The Government has introduced the Anti-Money Laundering and Counter-Terrorism Financing and Other Legislation Amendment Bill into Parliament to clarify aspects of Australia’s money laundering offences.
The Bill implements the second phase of reforms arising from the recommendations of the Report on the Statutory Review of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006. It does not implement regulation of Designated Non-Financial Businesses and Professions.
The Bill (also known as Phase 1.5 of the AML/CTF regime) includes amendments to:
- expand the circumstances in which reporting entities may rely on customer identification and verification procedures undertaken by a third party;
- explicitly prohibit reporting entities from providing a designated service if customer identification procedures cannot be performed;
- strengthen protections on correspondent banking by:
- prohibiting financial institutions from entering into a correspondent banking relationship with another financial institution that permits its accounts to be used by a shell bank, and
- requiring banks to conduct due diligence assessments before entering, and during, all correspondent banking relationships;
- expand exceptions to the prohibition on tipping off to permit reporting entities to share suspicious matter reports (SMRs) and related information with external auditors, and foreign members of corporate and designated business groups;
- provide a simplified and flexible framework for the use and disclosure of financial intelligence to better support combatting money laundering, terrorism financing and other serious crimes;
- create a single reporting requirement for the cross-border movement of monetary instruments;
- remove barriers to the successful prosecution of money laundering offences.
The Bill also expands the rule-making powers of the Chief Executive Officer of AUSTRAC.
Tipping Off Offence
The Bill repeals existing subsections 123(1), (2) and (3) and inserts a new subsection 123(1), which simplifies and consolidates the prohibition on tipping off. This amendment responds to concerns from reporting entities about the complexity of obligations under the Act.
Customer due diligence procedures
Section 37 of the Act provides that the applicable customer identification procedure (ACIP) may be carried out by an agent of a reporting entity if the agent has been authorised by the reporting entity to carry out the ACIP on the reporting entity’s behalf. It will be clarified to state that the reporting entity (and not its agent) will be liable to civil penalties for providing designated services to its customers without carrying out the applicable customer identification procedures in respect of its customers.
New section 37A allows reporting entities to enter into a written agreement or arrangement (‘CDD arrangement’) with another reporting entity or another person in order to rely on the ACIP (for domestic entities) or other customer identification procedure (as prescribed in the AML/CTF Rules) carried out by the other reporting entity or other foreign entity.
This new section takes a broad approach to the third parties that may be relied upon: the third party must be subject to appropriate AML/CTF regulation and supervision, and that where reliance on foreign entities is permitted, the money laundering and terrorism financing risks of the country are considered.
This section also ensures that a ‘CDD arrangement’ may only be entered into if the reporting entity has reasonable grounds to believe that each of the requirements in the AML/CTF Rules (including that the other party is subject to relevant AML/CTF obligations and that party has appropriate measures in place for compliance with those obligations) are met at the time of entering into the arrangement.
New subsection 37A(2) gives effect to the ‘CDD arrangement’ by providing relying parties with a safe harbour from liability for breaches of section 32 (Carrying out the applicable customer identification procedure before the commencement of the provision of a designated service).
However, if circumstances indicate that due diligence performed by the reporting entity on the ‘CDD arrangement’ does not meet the requirements in the AML/CTF Rules, the reporting entity relying on the other party’s ACIP (or other customer identification procedure) may be liable under section 32 (for providing a service before an appropriate ACIP has been carried out).