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Client Update: Anti-money Laundering – 30 January 2008

Application of the AML/CTF Act to managed investment schemes

In brief: Regulations under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) relating to managed investment schemes have been approved. Partner Anna Lenahan (view CV) and Senior Associate Judy Maguire report.

The Federal Government has confirmed that Regulations, designed to ensure that the issue of an interest in, or the issue of an option to acquire an interest in, a managed investment scheme are subject to regulation under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) (the AML/CTF Act), were approved on 25 January 2008, will be registered today and will take effect from tomorrow.

While we understand it is still the Government's intention to exempt listed managed investment schemes, the Government's statement does not mention this.

The Regulations will not be retrospective.

Also, the Australian Transaction Reports and Analysis Centre (AUSTRAC) released a statement on 25 January 2008 that provides guidance on how reporting entities captured by the Regulations should manage their compliance obligations. Specifically, it indicates that AUSTRAC's general view is that:

  • Reporting entities are required to comply with provisions of the AML/CTF Act, Rules and Regulations from the date at which they come into effect.
  • The Policy (Civil Penalty Orders) Principles 2006 (the Principles) provide a 15-month period after the date at which various provisions of the AML/CTF Act come into effect, during which the AUSTRAC CEO may only apply for a civil penalty order against a reporting entity in circumstances where the reporting entity has failed to take reasonable steps to comply with those provisions of the AML/CTF Act.
  • The steps an entity needs to take are a matter for its own judgment, taking into account its risk profile and the commercial practicalities.
  • Reporting entities should seek their own independent legal advice on the point at which they commence to provide a designated service to a customer. This advice should take into account the particular circumstances of the reporting entity and the type of product being provided.
  • Businesses issuing or selling interests in managed investment schemes have had sufficient lead time to undertake preparatory work to ensure compliance, given it was always the Government's intention for the AML/CTF Act to cover the issue of interests in managed investment schemes.

The AUSTRAC statement says that it will take into account the lack of clarity about the commencement date of the Regulations when determining whether a reporting entity has taken reasonable steps to comply with its obligations and will also take into account the following factors:

  • the materiality of the breach to the reporting entity's overall anti-money laundering/counter-terrorism financing (AML/CTF) program;
  • the length of the time taken by the reporting entity to respond to or remedy the breach; and
  • the appropriateness of the reporting entity's actions during the period between when the Regulations commenced and when the reporting entity began complying with the AML/CTF Act, Rules and Regulations.

The AUSTRAC statement recognises the concern of entities that are currently preparing to issue interests in managed investment schemes that there are lead times for implementation, which may mean that entities cannot comply with customer identification immediately. It says that AUSTRAC will take this into account in considering whether a reporting entity has taken reasonable steps towards compliance.

Finally, in addition to encouraging non-compliant entities to consider the terms of the AUSTRAC statement and consult the guidance note on the application of the Principles, AUSTRAC suggests that such entities should apply judgment and common sense and that well-intentioned entities who – at any time – find they are or will be seriously non-compliant, can approach AUSTRAC with a view to negotiating a practical solution.

AAR will continue to monitor developments on this issue.

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