Review of the AML/CTF Regime
Issues Paper
December 2013
1
Table of Contents
Glossary of Terms
Part 1: Review of the AML/CTF regime
Purpose of the Issues Paper
Statutory review
Timeframe
Structure of the issues paper
Exclusions: CDD reforms and AUSTRAC supervisory levy
Making a submission
Engagement
Part 2: Australia’s AML/CTF regime
Introduction
What is money laundering and terrorism financing?
International context and FATF
Australia’s legislative framework
AML/CTF Act
AML/CTF Rules
AML/CTF Regulations
FTR Act
The role of AUSTRAC
Part 3: Issues for consideration
Objects of the AML/CTF Act
Guiding questions
The risk-based approach and better regulation
Risk-based and rules-based approaches
Guiding questions
Modifications and exemptions
Guiding questions
Minimising regulatory burden on reporting entities
Guiding questions
Regime scope
Designated services
Industry sectors
The growth in off-shore service providers
Guiding questions
Harnessing technology to improve regulatory effectiveness
Guiding questions
Industry monitoring and supervision
Industry engagement
Financial group supervision
Guiding questions
Enforcement
Guiding questions
Reporting obligations
Transaction reporting
Cross-border movements
Thresholds
Intelligence value of transactions reports
Guiding questions
Secrecy and access
Government agencies
Reporting entities
Guiding questions
Privacy and record keeping
Privacy protections
Record keeping
Guiding questions
International cooperation
Guiding questions
APPENDIX: Terms of reference and Guiding Principles
Glossary of Terms
ACCAustralian Crime Commission
AML/CTFAnti-money laundering and counter-terrorism financing
AML/CTF ActAnti-Money Laundering and Counter-Terrorism Financing Act 2006
APPsAustralian Privacy Principles
AUDAustralian dollar
AUSTRACAustralian Transaction Reports and Analysis Centre
BNIBearer negotiable instrument
CDDCustomer Due Diligence
DNFBPDesignated non-financial businesses and professions
FATFFinancial Action Taskforce
FIUFinancial Intelligence Unit
FTR ActFinancial Transaction Reports Act 1988
IFTIInternational funds transfer instructions
IPPsInformation Privacy Principles
MLMoney laundering
ML/TFMoney laundering and terrorism financing
SMRSuspicious matter report
TFTerrorism financing
TTRThreshold transaction report
UNUnited Nations
Part 1: Review of the AML/CTF regime
Purpose of the Issues Paper
The purpose of this paper is to seek stakeholder views on the operation of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act),AML/CTF Regulations and AML/CTF Rules, in order to provide input to the statutory review of Australia’s ‘AML/CTF regime’.For the purpose of the Review, the AML/CTF regime refers to the AML/CTF Act, Regulations and Rules.
The paper outlines areas the review proposes to explore and includes a set of guiding questions to assist those interested in preparing a submission to the review.
The primary aim of the paper is to obtain feedback from stakeholders on the strengths and areas for improvement of the AML/CTF regime. The Review will seek to identify how the regime could be enhanced to achieve the goal of maintaining a regulatory framework which complies with international standards and combats money laundering and terrorism financing effectively and efficiently. The practical experience of regulated entities and industry sectors in operating under the AML/CTF regime is important for assessing effectiveness and efficiency. The view of government agencies of the value of the regime for combating serious and organised crime, money laundering and terrorism financing is also essential.
Terms of Reference and Guiding Principles have been issued to provide broad direction for the Review. These are included in the appendix. The issues paper should be read in conjunction with those documents.
Statutory review
The AML/CTF Act commenced operation on 12 December 2006 with a number of provisions coming into effect over the following twoyearsto allow industry time to adjust to new requirements.
Section 251 of the AML/CTF Act requiresa review of the operation of the regime–that is, the AML/CTF Act, AML/CTF Regulations and AML/CTF Rules–and must commence before the end of the period of seven years after the commencement of that provision.The review must commence by 13 December 2013.A report about the review must be prepared and tabled by the Minister in each House of Parliament within 15 sitting days of the report’s completion.
While section 251 of the AML/CTF Act limits the review to the operation AML/CTF regime, stakeholders may also consider raising issues concerning the operation of the Financial Transaction Reports Act 1988(FTR Act), which operates in parallel to the AML/CTF Act.
Timeframe
On 4 December 2013, the Australian Government announced the Review of the AML/CTF regime and released terms of reference, guiding principles, and this Issues Paper as an invitation for written submissions. Interested stakeholders are invited to make a written submission to the Review, addressing the issues raised in this paper or other matters relevant to the operation of the AML/CTF regime. Written submissions should be submitted by 28 February2014.
The Review will overlap with an international evaluation of Australia’s AML/CTF regime in 2014. The Financial Action Taskforce (FATF), an inter-governmental body that develops and promotes implementation of international AML/CTF standards, periodically reviews by way of ‘mutual evaluation’ the compliance of member countries with the standards. As discussed later in the paper, the expected 2014 mutual evaluation of Australia’s AML/CTF regime will provide valuable information that the Review will need to consider. As a consequence, the Review will be finalised once the mutual evaluation has concluded and reported its findings to the FATF. This may not occur until early 2015.
Structure of the issues paper
The paper outlines the background in which Australia’s AML/CTF regime was developed and the context in which it operates, as well as some of the main features of the regime. It sets out key areas of interest to the Review, eachwith a short discussion of issues for consideration and guiding questions to assist interested parties to prepare written submissions to the Review.
The key areas and guiding questions in the Issues Paper are intended as a guide for those who would like to contribute tothe Review. They are not exhaustive. Submissions to the Review can include other topics for consideration, provided they relate to the AML/CTF regime and related legislation and Government policy.
Exclusions: CDDreforms and AUSTRAC supervisory levy
Two topics related to the AML/CTF regime are not covered in this paper.
Potential enhancements to the existing customer due diligence (CDD) measures are the subject of a public consultation process that the Australian Government launched in May 2013. Options for enhancing CDD measures are expected to be recommended from that process.
While the CDD consultation processwas the appropriate avenue for making comment on the proposed enhancements to CDD, the Review will consider any additional issues which may arise, or residual issues remaining,from that process as well as broader CDD issues.
The AUSTRAC supervisory levy is the subject of a separate statutory review. That review is being conducted from July to December 2013 and will result in a formal report being tabled by the Minister for Justice in Parliament in 2014. The supervisory levy will not be considered under the Review of the AML/CTF regime.
More information on both these topics can be found at the AUSTRAC website at the following link:
Making a submission
If you would like to make a submission, please send it to:
Issues Paper – AML/CTF Act Review
Legislative Review and Mutual Evaluation
Criminal Law and Law Enforcement Branch
Attorney-General's Department
4 National Circuit
BARTON ACT 2600
Submissions may also be submitted by email to by facsimile to (02)6141 2871.
The closing date for submissions is 28 February2014.
All submissions and the names of persons or organisations that make a submission will be treated as public and may be published on AGD’s website, unless the author clearly indicates to the contrary. A request made under the Freedom of Information Act 1982 for access to a submission marked confidential will be determined in accordance with that Act.
The Review will be evidence-based to ensure it makes well-informed assessments on the operation of the AML/CTF framework and whether enhancements may be required.Where appropriate, all stakeholder submissions should include information which supports or demonstrates a particular point or issue addressed in the submission. Evidence in support of submissions may be in the form of collected data, business or operational examples, or other forms of information which illustrate and support any issues or concerns raised.
Engagement
The submissions will be considered by the Attorney-General’s Department and AUSTRAC, who will work closely with other government agencies during the course of the Review and preparation of a report to the Minister for Justice.
Effective engagement with industry, peak bodies and other stakeholders is essential if the Review is to adequately examine issues concerning the operation of Australia’s AML/CTF regime. This is also important for exploring possible options to enhance the regime.
Information on further stakeholder engagement will be issued after submissions have been received and considered.
Part 2:Australia’s AML/CTF regime
Introduction
Money launderingand terrorism financing (ML/TF) threaten Australia’s national security and the integrity of key parts of the economy. Money laundering, as an intrinsic enabler of serious and organised crime, including tax evasion, supports the criminal economy which is conservatively estimated to amount to $10-15 billion a year.[1]Terrorism financing helps extremists and terror networks, based in Australia and with links overseas, to train, travel, prepare and execute violent attacks. ML/TF activity exploits not only the financial industry and other sectors of the economy but also community-based institutions, such as charities and non-profit organisations.
To combat these threats, Australia has established an AML/CTF regime based on FATFinternational standards.[2] The regime provides the legal framework designed to make the Australian financial system hostile to these money laundering, terrorism financing and other crime threats and to help protect Australia, its people and economy from criminal abuse. Benefits of the regime extend beyond crime reduction and national security to include hardening business against fraud, strengthening the economy’s regulatory framework, enhancing Australia’s international reputation as a destination for foreign business and investment,while also protecting the reputation of Australian business in highly competitive overseas markets.
A robust and effective AML/CTF regime in Australia also supports the global effort to combat ML/TF activity which is often transnational in scope and nature. Australia’s domestic regulatory framework, international information exchange, and technical assistance on AML/CTF in other countries contribute to an international network of comparable and developing regimes.
Australia’s AML/CTF regime needs to keep pace with international trends and developments. By their nature, money laundering and terrorism financing methods evolve to exploit opportunities and to try to avoid detection. Measures introduced under the regime since 2006 can be expected to have influenced ML/TF behaviour to find new ways to circumvent controls. Technological advances, market developments and the emergence of new products and services may have created new risks that fall outside the scope of the regime, as well as opportunities for more efficient and effective regulation.
What is money laundering and terrorism financing?
Money laundering (ML) is the name given to the process by which illegally obtained funds are given the appearance of having been legitimately obtained.This enables criminals to live off crime proceeds invested in the legitimate economy. ML is also a major enabler of almost all serious and organised crime activity – such as fraud, drugs and firearms trafficking, identity theft and tax evasion. In this way ML allows illicit funds to be reinvestedin further crime, thereby fuelling the criminal economy.ML is a pervasive crime risk that, left unchecked, has serious economic and social consequences.
Terrorist activity requires financial support. Terrorism financing (TF) can occur through both legitimate and illegitimate means. Terrorist groups are often funded from legitimate sources such as charitable fundraising and business profits. Some terrorist groups may also resort to crime to fund their activities.
TF supports the activities of terrorist groups both in Australia and in foreign countries. It pays for not only training, planning, combat and attacks, but also establishing and maintaining cells or groups, living expenses, travel, promoting extreme ideologies and further fund raising. A key approach to combating crime and countering terrorism is to detect and follow the ML/TF money trails associated with each threat.
International context and FATF
Both ML and TF are often transnational in nature, reflecting the international spread of crime networks and the global face of terrorism. An international response to both of these threats is required. Australia is a founding member of the FATF,[3] the inter-governmentalbody which develops and promotes the implementation of standards for combating ML/TF and other related threats to the integrity of the international financial system. The international standards are contained in the FATF’s 40 Recommendations.
Australia’s AML/CTF framework has been developed in response to the FATF recommendations.The recommendations have evolved over time, and significant changes were made in 2003 and most recently in February 2012. Areas that were strengthened under the 2012 revisions include:
•The risk-based approach to implementing AML/CFT measures was clarified and more fully elaborated within the recommendations
•The requirements to ensure timely access to adequate and accurate information on the beneficial ownership of legal persons and arrangements were strengthened and clarified
•Tax offences were made predicate offences for money laundering
•The powers and responsibilities of law enforcement and the financial intelligence unit (FIU)were elaborated and the scope for international cooperation strengthened
•The definition of politically exposed persons (PEPs) was broadened to include domestic PEPs and PEPs from international organisations
•The scope for financial group (or consolidated) supervision was elaborated and enhanced
• The transparency of wire transfers was enhanced; and
•A new standard was added concerning the implementation of targeted financial sanctions related to the proliferation of weapons of mass destruction.
Australia already addresses some of these measures—such as making tax crimes predicate ML offences and having in place counter-proliferation (CP) arrangements—in its legislative and governance frameworks. Other measures, such as financial group supervision, will be considered under the Review.
FATF assesses compliance with the recommendations through a country evaluation and monitoring process called a ‘mutual evaluation’. The 2005 FATF mutual evaluation of Australia was a primary factor whichshaped the development of the AML/CTF Act. In the second half of 2013, FATF commenced the 4th Round mutual evaluation of countries against the revised recommendations. Australia will be one of the first countries to be assessed against the revised standards during the forthcoming mutual evaluation in 2014.The findings of that evaluation will be relevant for the Review of the operation of the regime and will be taken into account in the final report and in any recommendations to Government.
In 2013, FATF published its revised methodology on how it will assess technical compliance with the FATF Recommendations and the effectiveness of member country AML/CFT systems. The methodology for mutual evaluations comprises two inter-linked components:
•Technical compliance assessment—addresses the specific requirements of each of the FATF Recommendations, principally as they relate to the relevant legal and institutional framework of the country, and the powers and procedures of competent authorities; and
•Effectiveness assessment—assesses the extent to which a country achieves a defined set of outcomes that are central to a robust AML/CTF system and analyses the extent to which a country’s legal and institutional framework is producing the expected results.
Australia’s legislative framework
The AML/CTF Actwas introduced to strengthen Australia’s capacity to deter, detect and combat serious and organised crime, money laundering and terrorism financing. It was also developed to bring Australia’s AML/CTF regime into line with the FATF Recommendations at that time.
In addition, the policy goals of the AML/CTF regime are to implement a regulatory framework that:
- minimises the risk of ML/TF in the Australian economy
- supports domestic and international efforts to combat serious and organised crime and terrorism
- does not impose unnecessary burden on Australian business; and
- is consistent with international best practice in combatting ML/TF.
Introduction of the AML/CTF Act in 2006 significantly expanded the operation and regulatory coverage of Australia’s regime. From fewer than 4,000 cash dealers under the Financial Transaction Reports Act 1988 (Cth) (FTR Act), the regime now has a regulated population of over 13,800 individuals and businesses (called ‘reporting entities’) in the financial, remittance, gambling and bullion sectors.[4] AUSTRAC was given stronger compliance and enforcement powers to use in supervising the larger regulated population.
Following the introduction of the Act, transaction reporting requirements increased, as did the number of government agencies that could access and use this information.Transaction reporting from industry to AUSTRAC grew from 18 million reports in 2007-08 to over 84 million reports in 2012-13, a 466 per cent rise. The Act provides for the protection of sensitive personal and commercial information contained in this large amount of data. Access and secrecy measures under the Act aim to protect privacy, while at the same time permit use of AUSTRAC information to support the efforts of Australian and overseas authorities in combatting ML/TF and other serious crime.