Application of AML/CTF Act to managed investment schemes – exempt?

A representative of AUSTRAC has recently confirmed AUSTRAC’s position in regard to the application of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) (the AML/CTF Act) to managed investment schemes is as follows:

‘The wording of paragraph (b) of item 35 in table 1 of section 6 of the AML/CTF Act gives rise to an unintended effect of exempting an issue of unit(s) in a managed investment scheme (by a company) from the AML/CTF Act.

The Attorney-General’s Department has advised that it is examining possible responses to this issue and will provide advice to the government on this matter as soon as practicable. At this stage, an issue of unit(s) in a managed investment scheme (by a company) does not fall within the AML/CTF Act.’

Paragraph (b) of Item 35 exempts the issuing or selling of a security (which includes interests in a managed investment scheme) by a company of a security of the company.

The position taken by AUSTRAC and the timing of this announcement is surprising.  This view is contrary to the interpretation of the law taken by Hall & Wilcox and others within the financial services sector. The policy intent to regulate the issue of interests in managed investment schemes has been clear throughout the consultation and implementation process.

Based on AUSTRAC’s statement, the current position is that the issue of interests in managed investment schemes is exempt from the AML/CTF Act.

Accordingly, responsible entities and trustees of managed investment schemes may generally choose (after 12 December 2007):

• to comply with the provisions of the AML/CTF Act (even though it doesn’t apply)
• continue to issue interests without conducting identification and verification procedures (and other obligations, including adopting and AML/CTF Program) until this issue is resolved or
• a combination of the above.

We will keep you advised of further developments.