Tranche too far away?

By Peter Jones

Far reaching changes to Australia’s anti-money laundering and counter-terrorism financing (AML/CTF) regime have been recommended by the Legal and Constitutional Affairs References Committee of the Senate.

The Committee's report made four recommendations:

1. that the Federal Government accelerates its consultation with stakeholders on the timely implementation of tranche 2 reforms and ensures that the Australian Transaction Reports and Analysis Centre (AUSTRAC) and the Department of Home Affairs (DHA) have the right resources to adequately and effectively implement and manage the tranche 2 regime;
2. that this consultation specifically consider:
   1. the impact of regulatory burden on small business;
   2. opportunities and efficiencies that might be gained from technological innovation; and
   3. existing regulatory and professional obligations on tranche 2 entities, including their effectiveness when compared against the AML/CTF Act;
3. that the Federal Government seeks advice as to whether section 242 of the AML/CTF Act should be amended to ensure the proper operation of legal professional privilege; and
4. that the Federal Government pursues a beneficial ownership register.

DHA told the Committee that the ‘government has committed to tranche 2’ as well as having ‘committed to simplification of the [AML/CTF] regime as a whole’. DHA also said that ‘internal policy work is being undertaken across government’ including ‘to look at the options for regulating tranche 2 sectors; to take into account some of the regulatory reforms we have already achieved, particularly in relation to customer due diligence; to quantify the benefit of extending the regime to tranche 2; to better understand the nature and the quantum of the costs involved for businesses; to factor in options for lowering the regulatory costs, whether that be staggered implementation, templates or sector guidance, leveraging the existing regulation, and professional obligations’.

Confirmation of the Government’s commitment to tranche 2 is welcome even though the timetable for that commitment being actioned is unknown. The calling of the federal election since the release of the Committee’s report will delay that timetable further but the Committee has set out very clearly the reasons for the reforms to be implemented promptly.

The simplification discussed with the Committee primarily related to simplifying the AML/CTF Rules, but also covered simplification of the 'know your customer' requirements and related customer due diligence obligations. This simplification was considered in the context of the estimated 100,000 new entities that would become reporting entities under tranche 2, the additional cost to business (particularly small business) of that coverage and the additional resources required for AUSTRAC, DHA and others to effectively manage those new reporting entities.

The Committee noted that a publicly accessible, centralised beneficial ownership (of companies and trusts, potentially also covering control) register ‘would both mitigate the burden on small business by enhancing and simplifying ‘know your customer’ searches and at the same time would reduce Australia’s vulnerability to money laundering’. The register, like tranche 2 itself, is not a new idea. The Committee has, however, neatly aligned the register with the simplification it considers necessary for the introduction of tranche 2.

If, as the Committee was told, the Financial Action Task Force conducts a review later this year of Australia’s progress against the findings of its 2015 Mutual Evaluation Review, the fact that the tranche 2 reforms have not yet progressed beyond internal government policy work may provide some impetus for the next Parliament to encourage the government to set a timetable and allocate resources to these long-proposed reforms.

Note re title: With apologies to the reputed lament of an Australian shearer’s wife, part of which became well known following the success of the 1975 Australian film 'Sunday Too Far Away'.

Note re ‘tranche 2’: Tranche 2 is the name given to the application of the Anti-Money Laundering and Counter Terrorism Financing Act 2006 to real estate agents, legal professionals, accountants, and trust and company service providers.