AML/CTF: Answers to your most asked questions

By Taylor Green

A new year invites a recap of the most frequently asked questions relating to anti-money laundering and counter-terrorism financing (AML/CTF). We outline some of the questions we get asked regularly and provide practical insight on how to implement the AML/CTF regime in your funds business.

Do we need to verify existing customers making new investments?

It is best practice to use every new investment (whether in respect of the same or another security issued by you) as an opportunity to refresh a customer’s profile. Re-identifying and re-verifying customers may pick up changes to an organisational structure which the customer hasn’t advised you about and ensures you are authenticating the individual or organisation making the application. Conducting re-verification generally lowers the risk of money laundering/terrorism financing.

Understandably, this can be incredibly impracticable if a customer makes successive investments in a short space of time. Whether you are able to rely on previous ‘Know Your Customer’ (KYC) procedures is dependent on your AML/CTF program. We recommend reviewing your AML/CTF program to ensure it gives you this flexibility.

The AML/CTF regime is so complex. How can I simplify it for our staff doing onboarding procedures?

Practically, it can be helpful to break down the KYC procedure as follows:

• Identification. Collect all the data you need to identify the person or organisation. This can either be through an application form and/or other documentation (eg special KYC collection forms/checklists). Using internal checklists can help to simplify the process.
• Verification. Ensure the identifying material is accurate and genuine. This step ensures the person or organisation you ‘identified’ exists.
• Authentication. Ensure the person that exists is the person you are onboarding. You may do this through an in-person meeting. Alternatively, you may wish to call an independent phone number, or contacting another member of the applicant’s business, but always being careful not to breach the applicant’s privacy.
• Special steps. Based on the information collected in the above steps, proceed with any other necessary special steps, including source of wealth checks, ‘politically exposed person’ checks, or other risk-based hurdles.

Can you please sign off our independent review requirement on the basis our AML/CTF program is still legislatively compliant?

Legislative compliance of an AML/CTF program is one aspect of an independent review. However, independent reviews are significantly more involved and require a deep examination of the practical implementation and appropriate application of the AML/CTF program in your business. This may include sampling client onboarding procedures, sampling suspicious matter reports, and interviewing business groups to test understanding of AML/CTF procedures.

Independent reviews have the potential to be costly and take significant effort. Reach out to us if you would like to know how to make your review process more cost-effective and efficient, such as splitting AML/CTF reviews into internal annual reviews, internal quality assurance reviews, and independent reviews.

We have had a foreign investor flag on WorldCheck. What do we do?

Having an investor flag on a political exposed person and sanctions check does not necessarily mean your investor is the individual flagged. Unfortunately, common names often flag only to be discounted with further information provided by a prospective customer.

In this instance, the first step is to consult your AML/CTF program. It is important to have an AML/CTF program that defines a procedure for seeking further information from a customer in circumstances such as this, without tipping a customer off to any potential suspicious matter report.

If the customer cannot be discounted from the ‘red flag’, it is important your AML/CTF program contains procedures for management or board approval of a potentially high-risk customer. Unless stipulated in your AML/CTF program, a customer being high risk does not mean they are automatically barred from being onboarded; it will simply mean that customer will be subject to greater scrutiny and checks.

The customer won’t or can’t give us the information we need. Do we have to reject their application?

A customer may be elderly, in a foreign country, or unable to provide original copies of key documents (eg trust deeds). In circumstances where a customer can’t or won’t be able to provide information, it is important to identify if the failure to provide information is suspicious. If the avoidance of KYC procedures does appear to be suspicious, you need to consider whether a report should be made to the Australian Transaction Reports and Analysis Centre (AUSTRAC) regarding the behaviour, and whether onboarding procedures should cease.

If the activity does not appear to be suspicious, it is important to consult your alternative KYC procedures in your AML/CTF program. We recommend these procedures include mechanisms for virtual identification, processes to obtain alternative documentation for certain persons such as victims of domestic violence, as well as appropriately stringent risk profiling of customers subject to alternative procedures. This may include management or board approvals and potential rejections of applications.

Family trusts: what do I do?

Trusts come in all different forms and can be difficult to decipher. In relation to family or discretionary trusts, it is important copies of original deeds and trust deed amendments are obtained in the identification process to ensure accurate information relating to settlor, trustee/s and beneficiaries.

On receipt of these documents, if you or your team are unsure which individuals should be subject to KYC, we recommend you consult either your internal legal team or reach out to us for assistance.

Is [insert your choice of facts here] suspicious?

This is an extremely common question. Whether a matter is suspicious and warrants a report to AUSTRAC is very circumstance dependent. It is important to ensure your AML/CTF program and any relevant training materials includes detailed signposting or direction for your staff on what matters may be suspicious.

We are happy to assist you in determining if a matter is suspicious.