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Focus: Anti-money Laundering Reforms – December 2005

Counter-terrorist financing measures in new Anti-Terrorism Act

In brief: The Anti-Terrorism Act (No 2) 2005 (Cth) received assent on 14 December 2005. Of particular relevance to the financial sector are the amendments to the Financial Transaction Reports Act 1988 and the extension of the terrorist financing offence contained in the Criminal Code. Partner Peter Jones and Senior Associate Judy Maguire report on the these provisions.

Background

The recent Financial Action Task Force (FATF) Mutual Evaluation Assessment of the Australian anti-money laundering (AML) and counter-terrorist financing (CTF) regime (the FATF report) identified a number of deficiencies in the Australian AML and CTF regime.

The CTF provisions in the Anti-Terrorism Act (No 2) (the Act), together with the Government's new AML/CTF legislation (an exposure draft of which was released on 16 December) are intended to bring the Australian AML/CTF regime into compliance with global AML/CTF standards by implementing the FATF's Revised Forty Recommendations on AML and its Nine Special Recommendations on CTF (the Special Recommendations).

Specifically, the amendments to the Financial Transaction Reports Act 1988 (Cth) (the FTRA) contained in Schedule 9 to the Act are intended to bring the Australian CTF regime into compliance with Special Recommendation VI (alternative remittance), Special Recommendation VII (wire transfers) and Special Recommendation IX (cash couriers).

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Timing

Given the Government's intention to introduce new AML/CTF legislation in the near future, there has been some criticism of its decision to include CTF provisions in the Act. The Government's position is that because of the considerable time likely to elapse before the AML/CTF legislation comes into effect, the CTF provisions should be effected now to prevent the Australian financial regime being used for terrorist financing and to ensure Australian financial institutions are not barred from sending funds transfers to Europe and the US.

The provisions dealing with international fund transfers, registration of remittance providers and bearer negotiable instruments will come into force within twelve months of the Act receiving assent.

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The Act

The key provisions are as follows.

International Funds Transfer Instructions (IFTIs): New Division 3A is inserted into the FTRA, requiring detailed information to be included in both outgoing and incoming IFTIs.

Outgoing IFTIs sent by a cash dealer (where the cash dealer is acting for a person who is not an authorised deposit-taking institution (ADI) or the cash dealer is not itself an ADI) must include:

  • the name and full business or residential address of the ordering customer;
  • either:
    • the account number of the ordering customer's account with the cash dealer; or
    • if there is no account, the identification code assigned to the instruction by the cash dealer.

Incoming IFTIs must include:

  • the ordering customer's name; and
  • any one of the following:
    • the ordering customer's address;
    • the ordering customer's date and place of birth;
    • the ordering customer's ID number provided by a government;
    • the ID number given to the ordering customer by the ordering organisation;
  • either
    • the number of the ordering customer's account; or
    • if there is no account, the ID code assigned by the ordering organisation.

If a cash dealer in Australia receives two or more IFTIs transmitted into Australia from a particular ordering organisation and at least one of those IFTIs does not include the above information, the Australian Transaction Reports and Analysis Centre (AUSTRAC), Australia's anti-money laundering regulator and specialist financial intelligence unit, may direct the cash dealer to request (within 14 days) that the ordering organisation include in all future IFTIs customer information relating to the instructions.

The cash dealer must report back to AUSTRAC, in writing, the response, or lack of it, from the ordering organisation.

The cash dealer can make the funds that are the subject of the instruction available, even if the IFTI did not contain the customer information.

Failure to comply with the above requirements is an offence with a maximum of two years' imprisonment or, in the case of a corporation, a maximum fine of $66,000.

Cash dealers and remittance services: The FATF report noted the Australian CTF regime did not fully comply with Special Recommendation VI because there was no general requirement for all money/value transfer service operators to be licensed and registered. This is rectified by inserting a new Part IIIB into the FTRA.

Cash dealers (other than financial institutions and real estate agents) who provide remittance services are required to inform AUSTRAC of that fact and provide AUSTRAC with their names and prescribed particulars which are likely to include ABNs and various contact details.

Failure to notify AUSTRAC while carrying on business as a remittance dealer is an offence carrying a penalty of a maximum two years' imprisonment and, in the case of a corporation, a maximum fine of $66,000.

AUSTRAC is required to maintain a Register of Remittance Providers.

Bearer negotiable instruments (BNIs): The FATF report commented that, although Australia had a comprehensive system for reporting currency movements above A$10,000, it did not have a system for declaration or disclosure of BNI's as required by Special Recommendation IX.

This is rectified by a new section 33AA of the FTRA. Any person leaving or entering Australia must, if requested by an officer, declare whether he or she is carrying a BNI  and the amount of the BNI and must produce it.

An officer who has reasonable grounds to suspect a person has made a false or misleading declaration may conduct a search for the purpose of finding a BNI. If, in the course of that search, the officer finds a BNI about which a false declaration has been made, he or she can seize the BNI. Similarly if a person voluntarily produces a BNI about which a false declaration has been made, this too can be seized.

Persons carrying BNIs may be required to prepare a report for AUSTRAC containing specified details.

Failure to comply with the request carries a maximum penalty of one year imprisonment.

Terrorist financing

The Act amends the Criminal Code by:

  • criminalising the collection by a person of funds for, or on behalf of, a terrorist organisation (whether directly or indirectly). The new offence is committed when the person knows the organisation to be a terrorist organisation or is reckless as to whether it is a terrorist organisation. The maximum penalty is imprisonment for 25 years; and
  • criminalising the intentional making of funds available to another person or collection of funds for, or on behalf of another person where the person who makes the funds available or collects them is reckless as to whether the other person will use the funds to facilitate or engage in a terrorist act. The offence will be committed even if a terrorist act did not occur, the funds will not be used to facilitate or engage in specific terrorist acts or the funds will be used to facilitate or engage in more than one terrorist act. The maximum penalty is life imprisonment.

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Industry concerns

The Australian Bankers' Association (the ABA) and the Association of Superannuation Funds of Australia (ASFA) (among others) have expressed concerns about the implications of the CTF provisions on the financial services sector. The Attorney-General's Department (the AG) replied to those concerns in its response to the Senate Legal and Constitutional Committee.

Key concerns include:

The new Act's interaction with the AML review and legislation. A key concern of the ABA was possible overlap with the AML/CTF legislation and the position where banks and other financial institutions would be required in a relatively short time frame to undertake two major changes to their systems and processes with significant cost resources. The AG's view is that the changes required by the Act will have relatively little cost impact on industry and any assessment of cost can be addressed in the consultation process on the new legislation.

The need for a longer transition period. The banking and finance industry had originally argued for an implementation period of three years for the AML/CTF legislation. Only 12 months is available to implement the new CTF requirements.

Privacy concerns over the transfer of customer information . These concerns were raised by the ABA, the Office of the Privacy Commissioner (OPC) and the Australian Privacy Foundation (APF). The AG has indicated that detailed discussion on privacy issues will take place during the consultation period after the release of the AML/CTF draft exposure bill.

'Reckless' in the new terrorist financing offence. The ABA was particularly concerned as to the use of the term 'reckless' and the applicability of the new terrorist financing offence to legal persons such as financial institutions, and their directors, officers and employees. The AG has replied by explaining that, given the existing definition of 'reckless' in the Criminal Code, for a terrorist financing offence to be committed, a person would have to be aware of a substantial risk that the funds would be used by the recipient for terrorist purposes and, being aware of that risk, continue to provide to, or collect funds for, that person.

In response to other practical issues raised by the ABA, the AG has confirmed that:

  • The new IFTI provisions are consistent with current industry practice on the collection of customer information for inclusion in IFTI reports to AUSTRAC. Additionally, SWIFT standards currently allow for customer information (including account numbers) to be included with funds transfer instructions.
  • Larger financial institutions who are required to include customer information on IFTIs will be able to rely on the customer information they receive from smaller institutions in the same way that they already rely on the customer information provided to them by the smaller institutions for the purpose of making IFTI reports to AUSTRAC.
  • Where it is not clear which account, if any, of a customer is linked to an IFTI, the provision of any of the customer's account numbers will suffice and, if the customer does not have an account (as defined under the FTRA) with the financial institution, it will be sufficient to include the identification code assigned to the instruction.
  • Banks who issue international cheques and businesses that issue travellers' cheques will not be required to warn customers in writing that they may be asked to make a declaration and produce the cheque or travellers' cheque as they leave Australia.
  • The new BNI reporting system will not impact on all travellers carrying travellers' cheques. Customs officers will select certain travellers based on risk assessment or about whom they have received relevant intelligence. Only those selected passengers will be required to answer questions about whether they are carrying bearer negotiable instruments.

The ABA submission and the AFSA submission can be found online.

AAR has a team of AML experts ready to assist clients with their AML programs. In addition, we have created a new website dedicated to AML and CTF issues which provides an overview of the Australian AML/CTF regime and commentary on the specific issues facing each affected industry.

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