AML and Managed Investment Schemes: Act applies from 31 January 2008

As we reported on 11 December 2007 in our Financial Services Alert, AUSTRAC has conceded the existence of an unintended gap which has meant that the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) (Act) does not currently apply to the issue of interests in a managed investment scheme (as it does not currently fall within item 35 of table 1 of section 6 of the Act).

The Attorney-General’s department recently released an update, and regulations (Regulations) have today been registered (Anti-Money Laundering and Counter-Terrorism Financing Regulations 2008) to ensure that issuers of interests in managed investment schemes are subject to AML/CTF obligations under the Act. The obligations imposed by the new Regulations will not be retrospective, however, they will take near immediate effect on 31 January 2008.

What is still unclear is whether new customers post 12 December 2007, but prior to 31 January 2008, will be considered ‘pre-commencement’ customers. The Regulations’ silence on this issue would indicate that issuers of units in managed investment schemes who have not been identifying new customers due to the abovementioned gap will have to retrospectively identify these customers before continuing to issue them units. Industry will be seeking guidance from AUSTRAC in this regard.

In addition, draft rules have recently been released by AUSTRAC for public consultation which generally provide:

• An issuer of a security (including fund managers) may carry out the applicable customer identification procedure within 5 days after issuing units if:

  • the issuer does not accept physical currency to fund this service

  • the issuer does not permit the customer to transfer (or otherwise part with) proceeds from a sale (where relevant) of a security or derivative and

  • the reporting entity does not permit the customer to re-sell, transfer (or otherwise part with) a security or derivative which has been acquired by the customer

• Fund managers, amongst others (including lenders, stock brokers, security issuers, life insurers, pension and annuity providers, superannuation funds and foreign exchange dealers) are to be included as ‘ordering institutions’ for the purposes of same-person and person-to-person electronic funds transfer instructions which may result in requiring them to record and pass on certain transfer details to AUSTRAC upon request.  This would also mean that a separate designated service (as an ordering institution under Item 29 of Section 6 of the Act) is being provided, to which the Act would also apply.
• Where a reporting entity is taken over by another reporting entity (whether by transfer of shares, or sale of all or part of its business), all existing customers of the selling entity will essentially be treated as pre-commencement customers for the purchasing entity (and therefore not require further identification), provided that the purchasing entity has considered (and appropriately determined) the money laundering and

  counter terrorismrisks that it faces in providing such customers with a designated service.

We also note that issuers of interests in managed investment schemes are not required to lodge compliance reports for the first reporting period of 13 December 2006 to 31 December 2007 as they will only be reporting entities from 31 January 2008.

What should you do?

• Fund managers must comply with the Act from 31 January 2008.
• We are advising fund managers that they should conduct identification procedures for additional investments by new customers who

  were first issuedinterests between 12 December 2007 and 31 January 2008 until the issue is clarified by AUSTRAC.

• Fund managers should conduct identification procedures prior to the issue of interests in their schemes until final AUSTRAC rules are passed in respect of allowing identification within 5 days of the issue of interests in managed investment schemes.