Modernising the AML/CTF regime

Given the potential for eye-watering penalties, not to mention the damage to corporate reputation, for non-compliance with the existing regime, the Government’s release of its Modernising Australia’s anti-money laundering and counter-terrorism financing regime Consultation Paper (the Paper) is sure to be welcomed by compliance lawyers, if not the corporate community at large.

According to the “Overview” of the Paper, Part 1 “proposes reforms that will simplify and modernise the operation of the regime”. It notes that the 2016 Statutory Review found that the regime was “overly complex and impedes the ability of regulated entities to understand and comply with their AML/CTF obligations. In particular, the scale, structure and density of the Rules was considered to be a significant issue, rendering them hard to follow and largely inaccessible, particularly for small business”.

Specifically, the 2016 Statutory Review made 84 recommendations to strengthen Australia’s AML/CTF regime and implement a more efficient and effective regulatory framework.  The Paper identifies the requirements to adopt and maintain an AML/CTF program to identify, mitigate and manage money laundering and terrorism financing risks, and the requirements around customer due diligence as the Review’s two key obligations for reform.

The Attorney-General’s Department is also proposing the following reforms:

  • lowering the reporting thresholds for the gambling sector;
  • amending the tipping-off offence;
  • extending the regulation of digital currency exchanges;
  • modernising the travel rule;
  • providing a statutory exemption for assisting an investigation of a serious offence;
  • amending revised obligations during COVID-19 pandemic; and
  • repealing the Financial Transaction Report Act 1988.

Part 2 of the paper might be more controversial, albeit not surprising to those familiar with AML/CTF regimes elsewhere in the world. This part of the paper proposes extending the AML/CTF regime to specified “high-risk professions, including lawyers, accountants, trust and company service providers, real estate agents and dealers in precious metals and stones (also known as tranche-two entities)”.

The Paper explains that tranche-two entities are particularly vulnerable to misuse and exploitation by transnational, serious and organised crime groups, and terrorists due to the nature of the services that they provide.

The Financial Action Task Force (FATF) is the global financial crime watchdog, of which Australia is a founding member. In this regard, there are a number of FATF Standards specific to tranche-two entities and FATF monitors compliance with its Standards through a peer review process known as a Mutual Evaluation. As reported in the Paper, FATF adopted Australia’s Fourth Round Mutual Evaluation in 2015, and found Australia non‑compliant or only partially compliant with 16 Recommendations, including those recommendations relating to tranche-two entities.

Australia will undergo its next Mutual Evaluation between 2025 and 2027 and “is at risk of receiving low ratings and potential grey listing if we do not undertake significant reform”. The Paper goes on to explain that grey listing could result in significant economic costs for Australia, such as “increased costs of doing business as other countries apply enhanced measures, reduction in credit rating and foreign direct investment, reduction in incoming capital flows, and the potential loss of international banking connections as the country is perceived to be high risk”.

The Government is “committed to consulting with industry in the consideration of the reforms proposed in this paper”. Accordingly, interested parties can make submissions and feedback on the Department’s Consultation hub on or before 16 June 2023.

The legal content of the Banking and Finance Practice Area is both wide and complex, being subject to dynamic change. Westlaw provides extensive expert commentary that addresses ASC’s role, dispute resolution, foreign investment, insurance law, financial planning and retail and commercial banking practices. Specific areas within the banking and finance industry are covered in detail include the law relating to guarantees, personal property securities and the impact of  the National Credit Regulation and Anti-Money Laundering regimes.

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