Bills Digest no. 14 2011–12
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This Digest was prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments. This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.
Law and Bills Digest Section
11 July 2011
Date introduced: 12 May 2011
House: House of Representatives
Commencement: Sections 1 and 2 commence on Royal Assent. Sections 3–10 commence on 1 July 2011 or the day of Royal Assent whichever is the later.
Links: The links to the Bill, its Explanatory Memorandum and second reading speech can be found on the Bill's home page, or through http://www.aph.gov.au/bills/. When Bills have been passed and have received Royal Assent, they become Acts, which can be found at the ComLaw website at http://www.comlaw.gov.au/.
The primary purpose of the Australian Transaction Reports and Analysis Centre Supervisory Cost Recovery Levy Bill 2011 (the Bill) is to enable the Australian Transaction Reports and Analysis Centre (AUSTRAC) to impose a supervisory cost recovery levy to operate as from 1 July 2011.
This package of three Bills imposes the cost recovery levy. The Australian Transaction Reports and Analysis Centre Supervisory Cost Recovery Levy Bill 2011 creates the levy to be imposed. The Australian Transaction Reports and Analysis Centre Supervisory Cost Recovery Levy (Collection) Bill 2011 provides for the collection of the levy and sets up the necessary administrative structures for that to occur. The Australian Transaction Reports and Analysis Centre Supervisory Cost Recovery Levy (Consequential Amendments) Bill 2011 amends the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML /CTF Act) to provide that it is mandatory for reporting entities to enrol with AUSTRAC.
According to its website, AUSTRAC is:
- Australia’s anti-money laundering and counter-terrorism financing regulator and specialist financial intelligence unit
- AUSTRAC works collaboratively with Australian industries and businesses in their compliance with anti-money laundering and counter-terrorism financing legislation.
As Australia’s financial intelligence unit, AUSTRAC contributes to investigative and law enforcement work to combat financial crime and prosecute criminals in Australia and overseas.
In the Budget for 2010-11, the Rudd Government decided that AUSTRAC would recover its costs in line with the Australian Government Cost Recovery Guidelines from 1 July 2011:
The Government will provide funding of $17.6 million over four years (including capital funding of $4.6 million) to establish and administer fees on banks and other financial institutions to recover the costs of the legislated regulatory activities of the Australian Transaction Reports and Analysis Centre (AUSTRAC).
The fees will be imposed from 1 July 2011, and will recover AUSTRAC’s costs associated with business-as-usual regulatory activities, including activities to ensure compliance with the Anti‑Money Laundering and Counter-Terrorism Financing Act 2006.
This measure will increase revenue by $89.0 million over three years from 2011-12 which will be used to offset AUSTRAC’s Combating Organised Crime—Enhancing Analytical Capability.
In 2005, the Australian Government issued its Cost Recovery Guidelines. In 2002, it had already adopted a cost recovery policy to ‘improve the consistency, transparency and accountability of Commonwealth cost recovery arrangements and promote the efficient allocation of resources.’
AUSTRAC explains briefly the purpose of the Cost Recovery Guidelines as follows:
The Australian Government’s Cost Recovery Guidelines require agencies providing government goods and services (including regulation) to the private and other non-government sectors of the economy to set charges to recover all the costs of such products or services, where it is efficient to do so, in consultation with stakeholders.
The policy applies to all Financial Management and Accountability Act 1997 (FMA Act) agencies and to relevant Commonwealth Authorities and Companies Act 1997 bodies. AUSTRAC is an FMA agency. Such agencies are subject to the FMA Act and are ‘financially part of the Commonwealth as a single legal entity.’ An ‘FMA agency’ is defined in section 5 of the FMA Act and includes a Department of State, a Parliamentary Department or a prescribed agency.
The Cost Recovery Guidelines define what is meant by the term ‘cost recovery’:
Cost recovery is the recovery of some or all of the costs of a particular activity. Australian Government cost recovery charges fall into two broad categories:
- fees for goods and services, and
- ‘cost recovery’ taxes (primarily levies, but also some excises and customs duties).
The Cost Recovery Guidelines outline the various stages of the cost recovery process. One of those steps is the Cost Recovery Impact Statement process (see below). For example, cost recovery arrangements of a ‘significant’ nature require a Cost Recovery Impact Statement to document compliance with the policy. The Cost Recovery Guidelines note that a cost recovery arrangement is ‘significant’ in terms of the revenue generated and the impact that the arrangement has on stakeholders. An arrangement also is ‘significant’ if:
- the total receipts equal $5 million or more per annum, or
- receipts are less but the impact on stakeholders may be considerable, or
- the Minister has determined other cost recovery arrangements to be significant on a case by case basis.
The final Cost Recovery Impact Statement (CRIS) for AUSTRAC’s regulatory activity was released on 12 May 2011:
The Australian Government has agreed that cost recovery should be applied to AUSTRAC’s anti-money laundering and counter-terrorism financing regulatory functions. Cost recovery does not apply to costs associated with the administration of AUSTRAC’s functions as a financial intelligence unit.
The CRIS sets out the cost recovery model and charging structure. The amount of the levy will be determined annually by a Ministerial Determination. A draft Ministerial Determination for the financial year of 2011-2012 is available on AUSTRAC’s website for comment.
As the CRIS notes, the Supervisory Cost Recovery Levy will apply annually and will relate to costs incurred by AUSTRAC in the year in which the levy is collected even though the levy will be calculated using historical transaction report data. The levy will comprise three components: the base component, the large entity component and the transaction reporting component (see below).
The base component will recover costs associated with the base line expenses that AUSTRAC incurs in regulating all reporting entities’. Base line expenses are uniform for all reporting entities. The component is calculated by dividing AUSTRAC’s base line expenses by the number of leviable entities. The base component estimate is calculated at $284 in the first year of the levy. The CRIS also notes that, in accordance with the Government’s commitment to reduce the regulatory burden for small business, small business non-employing entities and micro businesses (employing less than five people) as defined by the Australian Bureau of Statistics will not be subject to the base component of the levy.
This component relates to the additional expenses incurred by AUSTRAC in regulating larger entities. As the CRIS notes, large entities provide products that are more complex, usually over multiple distribution channels and multiple jurisdictions. It further notes that because such entities are more important to the overall integrity of the Australian financial system, AUSTRAC directs more supervisory resources to regulating these entities.
The Large Entity Component will apply to leviable entities or groups of such entities (as defined in section 50 of the Corporations Act 2001) if the total earnings of the entity or group of entities is greater than $100 million. In the case of a leviable entity which is incorporated outside Australia or is a subsidiary of a foreign company, the Large Entity Component will apply to the entity’s Australian business if the entity’s annual turnover is greater than $100 million. If the turnover is less than $100 million in Australia but in aggregate globally is more than $100 million, ‘then the entity will be subject to the minimum Large Entity Component’. The estimates for the large entity component can be found in the CRIS.
This component, according to the CRIS, relates to the additional direct expenses incurred by AUSTRAC in ‘regulating reporting entities that lodge high volumes of transaction reports and/or transaction reports relating to higher value transactions’.
The CRIS notes that the Transaction Reporting Component is to apply to all leviable entities which lodge international funds transfer instruction and threshold transaction reports with AUSTRAC. The Transaction Reporting Component of the levy comprises two parts. One part is the volume element and the other is the value element. The volume element relates to the numbers of transaction reports submitted to AUSTRAC. The volume element is set at one cent per transaction. The value element is ‘currently estimated at 0.0005066 per cent (or $0.000005066 per dollar) of the value of transaction reports lodged with AUSTRAC in the first year of the levy’.
The Senate Selection of Bills Committee resolved at its meeting on 12 May 2011 to recommend that the provisions of the package of Bills comprising the Australian Transaction Reports and Analysis Centre Supervisory Cost Recovery Levy Bill 2011, the Australian Transaction Reports and Analysis Centre Supervisory Cost Recovery Levy (Collection) Bill 2011 and the Australian Transaction Reports and Analysis Centre Supervisory Cost Recovery Levy (Consequential Amendments) Bill 2011 be referred immediately to the Legal and Constitutional Affairs Legislation Committee for inquiry and report by 16 June 2011. The primary reason for referral of the Bills was the impact that the Bills will have on business and on law enforcement.
The Senate Scrutiny of Bills Committee (Scrutiny of Bills Committee) also considered this Bill. The Scrutiny of Bills Committee drew attention to the terms proposed under clause 8 and to the possible over-collection of a levy arising from that clause. The Scrutiny of Bills Committee was concerned that adjustments to over-collection in subsequent years were not reflected in the legislation. The Scrutiny of Bills Committee commented that there may be a risk of the levy becoming a tax and that it is for Parliament to set a rate of tax, rather than the makers of subordinate legislation:
The Committee therefore seeks the Minister’s advice as to whether consideration has been given to including a safeguard in the legislation to provide that any over-collection will be adjusted.
The Scrutiny of Bills Committee also drew attention to proposed subclause 9(4) of the Bill which provides that a determination may be made under subsection 9(1) and may be made after the commencement of the 2011-12 financial year, despite subsection 12(2) of the Legislative Instruments Act 2003. It commented:
In the circumstances the Committee leaves the appropriateness of this provision to the Senate as a whole.
The Senate referred the AUSTRAC package of Bills to the Senate Legal and Constitutional Affairs Committee (Legal and Constitutional Affairs Committee) for inquiry and report on 12 May 2011. The Legal and Constitutional Affairs Committee reported on 20 June 2011, noting that, as a result of the discussion paper issued by AUSTRAC in 2010, and the exposure draft of the CRIS in February 2011, concerns were raised during the consultation period. In response, AUSTRAC amended the CRIS and the final version was released on 12 May 2011. The Legal and Constitutional Affairs Committee report commented:
As a result of that consultation, the formula for recovering costs has changed significantly from the proposal in the 2010-11 budget papers. As a result, the levy will not be paid by around half the businesses regulated by AUSTRAC. Those exempt from the levy will include micro businesses, small remitters (eg post office agents and newsagents) and gaming venues with a small number of gaming machines.
The Senate Legal and Constitutional Committee recommended that all three Bills be passed, ‘notwithstanding Recommendations 1 and 2’ which were as follows:
The Committee recommends that the Australian Government give further consideration to the concerns raised by stakeholders in relation to how the imposition of a supervisory levy will interact with the tranche two reforms.
In giving further consideration to the issues specified in Recommendation 1, the Committee recommends that the Australian Government specifically examine the concerns of larger corporate entities in relation to their reporting obligations under the proposed mandatory enrolment requirements of the AML/CTF regime.
The Committee further noted:
2.62 The importance therefore of ensuring continued and robust regulation cannot be emphasised enough and although the committee acknowledges the concerns raised by submitters that question the appropriateness of applying cost recovery to AUSTRAC's activities, the committee points out that reporting entities do in fact benefit from being regulated by AUSTRAC. By complying with the requirements of the AML/CTF Act, the risk of an entity being used for money laundering of terrorism financing purposes is reduced.
2.63 The committee takes the view that cost recovery in these circumstances is not only appropriate and accords with the government's guidelines, but also strengthens and improves the integrity of Australia's financial system. The committee emphasises that cost recovery is common among federal regulatory bodies and what is being proposed is consistent with past practice.
2.65 In recognition of the unease shared by those stakeholders that made submissions, the committee does, however, encourage AUSTRAC to commence monitoring the levy in the first year of its operation to ensure the government intent is being met and unintended consequences minimised. 
Liberal Senators made additional comments to the report. They raised a number of concerns but subject to the consideration of these issues, as well as the concerns raised in the majority report, they recommended that the AUSTRAC package of Bills be passed.
AUSTRAC released a discussion paper on the cost recovery model on 12 November 2010. In response to the release of the paper, AUSTRAC received a number of submissions about the proposal. Privacy advocates and a number of industries have opposed the introduction of the levy—particularly the banking and gambling industries.
It has been reported:
An AUSTRAC discussion paper estimated domestic banks would foot about $10.87 million of the total levy of $29.625 million. Foreign and Investment banks will account for $4.452 million. Large remittance networks such as Western Union will pay $1.3 million.
The rest will be spread among foreign exchange providers, casino [sic], bookmakers, credit unions and building societies.
The Australian Internet Bookmakers Association’s (AIBA) Executive Officer, Tony Clark commented that it accepts fair cost recovery but objects to this scheme. Mr Clark further noted:
As it stands, this appears an attempt to move AUSTRAC ‘off-budget’ by requiring reporting entities to meet a government agency’s costs. It is “de facto an unfair tax collection.
Furthermore the cost recovery scheme could deter the lodgement of reports – the opposite of the ‘cooperative’ aim of AUSTRAC promoted over the last few years. Lodging reports and Interacting with AUSTRAC will only serve to penalise cooperative institutions.
The AIBA further submitted that the reports submitted to AUSTRAC were not discretionary, and that the levy was akin to paying a fee to report a crime to the police.
Nigel Waters of the Australian Privacy Foundation made the following comments on the scheme:
The scheme seemed poorly thought out.
We accept that there are some marginal direct benefits to reporting entities, but it is very clear that the major objectives, and benefits, of the scheme are wider public policy ones, for which the taxpayer should remain responsible.
Seeking to recover the costs of the scheme from reporting entities (and ultimately from their customers) adds insult to injury and is in our view entirely inappropriate. Indeed, if anything, this is an example of regulation which imposes costs on private sector businesses almost entirely for a general public benefit, and it would not be unreasonable for reporting entities to seek to recover the costs of compliance from government.
Mr Waters further states:
It was illuminating that the proposed levy would not apply to ‘suspicious matter’ reports. Clearly this might deter entities from making such reports which are presumably the most useful from a law enforcement perspective.
The possible deterrent effect of a per-report cost for other types of reports has presumably been cynically traded off in favour of revenue collection.
The Association of Superannuation Funds (ASFA) had this to say:
The plan is akin to the Australian Taxation Office charging taxpayers a fee to lodge their returns.
The General Manager of ASFA, David Graus, warned:
The change would see reporting entities subsidising the intelligence function.
The Executive General Manager of the Institute of Chartered Accountants, Lee White stated:
Our members provide legitimate services to clients who overwhelmingly are law-abiding individuals and businesses... If these legitimate services are exploited by criminals, it is these wrong-doers who create the need for regulation and who should contribute to the costs through the confiscated proceeds of their crimes.
According to the Explanatory Memorandum, the arrangements are expected to collect $118.3 million over the period 2011-15.
Proposed clause 7 sets out the definitions for the purposes of this Act.
Proposed subclause 7(1) defines a number of terms including:
- ‘census day’ — means the day determined, by the AUSTRAC CEO, by legislative instrument, as the day on which a reporting entity is required to pay the levy
- ‘exempt entity’ — means a leviable entity which, on the census day for that year, is exempt from Part 7 of the AML/CTF Act. Part 7 of that Act relates to anti-money laundering and counter‑terrorism financing programs (AML/CTF). AML/CTF programs require that reporting entities (businesses) ‘identify, mitigate and manage the risk of their products or services facilitating money laundering or terrorism financing’.
- ‘statutory limit’ — for the financial year commencing 1 July 2011 the ‘statutory limit’ is $33 million. For later financial years, the amount is the previous financial year’s statutory limit multiplied by the ‘indexation factor’ for the later financial year.
- ‘statutory minimum’ —the limit is $100 from 1 July 2011. A person is not required to pay the levy if the minimum threshold amount of $100 is not reached. That is, if the levy calculated for a person for the 2011-2012 financial year is less than $100, they are not required to pay the levy. The ‘statutory minimum’ limit is adjusted each financial year in relation to the ‘indexation factor’ for that later financial year.
Other terms defined are the index number, leviable entity and person.
Proposed subclause 7(2) of the Bill expressly applies the common law principles of liability so that the Act (when enacted) will apply to a partnership, unincorporated association or trust, as if it were a person. In the case of a partnership, an obligation is imposed on each of the partners and any of the partners may discharge the liability. In relation to an unincorporated association, an obligation is imposed on each member of the association’s committee of management and may be discharged by any of the members. Likewise, an obligation is placed on the individual trustees of a trust, and the liability can be discharged by any of the trustees.
Proposed clause 8 imposes the AUSTRAC supervisory cost recovery levy in accordance with proposed clause 7 of the Australian Transaction Reports and Analysis Centre Supervisory Cost Recovery Levy (Collection) Act 2011 (when enacted). That provision concerns the liability of a leviable entity to pay the levy in the financial year that ends after the AUSTRAC Supervisory Cost Recovery Levy Act 2011 has commenced.
Proposed clause 9 provides how the amount of the levy is to be worked out. Proposed subclause 9(1) provides that the Minister must determine the amount of a levy payable by a leviable entity for a financial year, by legislation instrument. This means that the determination must be registered on the Register of Legislative Instruments and will be subject to Parliamentary scrutiny. Proposed subclause 9(2) provides that the total amount payable by leviable entities is not to exceed the statutory limit for that financial year. The statutory limit for the financial year 2011-2012 is $33 million.
Proposed subclause 9(3) provides that a determination made under subclause 9(1) may specify the following information:
- an amount or the method for determining that amount
- different amounts or methods for different classes of leviable entities
- a nil amount or a method that results in a nil amount
- methods that refer to acts done or circumstances existing before the commencement of the Act or the determination or both, despite the operation of subsection 12(2) of the Legislative Instruments Act 2003.
According to the Explanatory Memorandum, this will allow reference to transaction reports in a previous financial year that may form part of the calculation of the levy in the current financial year.
The intention is that reporting entities will know their liabilities in advance of the next financial year, as well as accommodating the business planning and budget cycle.
Proposed subclause 9(4) of the Bill provides that a determination made under subclause 9(1), for the 2011-12 financial year, may be made after the beginning of the financial year. Proposed subclause 9(5) provides that if the levy payable by a leviable entity is less than the statutory minimum, that is $100, the levy payable for the financial year will be nil.
Proposed clause 10 relates to how the formula for working out the ‘indexation factor’ for a financial year is derived taking account of the most recently published reference base for the Consumer Price Index.
In response to the discussion paper on the proposed model of cost recovery, many submissions were received which oppose the scheme and comment on possible detrimental effects to the lodging of transaction reports. It remains to be seen whether those possible detriments materialise.
Members, Senators and Parliamentary staff can obtain further information from the Parliamentary Library on (02) 6277 2784.
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