Bills Digest no. 21 2006–07
Financial Transaction Reports Amendment Bill
2006
WARNING:
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.
CONTENTS
Passage History
Purpose
Background
Financial implications
Main Provisions
Endnotes
Contact Officer & Copyright Details
Passage History
Financial
Transaction Reports Amendment Bill 2006
Date introduced: 21
House: Senate
Portfolio: Justice and Customs
Commencement: The formal provisions (clauses 1 and 2) commence on
Royal Assent. Schedule 1 commences immediately after the
commencement of item 10 of Schedule 9 of the Anti-Terrorism
(No.2) Act 2005, which is to come into force on 14 December
2006.
To vary the amendments to the Financial Transaction Reports
Act 1988 (FTR Act) made by Schedule 9 of the
Anti-Terrorism Act (No. 2) 2005 (AT Act) in order to
correct drafting problems and to prevent unintended
consequences.
Schedule 9 of the AT Act was enacted to amend the
money-laundering rules in the FTR Act and better implement some of
the Financial Action Task Force special recommendations on
combating the financing of terrorism. It is to come into force on
14 December 2006.
The
Financial Action Task Force (FATF) is an international
organisation chiefly concerned with strengthening
anti-money-laundering (AML) provisions in the global financial
system, including through individual countries implementing
appropriate legislative and enforcement measures. To this end it
developed a series of
40 AML recommendations in 1990, which have been revised twice
since.(1) In the aftermath of the 11 September 2001
attacks, it also adopted
nine special recommendations on combating the financing of
terrorism (CFT).(2)
Australia s principal anti-money-laundering legislation the FTR
Act was previously updated in a significant way through the
Proceeds of Crime (Consequential Amendments and Transitional
Provisions) Act 2002 and, in relation to terrorism, through
the Suppression of the Financing of Terrorism Act 2002.
However, following the revision of the FATF AML/CFT recommendations
in 2003 04, the Australian Government
committed itself to a further overhaul of the FTR Act and
associated legislation.(3) The consultative process has
been a lengthy and difficult one, with industry groups raising
concerns such as compliance costs and competitive neutrality
between different sectors.(4) The Government has split
the implementation of the overhaul into a number of different
initiatives:
- the amendments contained in Schedule 9 of the AT Act, which
address three of the FATF CFT special recommendations (SRs): SR VI
(remittance services), SR VII (wire transfer funds services), and
SR IX (cash couriers)
- an exposure draft
Anti-Money Laundering and Counter-Terrorism Financing Bill
2006, to cover a broad range of FATF AML and CFT
recommendations,(5) and
- consultation with the states and territories about the
enactment of laws to address a fourth FATF CFT special
recommendation, that of preventing the use of non-profit or
charitable organisations for the financing of
terrorism.(6)
Item 10 of Schedule 9 of the AT Act inserted the new Division 3A
Customer information to be included in international funds transfer
instructions , into Part II of the FTR Act. The purpose of Division
3A is to strengthen the various existing reporting and
recording-keeping obligations contained in existing Part II of the
FTR Act and to implement SR VII. In particular, section 17FA
provides that when a cash dealer is given an instruction for a
transfer of funds out of Australia, the dealer must ensure
the instruction includes information about the customer. A failure
to do so carries a maximum penalty of up to two years imprisonment,
or in the case of corporations, a fine of approximately $50,000. In
relation to funds transfers coming into Australia, section
17FB in certain situations allows the AUSTRAC
Director(7) to direct a cash dealer to request the
ordering customer to include customer information in all future
incoming transfers.
The amendments in the current Bill relate specifically to
Division 3A.
On 22 June 2006, the Senate referred the Bill to the Senate
Legal and Constitutional Legislation Committee for inquiry and
report by 1 August 2006.(8) The Senate Committee
Inquiry received seven submissions, some of which raised a number
of concerns in relation to the changes proposed in the Bill.
During the inquiry, the Senate Committee raised with the
Attorney-General s Department its concern about the impetus for the
amendments proposed in this Bill and inquired why the amendments
had not been contained in either the AT Act or in the exposure
draft AML/CTF Bill.(9)
In responding to these concerns, the Department noted that in
late 2005, amendments had been introduced into the FTR Act to
better implement the FATF Special Recommendations VI, VII and IX on
terrorist financing. The Department pointed out that the amendment
to improve the implementation of SR VII was contained in Schedule 9
to the AT Act. The Department stated that the amendments in
Schedule 9 of the AT Act were intended to bring forward certain
obligations from Part 5 of the proposed [AML/CTF] Bill in a way
consistent with that Bill without making changes to the structure
of the FTR Act .(10)
It is of note that Part 5 of the AML/CTF Bill is ultimately
intended to replace Division 3A of Part II of the FTR Act. However,
in consultation on the AML/CTF Bill, it was found that there was an
inconsistency between obligations in Division 3A of Part II of the
FTR Act and Part 5 of the exposure draft AML/CTF Bill, specifically
in relation to the definition of account in the two Bills.
The Department also stated that there has been strong industry
representation by non-bank money remitters that the coverage of
Division 3A of Part II of the FTR Act would adversely affect their
business viability if the Division were not restricted to
Authorised Deposit-taking Institutions ( ADIs i.e.
banks).(11)
The Department noted that even if the AML/CTF Bill is passed by
Parliament in the forthcoming sitting period, there is likely to be
a transition period before it comes into force. The Department
stated that the amendments in the Bill are therefore intended as a
short-term solution to address inconsistencies between Division 3A
of Part II of the FTR Act and the proposed AML/CTF
Bill.(12)
The
Senate Committee Report recommended that the Bill be passed,
subject to certain comments.
Senator Joseph Ludwig, Labor Senator from Queensland, while
supporting the majority Report, made some additional comments
criticising the Government over its handling of Schedule 9 of the
AT Act.(13)
This Digest draws on material from the Senate Committee Report
and refers the reader to that Report for further information.
The Explanatory Memorandum (EM) states that the Bill will assist
industry by reducing the number of systems changes required at an
institutional level. There appear to be no significant financial
implications for Government.
Item 2 inserts new section
17FAA with the effect of altering the definition of
account under the FTR Act. The new definition of account will apply
only to Division 3A of the Act the division dealing with
international funds transfer instructions (IFTIs). Under
new section 17FAA an account includes:
- a credit card account
- a loan account (other than a credit card account), and
- an account of money held in the form of units in:
- a cash management trust, or
- a trust of a kind prescribed by the regulations.
The changes to the definition of account bring
this section into line with that in the exposure draft AML/CTF Bill
and were brought about due to concerns of industry.(14)
It is argued that industry will only have to go through one rather
than multiple system changes.(15)
The Australian Bankers Association (ABA) in
their submission to the Senate Committee Inquiry expressed concern
about including a credit card account in the definition of account.
The ABA argues that including a credit card account in the
definition creates a heightened, and unintended, risk of fraud
where such information is included on IFTIs being transmitted from
Australia. The Attorney-General s Department, in response to this
argument, pointed out that the inclusion of a credit card account
in the definition is in keeping with the requirements of SR VII.
However, the Department also indicated it is willing to discuss the
matter further with the ABA.(16)
An IFTI or international funds transfer instruction is defined
in the FTR Act as an instruction for a transfer of funds that is
transmitted into or out of Australia electronically or by
telegraph, but does not include an instruction of a prescribed
kind. (17)
Subsection 17FA(3) of Division 3A sets out the customer
information to be included in an IFTI transmitted out of
Australia (i.e. when a bank sends an instruction for the transfer
of funds to another institution overseas). The current drafting of
section 17FA provides that an identification code will be assigned
to an IFTI when the customer does not have an account with the
institution.
Item 10 repeals and replaces subsection
17FA(3)(b) in order to change the definition of customer
information . The proposed definition of customer information means
an IFTI being transmitted out of Australia will need the ordering
customer s name and full business or residential address and
either of the following:
- where the IFTI is from a single account of a customer of the
ADI, the account number; or
- in any other case the identification code of the instruction by
the ADI.
The purpose is to allow a greater latitude for the use of ID
numbers attached to international funds transfer instructions.
Currently, every time a bank sends an instruction for the transfer
of funds to another institution overseas, a range of information
must be included. The effect of item 10 is to allow for a greater
use of identification numbers rather than account numbers. Account
numbers will now only be required to be included when the
instruction relates to the transfer of money directly from a single
account held by the customer. In other cases an identification
number will suffice. This amendment is designed to simplify the
transfer of IFTIs and provide a more practical option for financial
institutions.
Subsection 17FB(6) of Division 3A sets out the customer
information of the person ordering the transfer which is to be
included with IFTIs being transmitted into Australia. The
amendments in item 17 of the Bill provide that the
IFTI may include either the ordering customer's account
number or an identification code. In contrast, the current
Division 3A provides that IFTIs can only include an identification
code where the ordering customer does not have an account number
with the institution sending the instruction. The EM gives the
following explanation for the amendment:
The effect of this amendment is that the customer
s account number or the identification code is now given equal
standing for incoming IFTIs received by Australian ADIs under
section 17FB of the FTR Act. The purpose of the amendment is
overcome the potential practical difficulties faced by Australian
ADIs and AUSTRAC in determining whether a foreign customer has an
account with a foreign ordering organisation.(18)
Items 3 9 and 11 16 omit the reference to cash
dealer and substitute the term ADI in sections 17FA and 17FB. The
effect of these amendments is to restrict the application of
Division 3A to ADIs. The term ADI (authorised deposit taking
institution) is defined in the FTR Act to mean: a body corporate
that is an ADI for the purposes of the Banking Act 1959;
or the Reserve Bank of Australia; or a person who carries on State
banking within the meaning of paragraph 51(xiii) of the
Constitution.(19)
The EM states that the reason for this amendment is due to
problems that have arisen with the current application of [Division
3A] to non-bank money remittance businesses .(20)
The FTR Act does not distinguish between non-bank IFTIs that are
same-institution and those non-bank IFTIs which are multiple
institution . According to the EM:
[i]t is impracticable to require IFTIs sent from
one institution in one country to the same institution in another
country to include originator information because in effect this
would require the institution to pass on the information to itself.
In these situations, funds transfer requests are registered on a
single internal system of the institution, while the actual
transfer of funds is effected through net settlements between the
institution s various accounts around the world.(21)
In its submission to the Senate Committee Inquiry, the
Attorney-General s Department stated that the impetus for this
amendment is that certain non-bank money remitters made strong
representations to the Government that coverage under Division 3A
of Part II would adversely affect their business viability if it is
not restricted to [ADIs] .(22)
By way of background, the Department provided the committee with
the following explanation of how international transfers operate in
relation to the Australian financial system:
Financial institutions use messaging systems when
they conduct international business or have direct relationships
with foreign institutions and need to settle transactions. In the
Australian financial services sector, it is primarily the larger
ADIs who conduct the volume of international business to warrant
the subscription costs to access [Society for Worldwide Interbank
Financial Telecommunications (SWIFT)]-styled systems. In effect a
small number of banks act as conduits for the processing of funds
transfer traffic into the international banking system on behalf of
second tier banks and other financial institutions.
The Senate Committee Report goes on:
The Department noted that some non-ADIs operate
remittance services which fit the description of being an
international fund transfer for the purpose of the FTR Act, but
which do not use the SWIFT-style systems. The Department argued
that it would be difficult for an operator in that position to send
identification details with each transfer without making major
system changes, and in most cases it would serve no real purpose
.
The Allens Arthur Robinson submission to the Senate Committee
Inquiry raised concerns that restricting the application of
Division 3A to ADIs would be inconsistent with SR VII, with the
exposure draft AML/CTF Bill, and with Division 3 of the FTR Act.
The Committee Report noted that:
The Department responded to these concerns stating
that the amendments in Schedule 9 of the AT Act are a short term
measure intended to bring Australia more closely into compliance
with SR VII. However, limitations in the FTR Act framework have
meant that SR VII obligations can only be applied to a more limited
class than will be the case when the AML/CTF Bill is enacted. [ ]
Part 5 of the AML/CTF Bill is ultimately intended to replace
Division 3A of Part II of the FTR Act. The Department has informed
the Committee that the provisions of the AML/CTF Bill will comply
with SR VII.(23)
The ABA, in their submission, noted that replacing the term cash
dealer with ADI will create a competitive imbalance as non-bank
remittance providers would be subject to less onerous requirements
than banks (which are ADIs) that are providing the same service.
However, ABA were prepared to accept the amendment as a temporary
measure, until the proposed AML/CTF legislation has
passed.(24)
The Committee Report quotes the ABA reponse:
We have been assured in discussions with the
[Department] that this situation is a temporary measure and that
competitive neutrality will apply once the draft AML/CTF
legislation becomes law and all money remitters whether banks or
non banks will be obliged to conform with the same law. We accept
these provisions on the basis of this assurance from the
Government.(25)
Item 4 repeals and replaces
paragraph 17FA(1)(b) to state that the ADI is acting on behalf of,
or at the request of, another person who is not an ADI.
Endnotes
- Financial Action Task Force, FATF Documents on the Forty
Recommendations ,
http://www.fatf-gafi.org/document/28/0,2340,en_32250379_32236930_33658140_1_1_1_1,00.html,
accessed on 8 September 2006.
- Financial Action Task Force, Nine Special Recommendations on
Terrorist Financing ,
http://www.fatf-gafi.org/document/9/0,2340,en_32250379_32236920_34032073_1_1_1_1,00.html,
accessed on 8 September 2006.
- Hon. Chris Ellison,
Australia endorses global anti-money laundering standards,
media release, 8 December 2003.
- Kelly Mills,
Business holds up anti-laundering law , The
Australian, 17 May 2005, p. 31.
- A revised version of the exposure draft bill, dated 28 June
2006, was released on 13 July 2006:
http://www.ag.gov.au/agd/WWW/rwpattach.nsf/VAP/(85861BE64F280B2D8725056734D25146)~Revised+exposure+draft+Bill+2006.PDF/$file/Revised+exposure+draft+Bill+2006.PDF.
- Sue Harris Rimmer and others, Anti-Terrorism Bill (No. 2) 2005
, Bills
Digest, no. 64, Parliamentary Library, Canberra, 2005 06,
p. 49.
- AUSTRAC or the Australian Transaction Reports and Analysis
Centre is the Commonwealth agency with operational responsibility
for anti-money-laundering matters.
- Senate Legal and Constitutional Legislation Committee,
Financial Transaction Reports Amendment Bill 2006,
Canberra, August 2006.
- ibid., paragraph 3.4.
- ibid.
- ibid., paragraph 3.6.
- ibid., paragraph 3.7.
- See Senate Legal and Constitutional Legislation Committee, op
cit., Additional Comments.
- ibid., p. 11.
- ibid.
- ibid. pp. 11 12.
- Section 3 of the FTR Act.
- Explanatory Memorandum, p. 5.
- Subsection 3(1) of the FTR Act.
- Explanatory Memorandum, p. 4.
- ibid., p. 5.
- Senate Legal and Constitutional Legislation Committee, op cit.,
paragraph 3.35.
- ibid., paragraph 3.39.
- ibid., paragraph 3.40.
- ibid.
Mary Anne Neilsen
11 September 2006
Bills Digest Service
Parliamentary Library
This paper has been prepared to support the work of the
Australian Parliament using information available at the time of
production. The views expressed do not reflect an official position
of the Parliamentary Library, nor do they constitute professional
legal opinion.
Staff are available to discuss the paper's
contents with Senators and Members and their staff but not with
members of the public.
ISSN 1328-8091
© Commonwealth of Australia 2006
Except to the extent of the uses permitted under the
Copyright Act 1968, no part of this publication may be
reproduced or transmitted in any form or by any means, including
information storage and retrieval systems, without the prior
written consent of the Parliamentary Library, other than by members
of the Australian Parliament in the course of their official
duties.
Published by the Parliamentary Library, 2006.
Back to top