Tranche too hard: Australia edges forward with glacial AML/CTF law reform agenda

Australia has revived its sclerotic anti-money laundering (AML) law reform program with the long-awaited “Phase 1.5” legislation moving through the federal Lower House on Wednesday. The legislation had been buried in the House of Representatives for more than a year before being voted into the Senate on Thursday.

The Anti-Money Laundering and Counter-Terrorism Financing and Other Legislation Amendment Bill 2019 sets out a number of crucial reforms to the regime. The reforms were recommended in the statutory review of the AML/CTF Act, which began in 2014.

The so-called Phase 1.5 legislation sets out a range of measures to “strengthen Australia’s capabilities to address money laundering and terrorism financing risks, and generate regulatory efficiencies”.

The law will expand the ability of reporting entities to rely on customer identification and verification procedures undertaken by a third party. At the same time, it will “explicitly prohibit” reporting entities from providing a designated service if customer ID procedures cannot be performed.

The Bill will strengthen the correspondent banking requirements by cracking down on relationships with foreign shell banks.

The law reforms will also expand exceptions to the prohibition on tipping off to permit reporting entities to share suspicious matter reports (SMRs) and related information with external auditors, and foreign members of corporate and designated business groups. This was a notable challenge when the HSBC monitor in New York needed a special exemption from AUSTRAC to view SMR reporting data from the bank’s Australian arm.

In a fillip for the Fintel Alliance, the Bill will introduce a simpler framework for the sharing of financial intelligence to better support combating money laundering, terrorism financing and other serious crimes. At present, alliance members are forced to use cumbersome strategies, such as formal Section 167 notices, to share information.

The law also creates a single reporting requirement for the cross-border movement of monetary instruments, including non-cash instruments. At present travellers do not have to report bearer instruments, such as prepaid cards or travellers’ cheques, unless they are asked by an official. Sources said this was an unworkable situation, as law enforcement officers can only request this information if they have reasonable grounds for suspicion.

Towards Tranche 2

The Phase 1.5 laws have been viewed as a precursor to the more substantive “Tranche 2” reforms, which will bring lawyers, accountants, real estate agents and other gatekeeper professions inside the regime.

Tasmanian Greens Senator Nick McKim said the government needed to seize the opportunity to introduce the 14-year-old policy within this legislation. He moved a motion in the Senate to include the Tranche 2 reforms in the Bill.

One Nation and other independents are understood to be strongly in favour of the reforms. The Greens are now waiting to see if Labor senators support the amendment, which would be sent back to the lower house.

Paddy Oliver, a lawyer specialising in AML/CTF matters, said the Greens amendment was unlikely to be successful. He described the drafting of the proposed legislative changes as political theatre, rather than a genuine attempt to usher in Tranche 2.

“It’s a forlorn hope. The amendment doesn’t make sense, aside from the grandstanding and politics. A profession cannot be a designated service,” Oliver said.

“Australia’s regime is designated services based, not who provides services which is in some other jurisdictions. The concepts don’t mix.”

The Australian Labor Party, under former leader Bill Shorten, said in February 2019 that AML/CTF laws for designated non-financial businesses and professions (DNFBPs) would form part of its election platform. Labor has since distanced itself from the comments after losing the 2019 election.

Sources in Canberra said Labor was now considering whether to support the Greens’ motion and force the issue back into the Lower House.

In late 2019 the Financial Action Task Force (FATF) cancelled its proposed visit to Australia to conduct a follow-up review on the fourth round mutual evaluation. The review was expected to condemn Australia for becoming a laggard in the Asia-Pacific region on money laundering reform. Australia has been promising to pass the second tranche of its Anti-Money Laundering and Counter-Terrorism Financing Act (AML/CTF Act) since 2006.

The Department of Home Affairs said the “Phase 1.5” bill was the next phase in the reform timetable set out following the AML/CTF Statutory Review.

“This is the next phase of the government’s reforms bolstering our AML/CTF systems, to prevent criminals from enjoying the profits of their illegal activity and stop funds falling into the hands of terrorists,” a Home Affairs spokesman said.

“The government is committed to continually improving our AML/CTF laws and working with industry to ensure that Australia’s financial system is hardened against criminals without placing undue burden on industry.”

This report was written by Nathan Lynch, APAC Manager, Regulatory Intelligence, Thomson Reuters.

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Nathan Lynch is an experienced writer, public speaker, manager and technology enthusiast in the field of financial regulation and risk management. At Thomson Reuters, Nathan leads a team of experts who provide breaking news, deep analysis and practical guidance to risk practitioners in the global financial services sector.
Nathan manages Thomson Reuters’ award-winning Regulatory Intelligence team across the Asia-Pacific region, tracking developments in financial services law, regulation, financial crime and risk management.
Nathan has been involved in building innovative, tech-based businesses in the financial services “regtech” sector — including Complinet Australia and the Thomson Reuters Risk business.

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