Changes to AML/CTF laws and impact on reporting obligations
Effective 17 June 2021, amendments to the Anti-Money Laundering & Counter-Terrorism Financing Act 2006 (Cth) (AML/CTF Act) came into effect.
These reforms are an outcome of the statutory review of the AML/CTF Act in 2016 by the Attorney General’s Department, as well as criticisms of the AML/CTF Act by the Financial Action Task Force (FATF). Additionally, AUSTRAC has proposed changes to the AML/CTF Rules, which amend Chapters 10, 24 and 34, repeal Chapters 25 and 26, and add Chapter 81.
This blog outlines the key changes to the AML/CTF Act, impacts on transactions and information sharing, and amendments proposed by AUSTRAC.
What were the key changes to the Act?
Broadly speaking, the amendments covered customer identification procedures, correspondent banking relationships, tipping-off offences, access to information and cross border movement of money. Whilst most of the changes are already in effect, the changes to cross border movement of money will commence on 18 June 2022.
A key focus of the amendments was the creation of ‘third party reliance’; safe harbour provisions under the AML/CTF Act to enable one reporting entity to rely on the customer due diligence of another.
Under Division 7 of the AML/CTF Act, a reporting entity is ultimately responsible for the actions of anyone else who conducts customer due diligence on its behalf. Practically, the Act deems that ‘anyone else’ to be the agent of the reporting entity.
Prior to these amendments, customers entering a transaction with multiple reporting entities may have needed to undertake customer due diligence with each entity involved in the transaction. The amendments have expanded the circumstances under which a reporting entity may rely on third parties’ customer due diligence, reducing this need. Reporting entities are still required to satisfy the record-keeping requirements under Part 10 of the Act.
It is important to understand that the new ‘safe harbour’ provisions don’t entirely mitigate a reporting entity’s compliance burden. Firstly, the safe harbour provision is only available if the third party in question is:
Another reporting entity regulated under the AML/CTF Act;
An entity is a ‘suitable foreign entity’, meaning the party is located in a foreign country that is subject to equivalent customer due diligence and record-keeping obligations as those under the AML/Act in Australia.
There are two scenarios where third-party reliance is available, each offering different degrees of protection:
Where there is an arrangement or agreement
On a case-by-case basis
Scenario 1: Where there is an arrangement or agreement
A written agreement between a reporting entity and a relevant third party will provide the reporting entity the best protection. Safe harbour protection will be available as long as:
The reporting entity carries out regular assessments of the arrangements, and
The reporting entity has reasonable grounds to believe the third party is satisfying the customer due diligence requirements under the AML/CTF Rules at the time of the arrangements.
Reporting entities will need to ensure written agreements are carefully drafted and should include clear outlines of each party’s responsibilities under the arrangement, provisions to enable the reporting to obtain all required know-your-customer (KYC) information relating to identifying any customers in question and obtain verification details readily.