It has been estimated that $4.5 billion is laundered annually in Australia.
The Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act), which received Royal Assent on 12 December 2006, introduces reforms as part of Australia’s continuing efforts to combat terrorism funding and stamp-out money laundering.
It brings Australia in line with international anti-money laundering (AML) and counter terrorism financing (CTF) standards, viz. the Financial Action Task Force (FATF) 40 recommendations on AML and 9 separate recommendations on CTF.
The Australian Transactions Reports and Analysis Centre (AUSTRAC) is the national AML/CTF regulator with supervisory, monitoring and enforcement functions. AUSTRAC has released most of the Rules associated with the AML/CTF Act so we know most of what is required for compliance.
What is required?
The AML/CTF Act is not prescriptive – it is risk-based. The rationale is that a risk-based approach is likely to be more effective because individual organisations are best placed to assess their own risk and, therefore, are best able to mitigate the risk. The implication of a risk-based approach is that every organisation has to assess their risk and implement an appropriate AML program.
In general, the AML/CTF Act requires reporting entities to:
- Know Your Customer (KYC) - identify customer and verify customer details
- keep records
- establish and maintain an AML/CTF program
- perform ongoing customer due diligence and reporting
- report on cross border currency movements
- provide originator information for electronic funds transfers
- adhere to obligations relating to correspondent banking relationships
Who is affected?
The Australian AML/CTF Act is wide ranging - over 38, 000 organisations will have to comply. It will be implemented as two tranches, and each tranche will be implemented in stages.
The first tranche will apply to the following organisations:
- financial sector including:
- banks; building societies; credit unions
- lending, leasing and hire purchase companies
- issuers of travellers’ cheques; foreign exchange dealers; remittance dealers
- asset management companies; financial planners who arrange for the issue of products; life insurers; superannuation fund managers
- custodial service companies; cash couriers, securities dealers.
- lawyers and accountants that provide financial services in competition to the financial sector
- gambling industry
- bullion dealers
The second tranche will extend the AML reforms to include:
- trust and company service providers
- real estate agents
Roll out of the AML/CTF Act
The Act will be rolled out progressively, with a fifteen month amnesty/grace period to follow the commencement of each stage, if the AUSTRAC CEO is satisfied that the reporting entity has taken reasonable steps to comply.
The initial stages of the AML/CTF Act came into effect on 13 December 2006. Following are the dates that the remaining sections of the ACT will come into effect:
- 12 June 2007
- AML/CTF compliance reports
- correspondent banking obligations
- record-keeping requirements for records of due diligence assessments of correspondent banking relationships
- 13 December 2007
- Know Your Customer (KYC) identification procedures
- AML/CTF programs
- record keeping requirements for above.
- 13 December 2008
- customer due diligence
- reporting obligations on suspicious matter transactions, threshold transactions, international funds transfer instructions etc.
What are the consequences of non-compliance?
The AML Act contains both civil and criminal regimes for failure to comply with key obligations. The cost of non-compliance could be severe – for organisations the maximum penalty payable is $11,000,000 and for all others it is $2,200,000.
The overseas experience has seen some serious fall-out. In the UK, fines have ranged from ₤350,000 to ₤2 million (e.g. Bank of Ireland, Royal Bank of Scotland and Abbey Bank) and in the USA, fines have topped $41 million (e.g. Riggs Bank).
In the UK, two solicitors were jailed for breaches of the anti-money laundering legislation. One was jailed for transferring or converting the proceeds of criminal conduct and the other for inadequate record keeping.
We do not know as yet how AUSTRAC will approach AML/CTF. However, if AUSTRAC follows the UK and US lead, as some suggest they will, there will be prosecutions of small and large organisations.