New Anti-Money Laundering and CTF Rules

New Anti-Money Laundering and CTF Rules

On 1 June 2014 proposed changes to the Anti-Money Laundering and Counter-Terrorism Financing) Rules (AML/CTF Rules) will commence operation. These Rules are made pursuant to the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth).

These changes are the culmination of a consultation process conducted following the release of the discussion paper, ‘ Consideration of Possible Enhancements to the Requirements for Customer Due Diligence’, released in May 2013.

The international regulatory body, Financial Action Task Force (FATF) has long been critical of Australia’s anti-money laundering regime not meeting international standards for customer due diligence, particularly in relation to corporate customers and politically exposed persons (PEP’s).

As a consequence of this ongoing concern, in May 2013 the Australian Transaction Reports and Analysis Centre (AUSTRAC) and the Attorney-General’s Department commenced a consultation process with a view to enhancing Australia’s AML/CTF regime.

Draft amended rules under the AML/CTF Act were issued shortly before Christmas 2013. Further consultations have recently taken place.

It is probably not coincidental that the amended rules commencement date will take effect shortly before the planned visit to Australia by representatives of FATF in June 2014. This visit is to review progress made by Australia in meeting international standards for customer due diligence.

While the amended AML/CTF rules will commence on 1 June 2014, AUSTRAC has confirmed that it will not commence any civil penalty proceedings under the amended rules prior to 1 January 2016 where a reporting entity fails to comply with the new additional customer due diligence requirements.

However, reporting entities will still be expected to ensure that by 1 January 2016 they not only comply with the new rules going forward but have also obtained the additional information and performed the extra enquiries in relation to customers on boarded since June 2014.

AUSTRAC has published the AML/CTF rules, including marked-up versions showing all changes.

These changes proposed are in the following areas:

1. Definitions

Change various definitions in the AML/CTF rules (Chapter 1) to facilitate enhancement of customer due diligence procedures, particularly with regard to:

  • corporate customers
  • trust structures
  • beneficial ownership
  • politically exposed persons.

2. Politically Exposed Persons

The changes here are twofold:

  • change the definition of ‘politically exposed person’ to expand the range of persons who may be considered to be ‘politically exposed persons’
  • enhance the procedures once a person is determined to be a PEP.

It is extremely important for reporting entities (as defined) to review their customer/client base in the light of the new expanded definition of who is a PEP.

3. General factors to be considered in identifying AML/CTF risk in relation to customer identification and verification. 

The general factors which must be considered in identifying risk as a reporting entity have been revised and now include identifying:

  • customer types, including identification of beneficial owners of customers and PEPs
  • customer sources of funds and wealth
  • nature of customer’s business, control structure and occupation
  • type of services provided and the way in which they are delivered
  • foreign jurisdictions with which the reporting entity deals.

4. Beneficial owner information

This is a major change with regard to chapter 4. The prior AML/CTF rules were regarded as being deficient by way of identifying the customer (in particular corporate customer) in that there was no specific requirement to identify or understand beneficial ownership structures.  Going forward, when making enquiries (both about corporate entities and individuals), a reporting entity must:

  • identify all beneficial owners of a customer
  • collect full personal details of each beneficial owner
  • take reasonable steps to verify the information
  • determine whether any additional information or enquiries are required.

Fortunately, the rules provide that certain assumptions may be made by a reporting entity about customers and possible beneficial ownerships. These assumptions include:

  • a reporting entity is entitled to assume that the customer is the beneficial owner unless the reporting entity has reasonable grounds to believe otherwise
  • verification can be done following the ‘safe harbour process’ where AML/CTF risk is assessed as medium to low
  • verification can be undertaken after the designated services are provided (not just before as currently)
  • there are exceptions for listed companies and entities regulated by various government entities subject to a simplified process.

5. Identification of settlor of trust

Many customers of reporting entities use trust structures.  Under the new AML/CTF rules a reporting entity must collect and verify the details of the settlor of a trust as part of ‘know your customer’ process unless:

  • the monetary sum paid when the trust was settled is less than $10,000
  • the settlor is deceased
  • the trust is verified using a simplified trustee verification procedure under clause 4.4.8 of the Rules.

The dispensation from the requirement to verify settlor details for a trust where the initial settled sum is less than $10,000 is welcome – otherwise virtually all trusts in Australia would be caught by these new procedures.

6. Other changes

There are various other changes made under the proposed amended rules, not only to chapter 4 of the rules, but also to chapters 8, 9 and 15.  These changes essentially support and enhance the changes proposed to customer due diligence requirements under chapter 4.

The changes to be implemented to the AML/CTF rules will be important for reporting entities and others in the financial services industry who assist in providing advice and information about opening and operating accounts.

All clients who are “reporting entities” will need to familiarise themselves with the amended rules before 1 June 2014 and take steps to change their policies and procedures so as to be able to comply with the amended rules as soon as possible.