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Client Update: Anti-money Laundering – 15 December 2006

AAR partner attends FATF consultation

In brief: Allens Arthur Robinson Partner Anna Lenahan(view CV) recently attended a high-level consultation between the Financial Action Task Force and representatives of the international legal and accounting professions. Anna and Senior Associate Judy Maguire report on the meeting and its outcomes.

Background

Following a successful meeting last year between the Financial Action Task Force (the FATF)1 and representatives of the banking and securities sector, FATF decided to hold a dialogue between its members and observers and representatives of the international, regional and national associations of lawyers, notaries, accountants and trust and company service providers as well as individual practitioners working in the field. 

Anna Lenahan and Judy Maguire of AAR were invited to attend the high-level FATF consultation because of AAR's close involvement in the changing Australian AML/CTF regime and because of their particular knowledge of FATF initiatives and practice.2

The meeting, held in Amsterdam in early November, was attended by members of FATF, the IMF, the World Bank and representatives of various international and national legal professional bodies (including the American Bar Association, the Council of the Bars and Law Societies of the EU, the International Bar Association and the Law Society of England and Wales). Australia was represented by the Law Council of Australia. Anna Lenahan was the only lawyer to attend in her capacity as an individual practitioner.

The purpose

The purpose of the meeting was to identify and discuss issues of concern to the private sector arising from the implementation of the FATF Recommendations and to look at how these issues could be addressed (following the meeting and subsequently in an ongoing dialogue between FATF and those attending the meeting).

Although the focus of the meeting was on the impact of AML/CTF regulation on the legal and accounting professions, the topics discussed were also of general application to the financial sector and in particular, in an Australian context, to those businesses which will shortly become subject to the obligations under the Anti-Money Laundering and Counter-Terrorism Financing Act (the AML/CTF Act) (which was, of course, introduced to bring the Australian AML/CTF regime into compliance with the FATF standards).

The meeting was particularly useful in identifying how the FATF Recommendations are dealt with in other jurisdictions and highlighted that there are significant differences in how different jurisdictions have interpreted and applied them.

Representatives from those jurisdictions who have had sophisticated AML/CTF regimes in place for some years, such as the EU, were able to provide useful guidance as to how successful, proportionate and cost effective AML/CTF regimes have been developed. There was also constructive discussion on the practical difficulties of applying AML/CTF measures in a financial and legal environment. The globalisation effect, that is, how international legal firms deal with cross-border customers and transactions, was a hot topic.

Discussion centred on a number of issues including:

  • customer due diligence measures, characteristics of identity and reliable identification data;
  • the risk-based approach;
  • suspicious transaction reporting; and
  • AML/CTF regulation and oversight.

Discussion of some of the specific issues for example:

  • timing of customer identification and verification; and 
  • PEPs; 

highlighted the fact that the new Australian AML/CTF regime may not be consistent in all respects with the FATF position or the practice in overseas jurisdictions. The financial sector may wish to make this point in its ongoing consultation with the Australian Government on the AML/CTF Rules.3

Legal professional privilege. A great deal of the discussion centred on the question of the abrogation of legal professional privilege and client confidentiality (the two are not necessarily the same) by the requirement to report suspicious transactions. This is an area of ongoing concern and judicial challenges against the requirement have been raised in a number of jurisdictions with varying degrees of success.4 Given the FATF position that the exception from the reporting obligation should not be extended to include the wider concept of confidential information, the argument is bound to continue.

Legal professional privilege is specifically protected in the AML/CTF Act. The Law Council of Australia has taken the view that this is not sufficient5 (and that view is consistent with the line taken by a number of the international legal bodies at the FATF meeting).

What next?

A working group of those who attended the meeting has been set up with the object of continuing the dialogue between FATF and the private sector. The FATF has indicated that it has no appetite to renegotiate the Recommendations in the short term. However, it has been agreed that it will consider whether the Interpretive Notes can be further developed or principles developed to ensure clarification and better implementation of the Recommendations. The working group and FATF will work together on progressing this project which will be discussed and is expected to be signed off at the FATF Plenary meeting in February 2007. Anna Lenahan and Judy Maguire will continue to contribute to the working group and will continue to report on the FATF project.

Footnotes
  1. FATF is the international inter-governmental body that develops policies to combat money laundering and terrorist financing.
  2. Judy Maguire has worked within the FATF environment and is familiar with many of the FATF initiatives and Anna Lenahan represented Australia's major corporate law firms in an interview with the FATF assessment team during the FATF's mutual evaluation of Australia.
  3. For example on the issue of timing, FATF indicated at the meeting that the Recommendations do not require a customer to be identified immediately if that would interrupt the normal course of business.  In contrast, AUSTRAC has recently indicated that AML/CTF Rules on permitting identification and verification after a designated service has been provided, are only contemplated in relation to bookmakers. 
    On the question of PEPS, the consensus at the meeting was the importance of having a precise definition of a PEP.  Oddly the new Australian regime appears to be taking the opposite approach in that PEPS are not defined at all in the AML/CTF Bill or Rules (where the only reference to PEPs is as a subset of high risk customer) and the Government appears to be contemplating that no definition will be provided. 
  4. For example, the Canadian Federation of Law Societies have successfully challenged the reporting requirement and a challenge to the reporting requirements in the 2nd EU Directive is pending.  
  5. The Law Council's submissions to the Senate Legal and Constitutional Affairs Committee

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