, training, reviews, procedure and manuals then you are likely in breach of the AML/CTF.

The core requirements

The main core requirements of relevance include:

  • customer due diligence requirements (including enhanced customer identification and verification procedures, and transaction monitoring);
  • suspicious matter and threshold transaction reporting;
  • development of, and compliance with, an anti-money laundering and counter-terrorism financing program; and
  • record keeping.

Issues for lenders – Existing customers

The Act provides that existing customers (pre-Act) will only have to be identified, verified or re-verified in the event that a suspicious matter obligation arises, that is, where a lender suspects on reasonable grounds that:

  • the customer (or the customer’s agent) is not who they claim to be;
  • information about the provision (or a prospective provision) of a designated service may be:
    • relevant to the investigation or prosecution of a person for:
      • a criminal offence;
      • tax evasion; or
      • a money laundering or terrorism financing offence;
    • of assistance in the enforcement of laws relating to proceeds of crime; or
    • preparatory to the commission of a money laundering or terrorism financing offence.

In those circumstances, the lender, as the reporting entity, must take such action as is required by the anti-money laundering and counter-terrorism financing rules. There is, however, no prohibition against providing or continuing to hold money pending taking such action.

However, where an existing customer is obtaining new funding then you may need to verify the identify of that customer as part of your ongoing obligations.

Customer due diligence

The key requirements of a customer due diligence program are:

  • know your customer;
  • assign each customer a risk classification; and
  • monitor the transactions of each customer.

Transaction reporting

The suspicious matter reporting obligation applies where the designated service provider has reasonable grounds to suspect that its funds or trust account may be being used for tax evasion, a criminal offence or a terrorism financing offence.

A report must be made to AUSTRAC within three business days of forming the relevant suspicion, or within 24 hours when the information relates to terrorism financing or domestic money laundering.

Anti-Money Laundering and Counter-Terrorism Financing Program

Reporting entities are required to develop, maintain and comply with anti-money laundering and counter-terrorism financing programs that meet the requirements specified in the Rules. Failure to do so will attract civil and criminal sanctions.

One of the programs a reporting entity is required to put in place is risk-based procedures for screening prospective employees who could facilitate a money laundering or terrorism financing offence and to re-screen where there is a material change in the employee’s responsibilities. Screening must include a fit and proper determination. Similar checks would need to be made of staff as conducted of clients.

Suspicious Matter Reporting

The Federal Government has recast the reporting regime in the Act by limiting the scope of the obligations to make a suspicious matter report to circumstances where a reporting entity (or a person authorised to carry out customer identification procedures) actually suspects on reasonable grounds that any one of the various circumstances has arisen.

The scope of the grounds which trigger suspicion has been significantly widened. The obligation to report arises when the reporting entity or authorised person suspects on reasonable grounds that:

  • the person who receives, or will receive, the designated service is not who they claim to be; or
  • information regarding the provision, or the prospective provision, of the designated service may be:
    • connected to a breach of a tax law;
    • connected to a Commonwealth or state offence;
    • of assistance to a Proceeds of Crime Act 2002 (Cth) investigation; or
  • the provision or the prospective provision of the designated service may be:
    • preparatory to a money laundering or terrorism financing offence; or
    • relevant to an investigation into a money laundering or terrorism financing offence.

Who must report

Another significant change is the extension of the reporting requirement to include persons who are authorised to carry out customer identification procedures. In effect, this means that anyone who carries out a customer identification procedure, whether they be an individual, such as an employee of a reporting entity, or another legal entity, for example an external agent or sub-agent, will be obliged to make suspicious matter reports and will face criminal and civil sanctions if they do not.

The authorised persons must report to AUSTRAC.

What is a suspicious transaction?

There are numerous matters that may be suspicious transactions and the following are some common examples:

  • an individual paying a large sum in cash;
  • an individual being able to buy a reasonably expensive property and yet appearing to be jobless;
  • money transfers to high-risk foreign jurisdictions or persons of interest; and
  • when money for the purchase of the property is coming from a third, unrelated party.

What are the penalties?

Many of the criminal offences have been replaced with civil penalty provisions, with breaches of the Act potentially attracting a penalty of up to $21 million dollars for a company per offence.

These penalties make the Australian anti-money laundering and counter-terrorism regime amongst the toughest in the world.

Who is liable?

Unlike some overseas anti-money laundering and counter-terrorism financing regimes, the civil penalty regime does not target individuals. Rather, the anti-money laundering and counter-terrorism financing obligations which give rise to civil penalties are imposed on “reporting entities” (e.g. the lending entity).

Monetary penalties will be enforced as if they are judgment debts.

There is no provision in the Act that directly imposes any obligation on the directors of a company. Thus, any civil penalty provision will be contravened by the company, and not by the directors or senior management, and any monetary penalty will be imposed on the company and not on the directors or senior management.

The Act does not extend liability for a monetary penalty order to the directors of a company as a class.

Directors could, however, be found in breach of other relevant legislation, for example the Corporations Act, if the directors of a reporting entity fail to ensure that the reporting entity complies with its anti-money laundering and counter-terrorism financing obligations.

Where a civil penalty provision is contravened by a reporting entity that is a partnership the provision is taken to have been contravened by each partner. Hence, a pecuniary penalty can be made against individual partners and enforced against their individual assets. However, a partner may avoid liability if they establish that they:

  • did not know of the circumstances that caused the contravention; or
  • did know but took all reasonable steps to correct it as soon as possible after learning of those circumstances

Where the reporting entity is a trust with one trustee the obligation is imposed on that trustee and the trustee will be liable for any monetary penalty order. Where the trust has multiple trustees, the obligation is imposed on each trustee and any contravention will be taken to have been contravened by each trustee.

A trustee will not be taken to have contravened a civil penalty provision if it establishes that it:

  • did not know of the circumstances that caused the contravention; or
  • did know but took all reasonable steps to correct it as soon as possible after learning of those circumstances

Where a reporting entity which is an individual breaches a civil penalty provision that individual will be responsible for the contravention and will be personally liable for any monetary penalty imposed.

An individual who is an employee of a reporting entity cannot contravene a civil penalty provision as the obligation is imposed on the reporting entity. There is no provision in the Act extending that obligation to individual employees of a reporting entity. This means that staff, for example frontline staff who fail to make a suspicious matter report, cannot contravene a civil penalty provision, other than as an ancillary and thus cannot be subject to a monetary penalty order.

Ancillary Contraventions

The Act extends liability for contraventions of civil penalty provisions to persons other than reporting entities.

These ancillary contraventions mean that any person, natural or legal, who:

  • attempts to breach a civil penalty provision;
  • aids, abets, counsels, procures such a breach;
  • induces such a breach;
  • is knowingly concerned in such a breach; or
  • conspires to effect such a breach;

will itself be in breach of the Act and liable for a monetary penalty.

These provisions will catch individuals who are not themselves reporting entities, but who have been instrumental in a contravention, for example, a senior manager who decides, without justification, not to make a suspicious matter report.

Need assistance?

What we have detailed is only a brief overview of the anti-money laundering and counter-terrorism financing legislation and how it may affect you. Should you have any queries regarding anything we have detailed or need any assistance concerning this area of law (such as creating an AML/CTF compliance pack and registration), please contact any member of our Banking & Finance team.

Disclaimer

This information and contents of this publication, current as at the date of publication, is general in nature to offer assistance to Cornwalls’ clients, prospective clients and stakeholders and is for reference purposes only.  It does not constitute legal or financial advice.  If you are concerned about any topic covered, we recommend that you seek your own specific legal and financial advice before taking any action.

The Author

Paul Agnew

PARTNER, BRISBANE

Key Contacts

Paul Agnew

PARTNER, BRISBANE

Paul McCann

PARTNER, SYDNEY

David Kreltszheim

SPECIAL COUNSEL, MELBOURNE