New AML obligations – less than 3 weeks left

In anticipation of the December deadline for new obligations under the Anti Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) (AML Act), from 12 December 2008, AUSTRAC, the regulatory body responsible for the implementation and enforcement of the AML Act, has added a further chapter to its Regulatory Guide on Ongoing Customer Due Diligence (OCDD). Although this guidance is not binding, its advice will shed some light on AUSTRAC’s expectations in respect of compliance.

Ongoing Customer Due Diligence

All customers, including ‘pre-commencement’ customers (ie pre 13 December 2007) who until now Reporting Entities (RE’s) under the AML Act have generally not been required to deal with, will be subject to OCDD. It will be left to the RE, in accordance with its risk based profile of its existing customer base, to asses whether pre-commencement customers, about whom proper identification may have never been performed, attract further due diligence.

The prescriptive rules relating to OCDD require a RE to asses whether further KYC information is required or whether existing information about a customer requires updating. Examples given include:

• a significant transaction or series of transactions (in amount, size or volume takes place)
• a significant change occurs in the way an account was previously operated by the customer or
• there are doubts about the identity of a customer.

The AML Program should prescribe its own triggers for OCDD and define what a ‘significant’ transaction is in relation to the RE’s business.

Further triggers for OCDD will arise as a result of the RE’s transaction monitoring, also to be included in the AML Program from 12 December 2008. The guidance sets out a three-step process:

• monitor customer transactions
• identify suspicious transactions and
• take appropriate action.

Again, the risked based analysis performed by the RE will establish the rules and triggers for each of these, taking into account the prescriptive approach for suspicious transactions, which include the filing of a suspicious matter report, also an obligation that begins from 12 December 2008.

The monitoring program needn’t be automated, depending on the size, products offered and other circumstances of the RE, and could be implemented manually.

Enhanced customer due diligence must also form a part of the RE’s AML Program from 12 December 2008, in respect of higher risk customers, and further ‘non-standard’ steps that are taken to ensure sufficient identification has been achieved.

Reporting to AUSTRAC

From December 12 2008, RE’s will also be required to report:

• threshold transactions
• suspicious matters and
• international funds transfer instructions.

Threshold transactions

Threshold transactions involve the transfer of physical currency or e-currency of AUD$10,000 or more (or the foreign currency equivalent), and must be reported to AUSTRAC within 10 business days of the threshold transaction taking place.

Suspicious matters

A suspicious matter must be reported to AUSTRAC where the RE forms a (reasonable) suspicion at any time while dealing with a customer (from the identification stage to the actual provision of a service, or later) on a matter that may be related to an offence, tax evasion, or proceeds of crime. This report must be submitted within three business days of forming the suspicion, or if the suspicion relates to the financing of terrorism, within 24 hours of forming the suspicion.

Public Legal Interpretation No. 6 (PLI6) recently published by AUSTRAC provided some guidelines in respect of reporting suspicious matters. PLI6 explains the additional obligations of a reporting entity on top of the suspect transaction reporting requirements under the Financial Transactions Reports Act 1988 Act, as the AML Act also requires reporting entities to lodge reports where they have doubts as to the identity of a customer.

The vagueness of ‘reasonable suspicion’ is also given clarity, importantly, that an RE is to investigate a suspicious matter before forming a reportable suspicion. This is because there must be some basis to form the ‘reasonable’ opinion. This would initially include a request for more information from the customer.

Tipping off rules prevent an RE from letting the customer know that a reportable suspicion has been formed. The guidance also points out that the mere asking a customer for additional information or further verification about their identity would not constitute a breach of these provisions, unless reasons for the request (that a suspicion has been formed) has been supplied.

The use of an identifying agent (eg a financial planner) is also discussed in respect of suspicious matter reporting. PLI6 states that where an agent of a reporting entity (involved in identification) forms a suspicion in respect of the customer, that knowledge is not imputed to the responsible entity itself, and it is only after they, as principal, have formed the suspicion do the obligations arise. PLI6 does suggest that the obligation to disclose all material facts to the responsible entity be included in a contractual agreement with the agent (notwithstanding the fiduciary duty that would exist).

International funds transfers

International funds transfer instructions must be reported where an RE sends or receives an instruction to or from a foreign country for a transfer of money or property – either electronically or under a remittance arrangement. AUSTRAC has produced two types of such forms. The form that reporting entities use will depend on whether or not they are part of the established banking system and send or receive instructions electronically, or they are remitting money or property under a ‘designated remittance arrangement’. It be submitted within 10 business days of sending or receiving the instruction.

Compliance

AUSTRAC have continued to encourage RE’s that will not be fully compliant by the December deadline to approach it with a plan for compliance at an earlier date and the steps that are being taken. It is only by taking these ‘reasonable steps’ that the 15 prosecution period will apply.