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Client Update: Anti-money Laundering – 22 May 2007

New Draft Guidance Note on Register of Providers of Designated Remittance Services

In brief: The Australian Transaction Reports and Analysis Centre has finally released a Draft Guidance Note on the Register of Providers of Designated Remittance Services. It is expected that the Draft Guidance Note will be welcomed by the financial services industry, as it anticipates that the designated remittance service provider obligations in the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) will be more narrowly restricted to remittance dealers and will not capture mainstream financial services providers. Partners Peter Jones (view CV) and Anna Lenahan (view CV) and Senior Associate Judy Maguire report.

Background

Part 6 of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (the Act) requires entities (known as 'designated remittance service providers') to register with the Australian Transaction Reports and Analysis Centre (AUSTRAC) before providing a registrable designated remittance service. Failure to do so can attract a criminal and civil penalty.

The difficulty with this requirement is that the Act defines a designated remittance arrangement (DRA) very broadly. Any entity, other than those specifically excluded by the Act (that is, authorised deposit-taking institutions (ADIs), banks, building societies, credit unions and others specified in the rules issued by AUSTRAC (the AML/CTF Rules)) that accepts money or property from one person to transfer to another person provides a designated remittance service.

This broad definition has caused problems for the financial services industry, as it has had the effect of requiring a number of mainstream financial service providers (that are not ADIs, banks, building societies or credit unions) that transfer money or property, such as securities, to register with AUSTRAC before carrying out the transfer, even if the transfer is to a related entity.

This is an outcome that goes way beyond the relevant Financial Action Task Force Recommendation1 and is also inconsistent with the Explanatory Memorandum (the EM) released with the AML/CTF Bill 2006. The EM indicated that the purpose of Part 6 was to require the registration of informal or money value transfer systems, known as alternative remittance services or underground or parallel banking systems. As a general rule, we would not expect the transfer of funds by a mainstream financial service provider to be an alternative remittance service or part of an underground or parallel banking system.

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The Draft Guidance Note

On 18 May 2007, AUSTRAC issued a Draft Guidance Note on the Register of Providers of Designated Remittance Providers for public consultation (the Draft Note). The consultation period ends on 31 May 2007.

It is clear from the description of a registrable designated remittance service provider in the Draft Note that the requirement to register will not apply to entities that regularly transfer money or property, such as securities, as part of their mainstream financial activities. Rather, the Draft Note provides a description of the types of registrable remittance service providers required to register as:

 ... those commonly known as remittance dealers, money remitters, money transmitters, alternative remitters, providers of money transfer and various services usually provided within community groups and known by names particular to each ethnic culture;

  

and

Generally such services accept cash, cheques, monetary instruments or stores of value in one location and pay an equivalent amount of cash or value to a beneficiary in another location. Transfers are commonly made by communicating through telephone, fax, e-mail, SMS or through a clearing network. In some communities this form of money transfers is commonly known as hawala, hundi, ....

  

Businesses that already fall within the definition of a cash dealer in subparagraph (k)(ib) and paragraph (l) of the Financial Transaction Reports Act 1988 (Cth) will also be captured.2  

The Draft Note indicates that AUSTRAC will develop AML/CTF Rules to treat certain arrangements that do not constitute DRAs under the Act. It is hoped that these AML/CTF Rules will at the least exclude financial service providers that are regulated by a statutory Commonwealth or state regulator (eg an Australian Financial Services licence holder) and will have the effect of excluding, from the Part 6 obligations, businesses, such as those in the managed funds sector, that regularly transfer funds or property.3

Businesses should, as a priority, consider whether they wish to make submissions to AUSTRAC on the Draft Note before the expiry of the 31 May 2007 deadline (so as to ensure that the AML/CTF Rules released by AUSTRAC are sufficiently broad enough to cover the transfers that they do as part of their mainstream financial activities).

Until such time as these AML/CTF Rules are finalised, businesses that have not registered with AUSTRAC may also wish to consider whether they should formally advise AUSTRAC of their intention to continue providing registrable designated remittance services (and not to seek registration on the basis of the principles outlined in the Draft Note).4   

The Draft Guidance Note can be found at AUSTRAC's website.

Footnotes

  1. Special Recommendation VI.
  2. Sub-paragraph (k)(ib) includes a person (other than a financial institution or real estate agent) who carries on a business of remitting or transferring currency or other prescribed commercial instruments, or making electronic funds transfers, into or out of Australia on behalf of other persons or arranging for such remittance or transfers;
    Paragraph (l) includes a person (other than a financial institution or real estate agent) who carries on business in Australia of:
    (i) on behalf of other persons, arranging for funds to be made available outside Australia to those persons or others; or
    (ii) on behalf of persons outside Australia, making funds available, or arranging for funds to be made available, in Australia to those persons or others;
  3. The Federal Government has already indicated that lawyers will be exempt from Part 6 when they carry out conveyancing and routine trust account activities.
  4. If an entity does this, while there is no guarantee, it may be possible for them to argue that this would constitute a 'reasonable step' towards compliance for the purposes of the Policy (Civil Penalty Orders) Principles 2006 and therefore to obtain some level of protection against any criminal or civil action arising out of their failure to comply with the registration requirement.

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