Anti-Money Laundering and Counter-Terrorism Financing Amendments

AML/CTF Amendments

On 11 September 2024, Commonwealth Attorney-General Mark Dreyfus introduced the Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) Amendment Bill 2024 (‘the Bill’) into Parliament. This legislative reform marks a significant step in enhancing Australia’s efforts to combat money laundering, terrorism financing, and other forms of illicit financial activities. The bill builds on the existing framework and aims to strengthen Australia’s financial security infrastructure

 

Rationale

Money laundering and terrorism financing are serious threats to the global financial system. These illicit activities undermine economic stability, facilitate criminal operations, and even fund violent extremism. In a world where financial transactions are increasingly digital and globalized, governments and financial institutions face mounting challenges in detecting and preventing such crimes. Australia is no exception.

The introduction of the AML/CTF Amendment Bill 2024 follows the Financial Action Task Force (FATF)’s recommendations. FATF is an international body that sets standards for combating money laundering and terrorism financing. FATF has highlighted the importance of having robust systems to detect illicit financial flows, and the bill seeks to align Australian law with evolving global standards. Additionally, the Australian Transaction Reports and Analysis Centre (AUSTRAC), which monitors financial transactions for suspicious activities, is expected to receive more power and resources to oversee financial institutions and enforce compliance.

The Bill has three core objectives in its implementation:

1. To extend the scope of the AML/CTF regime to include certain higher-risk services provided by ‘tranche two’ entities, including real estate professionals, professional service providers such as lawyers and accountants, and dealers in professional stones and metals.
2. To improve the effectiveness of the AML/CTF regime through clarifying businesses’ obligations and reducing barriers to compliance.
3. To update the AML/CTF regime to ensure it is adequately equipped to deal with continuously evolving business structures, technologies, and illicit financing methodologies.

If passed, the Bill would amend the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (‘AML/CTF Act’) to improve its capacity to effectively deter, detect, and disrupt money laundering and terrorism financing.

 

Key changes

Expansion of the AML/CTF Regime to ‘Tranche Two’ Entities

A key element of the Bill is its proposal to expand the AML/CTF regime to certain services provided by gatekeeper professions, including real estate professionals; dealers in precious metals and stones; and professional service providers.

Certain services provided within these sectors have been identified as high risk of money laundering exploitation, with disparities in regulation of these tranche two entities being a key vulnerability of Australia’s AML/CTF regime.

• Real estate transactions have been established as a common method of laundering money both internationally and domestically, with illicit funds frequently laundered or invested in the sector.
• Concerning professional services, criminals will frequently seek out providers for specialist skills or advice to aid in in money-laundering schemes. The reforms seek to reduce the risk of these professional either unknowingly, or recklessly, participating in illicit financing or the concealment of illicit wealth.
• Precious metals and stones are often used in money laundering given they are small; easily concealable; may be readily purchased and sold anonymously, allowing them to be used in making untraceable payments for illicit goods and services.

The Bill would expand the list of designated services to be regulated under the AML/CTF regime to include these higher risk services provided by tranche two entities, bringing Australian regulations into alignment with the international standards set by the Financial Action Task Force (FATF).

 

Expansion of the AML/CTF Regime to ‘Virtual Assets’

The proposed amendments entail the expansion of the AML/CTF regime from digital to virtual assets. As opposed to digital assets, the definition of virtual assets removes the requirement that the asset be generally available to the public without any restriction on its use, thus broadening the scope of Australia’s AML/CTF. This seeks to appropriately address the risks presented by the sector, with digital currency exchanges and digital currencies being identified as increasing Australia’s money laundering vulnerability.

 

AUSTRAC powers

The Bill contains provisions which will expand the information gathering powers of AUSTRAC, with the intention of improving their ability to effectively monitor, investigate, and enforce compliance with the AML/CTF regime. This includes the introduction of an examination power, which would allow AUSTRAC to gain access to information relevant to enforcement decisions and evidence to be used in proceedings, as well as to assist with its financial intelligence functions.

 

Risk and Compliance Requirements for Reporting Entities

Customer Due Diligence

The Bill reframes and clarifies reporting entities’ responsibilities with respect to customer due diligence. As opposed to the previous framework which operated under a ‘risk based approach’ to determine what additional information should be collected and verified, the new framework adopts an outcome focused approach requiring – on reasonable grounds – the collection of specific information as pertaining to customers. Expanding on the requirement to undergo ‘ongoing customer due diligence’, the new regime requires entities to continually monitor for changes in a customer’s ML/TF risk and review know your customer (KYC) information at a frequency proportionate to their risk rating.

 

Governing Body Responsibilities

The amendments to the regime increase the obligations of a reporting entity’s governing body with respect to monitoring compliance with AML/CTF policies and procedures. The governing body must not only exercise ongoing oversight of AML/CTF compliance but is also required to take reasonable steps to ensure the entity is appropriately identifying, assessing, and mitigating ML/TF risks.

 

What will remain the same

The reforms will not result in any fundamental change to the core requirements of the existing AML/CTF regime which already align with international obligations, these requirements being that:

• A business must enrol, and in some circumstances register, with AUSTRAC if they provide a designated service;
• Reporting entities must develop, maintain, and comply with an AML/CTF program which appropriately identifies, mitigates, and manages any money laundering/terrorism financing (ML/TF) risks associated with the provision of services;
• Reporting entities must identify their customers, verify their identity, properly assess the ML/TF risk prior to providing a designated service, and undertake ongoing customer due diligence (CDD);
• Reporting entities must report certain transactions and suspicious matters; and
• Reporting entities must make and retain certain records and ensure they are available to law enforcement if requested.

 

In summary

The proposed amendments to the AML/CTF regime will require reporting entities to reevaluate their systems and processes to ensure compliance with the expanded framework and represents a substantial change for businesses and financial institutions operating within Australia. They will face heightened regulatory requirements, including more stringent compliance protocols, record-keeping duties, and reporting obligations. Institutions will need to invest more heavily in compliance infrastructure, training, and technology to meet the enhanced standards.

The increased powers granted to AUSTRAC also mean that businesses must be prepared for more rigorous scrutiny. The risk of penalties, which could include heavy fines for non-compliance, is now much more significant. As a result, businesses will need to integrate anti-money laundering and counter-terrorism financing measures into their day-to-day operations more thoroughly than ever before.

Moreover, the expansion of the bill to cover new sectors, such as cryptocurrency and real estate, will require these industries to develop tailored compliance systems, ensuring they do not become conduits for illicit financial flows. Industry stakeholders will need to work closely with regulators to ensure they meet the required standards.

 

Conclusion

The proposed Bill is a pivotal piece of legislation that aims to fortify Australia’s defenses against money laundering, terrorism financing, and other financial crimes. With its comprehensive provisions, the Bill ensures that the Australian financial system remains resilient, transparent, and secure in the face of evolving global threats. For businesses, financial institutions, and regulators, it marks the beginning of a new era of heightened vigilance, compliance, and cooperation in the fight against illicit financial activity.

 

Sources:
Anti-Money Laundering And Counter-Terrorism Financing Amendment Bill 2024, Explanatory Memorandum – JC014035.pdf;fileType=application/pdf (aph.gov.au)

 

*This article was prepared with the assistance of Clea Phillips