Bills Digest No. 47, 2017-18
PDF version [474KB]
Cat Barker
Foreign Affairs, Defence and Security Section
25 October 2017
Contents
The Bills Digest at a glance
Purpose and structure of the Bill
Background
International anti-money laundering
and counter-terrorism financing framework
Australia’s anti-money laundering and
counter-terrorism financing regime
Digital currencies
FATF guidance
Previous consideration of extending
AML/CTF Regulation to digital currency exchange providers
FATF evaluation and statutory review
Committee consideration
Senate Legal and Constitutional
Affairs Legislation Committee
Senate Standing Committee for the Scrutiny
of Bills
Policy position of non-government
parties/independents
Position of major interest groups
Digital currencies
Digital currency sector
Financial institutions and
organisations
Others
Other amendments
Financial implications
Statement of Compatibility with Human
Rights
Parliamentary Joint Committee on
Human Rights
Key issues and provisions
Part 1—Objects of the AML/CTF
Act
Part 2—Digital currencies
Definition of digital currency
Regulation of digital currency exchange
providers
Issue: offshore businesses providing
exchange services to Australian customers not regulated
Issue: reporting requirements
Registration of digital currency
exchange providers
Review of decisions
Offences and civil penalties
Part 3—Remittance activities
Part 4—Removing sectors from
AML/CTF Regulation and reducing obligations for regulated entities
Deregulation of the cash-in-transit
sector
Deregulation of insurance
intermediaries and general insurance providers
Correspondent banking
Corporate sharing of information
Services provided in the course of
carrying on a business
Part 5—Investigation and
enforcement
Expanding the infringement notice
scheme
Remedial directions
Search and seizure powers and civil
penalties relating to physical currency and bearer negotiable instruments
Part 6—Amendments to definitions
Part 7—Other regulatory matters
Functions of the AUSTRAC CEO
Granting of exemptions
Date introduced: 17
August 2017
House: House of
Representatives
Portfolio: Justice
Commencement: On
Proclamation or six months after Royal Assent, whichever occurs first.
Links: The links to the Bill,
its Explanatory Memorandum and second reading speech can be found on the
Bill’s home page, or through the Australian
Parliament website.
When Bills have been passed and have received Royal Assent,
they become Acts, which can be found at the Federal Register of Legislation
website.
All hyperlinks in this Bills Digest are correct as
at October 2017.
The Bills Digest at a glance
- The
Anti-Money Laundering and Counter-Terrorism Financing Amendment Bill 2017 (the
Bill) contains the first set of amendments resulting from a statutory review of
the Anti-Money
Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act)
and related Regulations and rules that was completed by the Attorney-General’s
Department (AGD) in 2016.
- The
review examined the operation of Australia’s anti-money laundering and
counter-terrorism financing (AML/CTF) regime, the extent to which the policy
objectives of the regime remain appropriate, and whether it remained
appropriate for achieving those objectives. It also took account of the
findings and recommendations of the Financial Action Task Force’s (FATF) 2015
evaluation of Australia’s compliance with the international AML/CTF standards,
which was completed while the review was underway.
- The
review resulted in 84 recommendations. AGD is progressing consultations on and
implementation of the recommendations in phases. The measures in the Bill are
those that AGD identified as being more straightforward and able to be
implemented quickly. Work is still underway on the more substantial and complex
reforms recommended by the review, including simplification and rationalisation
of the AML/CTF regime, inclusion of businesses based offshore and the possible
extension of the regime to particular services provided by lawyers,
accountants, conveyancers, real estate agents, high-value dealers, and trust
and company service providers.
- The
Bill will address 19 of the review recommendations by:
- bringing
digital currency exchange providers under the AML/CTF regulatory regime (Part 2
of Schedule 1)
-
removing
the cash-in-transit sector, insurance intermediaries and general insurance
providers from the regulatory regime, and making other amendments to reduce the
regulatory burden of the regime (Part 4)
- expanding
the powers available for investigations and enforcement related to the
regulatory regime (Part 5)
- extending
the powers of the CEO of the Australian Transaction Reports and Analysis Centre
(AUSTRAC) to cancel the registration of a remittance service provider (Part 3)
- expanding
the objects of the AML/CTF Act to reflect the domestic as well as
international objectives of AML/CTF regulation (Part 1)
- expanding
the functions of the CEO of AUSTRAC (Part 7) and
- revising
definitions used for the purposes of the AML/CTF Act (Part 6).
- AML/CTF
regulation of digital currency businesses was also recommended by the Senate
Economics References Committee in August 2015 and the Productivity
Commission in September 2015 in the context of broader reviews related to
digital currency and business set up, transfer and closure respectively.
Regulating digital currency exchange providers is consistent with FATF’s
guidance on a risk-based approach to digital currencies.
- The
Senate Legal and Constitutional Affairs Legislation Committee inquired into the
Bill and recommended that the Senate pass the Bill but that the Government consider
whether certain terms could be better defined in the Bill and the Explanatory
Memorandum to address the uncertainty expressed by some submitters to the
inquiry. Submitters to the inquiry were generally supportive of the Bill, but raised
concerns about some of the details of the proposed amendments.
- The
Senate Standing Committee for the Scrutiny of Bills had concerns about several
amendments, including the provision for certain matters relating to
registration of digital currency exchange providers to be dealt with in
delegated legislation, proposed new civil penalty provisions and powers to
seize physical currency and bearer negotiable instruments without a warrant.
- The
Parliamentary Joint Committee on Human Rights considered that the civil penalty
provisions may be characterised as criminal and because the Minister’s response
to its initial report on the Bill did not address criminal process rights, it
was ‘unable to conclude that the measure is compatible’ with those rights.
Purpose and
structure of the Bill
The purpose of the Bill is to amend the AML/CTF Act
and the Financial
Transaction Reports Act 1988 to:
- bring
digital currency exchange providers under the AML/CTF regulatory regime (Part 2
of Schedule 1)
- remove
the cash-in-transit sector, insurance intermediaries and general insurance
providers from the regulatory regime, and make other amendments to reduce the
regulatory burden of the regime (Part 4)
- expand
the powers available for investigations and enforcement related to the
regulatory regime (Part 5)
- extend
the powers of the AUSTRAC CEO to cancel the registration of a remittance
service provider (Part 3)
- expand
the objects of the AML/CTF Act to reflect the domestic as well as international
objectives of AML/CTF Regulation (Part 1)
- expand
the functions of the AUSTRAC CEO (Part 7) and
- revise
the definitions of eligible place, investigating officer,
signatory and stored value card, used for the
purposes of the AML/CTF Act (Part 6).
Background
International
anti-money laundering and counter-terrorism financing framework
FATF is an intergovernmental body established to develop
and promote national and international policies to combat money laundering and
terrorist financing. It was established in 1989 by the Group of 7 (G7) and
Australia has been a member since 1990.[1]
The FATF Recommendations, first issued in 1990 and revised
most recently in 2012, set the international benchmark for money laundering and
terrorist financing counter measures.[2]
While not binding under international law, they are supported by leading
intergovernmental institutions such as the G20, United Nations, World Bank and
the International Monetary Fund.[3]
Monitoring of member jurisdictions through a system of mutual evaluation and
formalised processes for identifying high-risk or non-cooperative countries provide
incentives for countries to fully implement the FATF Recommendations.[4]
Some of the key requirements under the FATF
Recommendations are for countries to:
- criminalise
money laundering and terrorist financing and enable the freezing, restraint and
recovery of associated funds or assets
- establish
a financial intelligence unit (FIU) that serves as a national centre for the
collection, analysis and dissemination of information about potential money laundering
or terrorist financing
- require
financial institutions and other ‘designated non-financial businesses and
professions’ (DNFBPs, such as casinos, real estate agents, legal professionals
and accountants) to undertake thorough customer due diligence and maintain
proper records
- require
financial institutions and DNFBPs to report suspicious transactions to the FIU
- require
financial institutions and DNFBPs to develop programs against money laundering
and terrorist financing
- ensure
financial institutions are subject to adequate regulation and supervision and
that appropriate sanctions are available to deal with non-compliance
- establish
measures to prevent the misuse of legal persons and legal arrangements by money
launderers and
- afford
each other the widest measure of international cooperation, including through
mutual legal assistance, extradition, freezing, restraint and confiscation of
funds and assets, and timely and constructive exchanges of information.[5]
Amongst the 2012 revisions to the FATF Recommendations was
the introduction of an enhanced and overarching risk-based approach aimed at
better enabling countries and the private sector to target resources to higher
risks and apply simplified measures to lower risks across the AML/CTF regime.[6]
Australia’s
anti-money laundering and counter-terrorism financing regime
The AML/CTF Act and related rules provide the
framework for the Australian regulatory regime aimed at preventing and
detecting money laundering and terrorism financing. The AML/CTF Act
applies to ‘designated services’ provided by financial institutions, bullion
dealers and the gambling industry, as well as designated remittance service
providers. Australia’s AML/CTF regulator and financial intelligence unit, the
Australian Transaction Reports and Analysis Centre (AUSTRAC), has summarised
the key obligations under Australia’s AML/CTF regime as follows:
Entities providing a ‘designated service’ under the AML/CTF
Act are ‘reporting entities’ and are subject to a range of obligations. These
include:
- enrolling with AUSTRAC as a reporting entity (and also
registering if they provide a designated remittance service)
- conducting customer identification, verification, ongoing due
diligence and transaction monitoring
- reporting suspicious matters, threshold transactions (cash or
certain e-currency transactions of AUD10,000 or more) and international funds
transfer instructions
- conducting a money laundering and terrorism financing risk
assessment
-
developing and maintaining an AML/CTF program
- conducting AML/CTF training for employees and agents
- making and retaining certain records for seven year
The AML/CTF Act also requires the reporting of cross-border
movements of physical currency (whether carrying, mailing or shipping) and, upon
request, bearer negotiable instruments (BNIs) such as cheques, travellers
cheques and money orders (when carried by an individual).[7]
Like the FATF Recommendations, Australia’s AML/CTF regime
is premised on a risk-based approach to regulation.
AUSTRAC analyses the information contained in reports it
receives, along with other inputs, to develop financial intelligence that it
shares with partner agencies, including law enforcement agencies, the
Australian Taxation Office and international counterparts.[8]
Digital
currencies
The FATF has defined virtual currency as:
... a digital representation of value that can be digitally
traded and functions as (1) a medium of exchange; and/or (2) a unit of account;
and/or (3) a store of value, but does not have legal tender status (i.e., when
tendered to a creditor, is a valid and legal offer of payment) in any
jurisdiction. It is not issued nor guaranteed by any jurisdiction, and fulfils
the above functions only by agreement within the community of users of the
virtual currency. Virtual currency is distinguished from fiat currency (a.k.a.
“real currency,” “real money,” or “national currency”),
which is the coin and paper money of a country that is designated as its legal
tender; circulates; and is customarily used and accepted as a medium of
exchange in the issuing country. It is distinct from e-money, which is a
digital representation of fiat currency used to electronically transfer value
denominated in fiat currency. E-money is a digital transfer mechanism for fiat
currency—i.e., it electronically transfers value that has legal tender status.
[Emphasis in original.][9]
While digital currency can refer to a representation of
either virtual or fiat currency, the terms virtual currency and digital
currency are often used interchangeably, and the Australian Government has
adopted the term digital currency to refer to what might be more accurately
called virtual currency.[10]
The term ‘digital currency’ is adopted in this Bills Digest.
There are many different types of digital currency, but
key distinctions include whether they are:
- convertible
(can be exchanged for fiat currency) or non-convertible (cannot be
exchanged, operate in a self-contained environment, such as a loyalty scheme or
online game) and
- centralised
(where a single administrating authority issues the currency and controls the
system) or decentralised (which are there is no central administering
authority; instead there is ‘a framework of internal protocols that govern the
operation of the system and allow the verification of transactions to be
performed by the system participants themselves’).[11]
The most well-known digital currency, Bitcoin, is an
example of a convertible, decentralised digital currency. Bitcoin and similar
currencies such as Ethereum, Ripple, Litecoin and Monero use techniques from
cryptography to operate, so are sometimes called cryptocurrencies.[12]
While Bitcoin is the best known and accounts for around 50 percent of the
market, there are over 800 cryptocurrencies that together represented approximately
US$158 billion in market capitalisation as at 6 September 2017.[13]
National governments and actors in the traditional
financial system and are in the process of grappling with the policy and
regulatory challenges associated with digital currencies as their use increases.[14]
In the context of money laundering and terrorism financing, AGD summarised the
key risks associated with digital currencies as:
- greater anonymity (or pseudonymity) compared with traditional
non-cash payment methods
- transactions are made on a peer-to-peer basis, generally outside
the regulated financial systems, and
- different components of a digital currency system may be located
in many countries and subject to varying degrees of AML/CTF oversight.[15]
FATF
guidance
FATF released guidance on a risk-based approach to virtual
currencies, including the application of the FATF Recommendations, in
June 2015. The guidance suggested that countries should consider applying
AML/CTF Regulation to convertible virtual currency exchanges and other institutions
that provide an interface between virtual currencies and the regulated
financial system.[16]
Previous
consideration of extending AML/CTF Regulation to digital currency exchange
providers
The Senate Economics References Committee reported in August 2015
on its inquiry into digital currency. The Committee strongly supported applying
AML/CTF Regulation to digital currency exchanges, and noted that it would be
consistent with steps taken in Canada, the United Kingdom and Singapore. It
recommended that the statutory review consider the matter.[17]
In its September 2015 report on business set up,
transfer and closure, the Productivity Commission recommended that AML/CTF Regulation
be extended to include digital currency businesses.[18]
It made the recommendation on the basis that providing a sound regulatory
framework for digital currency businesses, including by mitigating money
laundering and terrorism financing (ML/TF) risks, would reduce barriers to
setting up such businesses in Australia. The Commission noted that Canada, the
UK and the United States had moved to bring digital currency intermediaries
under their AML/CTF regimes, and that the experience of those businesses in the
US ‘suggests that the regulation has increased businesses’ legitimacy, assisted
in forming banking partnerships and investment, and helped to deter criminals’.[19]
FATF
evaluation and statutory review
AGD completed a statutory review of the AML/CTF Act
and the associated rules and regulations in April 2016.[20]
The review examined the operation of the AML/CTF regime, the extent to which
the policy objectives of the regime remain appropriate, and whether it remained
appropriate for achieving those objectives. The review also took account of the
findings and recommendations of FATF’s 2015 evaluation of Australia’s compliance
with the international AML/CTF standards, which was completed while the review
was underway.[21]
The review produced a long list of recommendations (84 in
total), but many of them addressed only what should happen, not how. While the
report provided a clear framework for modernising the AML/CTF regime, this
meant there was significant work left to be done before some of the amendments could
be brought before the Parliament. AGD is progressing consultations on and
implementation of the review recommendations in phases, and the Bill contains
the first set of the resulting reforms to the AML/CTF Act. The measures
in the Bill are those that AGD identified as being more straightforward and
able to be implemented quickly.[22]
Work is still underway on the more substantial and complex reforms recommended
by the review (and those more likely to face stakeholder resistance), including
simplification and rationalisation of the AML/CTF regime, inclusion of businesses
based offshore and the possible extension of the regime to particular services
provided by lawyers, accountants, conveyancers, real estate agents, high-value
dealers, and trust and company service providers.[23]
AGD released a consultation paper on regulating digital
currencies under the AML/CTF regime in December 2016 and sought
submissions by 31 January 2017.[24]
The consultation paper outlined proposed reforms to implement recommendations 4.8–4.10
of the statutory review. The Bill will implement recommendations 4.9
and 4.10 of the review (relating to regulation of digital currencies,
specifically expanding the definition to include those not backed by a physical
thing and regulating digital currency exchange providers). However, it will not
implement recommendation 4.8, which was to ensure that digital currency
wallets are comprehensively captured by AML/CTF regulation.
AGD also released a
separate industry consultation paper in December 2016 that outlined the remaining
changes included in the Bill and several other proposed reforms to implement
review recommendations (again with submissions due by 31 January 2017).[25]
It is not clear whether a decision has been taken not to proceed with the other
reforms outlined in the consultation paper, or whether they are still being
progressed and will be included in one or more future Bills. On the basis of
AGD’s evidence to the Committee inquiry into the Bill, it appears that at least
some of those reforms are still being progressed.[26]
The other review
recommendations that the Bill would address (though not in all cases implement
in full) are:
- 3.1—expanding
the objects of the AML/CTF Act to reflect the domestic as well as
international objectives of AML/CTF regulation
- 4.1—removing
collection and delivery of physical currency, and the holding of physical
currency from or on behalf of a person, from the list of designated services
- 4.5—narrowing
the scope of the designated services listed as bullion and gambling services to
circumstances where those services are provided in the course of carrying out a
core activity of a business
- 7.5—supplementing
the concept of a ‘designated business group’ with the more flexible concept of
a ‘corporate group’ (the initial recommendation had been to replace rather than
supplement)
- 10.1
(in part)—providing that due diligence requirements relating to correspondent
banking (where one financial institution provides banking services to another)
apply only to the bank providing that service
- 10.3(a)—expanding
the definition of correspondent banking
- 11.4(a)—enabling
the CEO of AUSTRAC to deregister remitters that are not conducting remittance
activities
- 12.4—enabling
police and Customs officers to search for and seize cash where there is either
a suspicion of serious criminal offences or a breach of the cross-border
reporting requirements under the AML/CTF Act
- 12.6—creating
civil penalties for failure to comply with declaration requirements or
questioning and search powers in relation to physical currency and bearer
negotiable instruments (BNIs, such as traveller’s cheques), so they can be used
as an alternative to the existing criminal offences
- 15.3—expanding
the power for the AUSTRAC CEO to issue remedial directions to include
directions requiring reporting entities to remedy past contraventions of civil
penalty provisions
- 15.4—expanding
the infringement notice scheme under the AML/CTF Act so that notices can
be issued for a wider range of minor regulatory offences
- 16.1(a)
and (b)—expanding the scope of the AUSTRAC CEO’s functions, and including a
power for the CEO to do all things necessary or convenient for the performance
of his or her duties
- 17.1—setting
out specific matters that the AUSTRAC CEO must take into account when
determining exemptions to requirements of the AML/CTF Act, and providing
that the ML/TF risk posed is the prime consideration
- 18.2—removing
reporting requirements that currently apply to insurance intermediaries and
general insurance providers, except those that apply to motor vehicle dealers
- 19.1(f)—amending
the definition of signatory so that it applies more narrowly and
- 19.1(g)—amending
the definition of stored value card to provide clearer guidance
to industry.
Committee
consideration
Senate
Legal and Constitutional Affairs Legislation Committee
The Senate Legal and Constitutional Affairs Legislation
Committee reported on its inquiry into the Bill on 16 October 2017.[27]
The Committee recommended that the Senate pass the Bill but that the Government
consider whether the terms ‘article’, ‘stored value card’ and ‘in the course of
carrying on a business’ could be better defined in the Bill and the Explanatory
Memorandum to address the uncertainty expressed by some submitters to the
inquiry.[28]
Further information is provided in the relevant parts of the ‘Key issues and
provisions’ section of this Digest.
Senate
Standing Committee for the Scrutiny of Bills
The Senate Standing Committee for the Scrutiny of Bills
(Scrutiny of Bills Committee) sought the Minister’s advice on several of the proposed
amendments in the Bill.[29]
Proposed section 76A of the AML/CTF Act
will introduce several offences relating to providing digital currency exchange
services without being registered on the Digital Currency Exchange Register. Strict
liability will apply to some of the physical elements of these offences. The
Scrutiny of Bills Committee noted that the Explanatory Memorandum stated that
requiring proof of fault of those physical elements would undermine their
deterrent effect, but does not explain the legitimate grounds for penalising
persons lacking fault. The Committee considered that the Minister’s response
also failed to explain the legitimate grounds. It reiterated its opposition to
the use of strict liability in offences carrying a penalty of imprisonment and
left the question of the appropriateness of those provisions to the Senate as a
whole.[30]
Proposed sections 76K and 76L enable matters
relating to the suspension and renewal of registration on the Digital Currency
Exchange Register to be provided for in the AML/CTF Rules made by the AUSTRAC
CEO. The Scrutiny of Bills Committee considers that matters such as the grounds
on which decisions relating to suspension and renewal are made should be
included in the AML/CTF Act. It sought the Minister’s advice on the
justification for setting out those matters in delegated legislation, and if
those matters are to be in delegated legislation, why it should be in rules
instead of regulations (the latter of which are subject to a higher level of
executive scrutiny).[31]
The Minister’s response focused on the need for flexibility, the fact that the
Rules were well-known to industry and AUSTRAC’s consultation processes for
proposed amendments to the Rules. The Committee maintained its view that some
of the matters proposed to be included in the Rules would be more appropriately
included in the AML/CTF Act and stated that it was particularly
concerned about merits review of decisions to suspend or refuse to renew
registration.[32]
The Bill would introduce civil penalty provisions for:
- providing
digital currency exchange services without being registered on the Digital
Currency Exchange Register or in breach of a registration condition (proposed
subsections 76A(1) and (2), at item 20)
- a
person on the register failing to advise the AUSTRAC CEO of changes that could
materially affect their registration (proposed subsection 76P(1), at
item 20) and
- failing
to declare physical currency or bearer negotiable instruments when leaving or
arriving in Australia if required to do so (proposed subsections 199(12)
and 200(15) at items 73 and 75).
Under the AML/CTF Act, the same maximum pecuniary
penalties apply to all civil penalty provisions—100,000 penalty units (currently
$21 million) for a body corporate and otherwise 20,000 penalty units
(currently $4.2 million).[33]
The Scrutiny of Bills Committee sought the Minister’s advice on the
appropriateness of applying the civil penalty framework to the breaches
outlined above, given the high maximum penalties that apply.[34]
The Committee recommended that the information in the Minister’s response,
which included matters that the Federal Court must consider in determining the
appropriate penalty in a particular case, be incorporated into the Explanatory
Memorandum.[35]
The Scrutiny of Bills Committee recommended that the civil
and criminal immunity provided for AUSTRAC and the Commonwealth in relation to
publication of the Digital Currency Exchange Register and a list of persons
whose registration has been cancelled (proposed section 76R) should
be limited to actions taken in good faith.[36]
The AUSTRAC CEO will generally be required to give notice
of decisions relating to the Digital Currency Exchange Register to an affected
person and provide them an opportunity to respond. Proposed
subsection 76S(2) will provide that the requirement to give notice
does not apply if the AUSTRAC CEO is satisfied that it is inappropriate because
of the urgency of the circumstances. The Scrutiny of Bills Committee sought the
Minister’s advice on why removing the notice requirement is necessary and
appropriate.[37]
The Minister stated that the exception to the notice provisions was required to
address circumstances where providing notice might risk suspected criminal
activities continuing (this would be due to the requirement to provide the
recipient of a notice 28 days to respond to the notice) and/or the loss of
evidence.[38]
Part 5 of Schedule 1 would expand
the powers of police and Customs officers to search a person entering or
leaving Australia and seize physical currency and bearer negotiable
instruments.[39]
The Scrutiny of Bills Committee sought the Minister’s detailed justification
for giving police and Customs officers power to seize those items without a
warrant, including why seizure powers are being provided instead of powers to
secure items pending a warrant, and how accountability will be provided for
both the exercise of powers and dealing with things seized.[40]
The Minister stated that the key reason for enabling seizure without a warrant
is ‘the time-sensitive nature of operations at the border’, pointing out that
currency may be seized from a person shortly before an international flight.
The Committee maintained its concerns and noted that the Minister’s response
did not address the issue of accountability.[41]
Policy position
of non-government parties/independents
The Australian Labor Party supports the Bill.[42]
At the time of publication of this Bills Digest, there was no public indication
of the policy position of any other non‑government parties and
independents on the Bill.
Position of
major interest groups
Digital
currencies
Digital
currency sector
The Regulatory Impact Statement (RIS) states that
consultation with industry indicated that the sector ‘generally supports’ full
regulation of digital currency exchange providers under the AML/CTF regime
‘because robust AML/CTF Regulation will bolster public and consumer confidence
in the sector’.[43]
It also indicates that the sector’s initial preference was to codify the
Australian Digital Commerce Association’s (ADCA, previously ADCCA) Australian
Digital Currency Industry Code of Conduct and for the ADCA and AUSTRAC to
co-regulate the sector for AML/CTF purposes:
However, this proposal was not pursued as a viable option as
all digital currency exchange providers are not members of ADCCA. In addition,
this option was unlikely to instil the same level of public confidence in the
sector as regulation under the AML/CTF Act. It was also noted and accepted by
many digital currency providers that the use and application of binding AML/CTF
Rules in the regulation of this sector will provide the desired level of
flexibility to avoid regulatory lag.[44]
The ADCCA, in a 2014 submission to the Senate Economics
References Committee, and FinTech Australia and Blockchain Australia, in a 2017
submission to AGD, supported extending AML/CTF regulation to digital currency
exchange providers.[45]
Living Room of Satoshi, a digital currency payments
company, was the only sector participant to make a submission to the Senate
Legal and Constitutional Affairs Legislation Committee’s current inquiry into
the Bill. The organisation suggested an exemption be provided to ‘know your
customer’ requirements for transactions below $1,000.[46]
If such an exemption were to be provided, it would be under the AML/CTF Rules.
Financial institutions and organisations
The Australian Bankers’ Association (ABA) and the
Australian Financial Conference raised concerns in their submissions to the
statutory review that financial institutions were placed in a vulnerable
position when providing services to businesses in the digital currency sector,
and suggested that the sector should be subject to AML/CTF Regulation.[47]
Others
The Synod of Victoria and Tasmania, Uniting Church in
Australia (Uniting Church) strongly supports the extension of the AML/CTF
regime to digital currency exchange providers.[48]
Transparency International Australia also supported this measure, but
considered that it will not fully address the ML/TF risks associated with
digital currencies, including because it will not capture digital currency
exchange providers with no physical presence in Australia but providing
services to Australian customers.[49]
Further information on this gap in coverage is set out in the ‘Key issues and
provisions’ section of this Digest.
Other
amendments
The ABA was concerned that expanding the objects of the AML/CTF
Act to include references to deterrence of ‘money laundering, the financing
of terrorism, and other serious crimes’ (Part 1 of Schedule 1)
could introduce additional regulatory costs, and suggested referring to ‘other
serious financial crimes’ instead of ‘other serious crimes’.[50]
The Law Council of Australia (LCA) opposed the expansion
of the infringement notice scheme to include additional breaches of the AML/CTF
Act (Part 5 of Schedule 1). It also agreed with the issues
raised by the Scrutiny of Bills Committee and raised concerns that amendments
relating to services provided ‘in the course of carrying on a business’ and the
definition of stored value card might not achieve their intended
purposes.[51]
The Uniting Church and King & Wood Mallesons supported
the introduction of the concept of a corporate group to enable broader sharing
of information about customers between related businesses.[52]
However, King & Wood Mallesons suggested that the amendments (in Part 4
of Schedule 1) will not fully achieve their objective. Further detail on
this point is set out in the ‘Key issues and provisions’ section of this
Digest.
Financial
implications
The Explanatory Memorandum states that the Bill will be
implemented within existing resources.[53]
The RIS estimates that the Bill will result in savings to
industry of just over $36 million annually for the ten years after the
measures come into force. This includes annual costs of $662,221 associated
with regulating digital currency exchange providers, offset by savings
associated with deregulating the cash-in-transit sector (over
$32 million), deregulating insurance intermediaries and general insurance
providers, and with amendments relating to correspondent banking and sharing
information across corporate groups.[54]
Statement of Compatibility with Human Rights
As required under Part 3 of the Human Rights
(Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed
the Bill’s compatibility with the human rights and freedoms recognised or
declared in the international instruments listed in section 3 of that Act. The
Government considers that the Bill is compatible.[55]
Parliamentary
Joint Committee on Human Rights
Like the Scrutiny of Bills Committee, the Parliamentary
Joint Committee on Human Rights questioned the appropriateness of the proposed
new civil penalty provisions.[56]
The Committee noted that if a civil penalty provision is in substance
‘criminal’ for the purposes of international human rights law (regardless of
its classification under Australian law), it will engage criminal process
rights under the International Covenant on Civil and Political Rights. One
of the considerations in that context is the severity of the penalty, and it is
on this point that the Committee was concerned:
A penalty is likely to be considered 'criminal' where it
carries a penalty of a substantial pecuniary sanction. However, this must be
assessed with due regard to regulatory context, including the nature of the
industry or sector being regulated and the relative size of the pecuniary
penalties being imposed. In this case, an individual could be exposed to a
penalty of up to $4.2 million. These are very significant penalties and raise
the concern that the provisions ... may be 'criminal' for the purposes of
international human rights law.[57]
The Committee sought the Minister’s advice on whether the
civil penalty provisions in the Bill may be considered criminal in nature, and if
they are, whether they could be amended to accord with criminal process rights.[58]
The Minister’s response addressed the issue of why the
maximum penalty is so significant and the factors that the Federal Court must
consider in determining the appropriate penalty in a particular case, but not
whether the provisions may be characterised as criminal, and whether the
limitations on criminal process rights are permissible. The Committee stated
that the civil penalties may be characterised as criminal and because the
Minister’s response did not address criminal process rights, it was ‘unable to
conclude that the measure is compatible with these rights’.[59]
Key issues
and provisions
Part 1—Objects
of the AML/CTF Act
Subsection 3(1) of the AML/CTF Act lists the
objects of the Act. It currently sets out three objects, relating to addressing
‘matters of international concern’ (namely money laundering and terrorism
financing) and fulfilling Australia’s international obligations.
Item 1 of Schedule 1 will insert four
additional objects into subsection 3(1) to specify the domestic objects of
the AML/CTF Act and make explicit the aim of providing information to
AUSTRAC and other Australian and overseas agencies to support investigations and
prosecutions of money laundering, terrorism financing and other serious crimes.
The inclusion of ‘other serious crimes’ recognises that in addition to being a
crime in its own right, money laundering, by giving illicit money the
appearance of legitimacy, is a key enabler of profit-motivated crimes.[60]
The financial intelligence that AUSTRAC produces supports investigations and
prosecutions into a broad range of offences, including drugs and firearms
trafficking, fraud and corruption, and tax evasion.[61]
The amendments will largely implement recommendation 3.1
of the statutory review. The inclusion of supporting action against the
proliferation of weapons of mass destruction and its financing (along with
money laundering, terrorism financing and other serious crimes) was also
recommended, but is not reflected in the Bill.[62]
Part 2—Digital
currencies
Currently, the AML/CTF Act does not comprehensively
capture businesses providing digital currency services or transactions
involving digital currencies. Further, while money is defined to
include e-currency, the definition of e-currency does not capture
all digital currencies. Part 2 of Schedule 1 will replace the
definition of e-currency with a definition of digital currency and extend
AML/CTF Regulation to digital currency exchange providers, implementing recommendations 4.9
and 4.10 of the statutory review.
Definition
of digital currency
The following definition of digital currency will be
inserted into section 5 of the AML/CTF Act, replacing the current
definition of e-currency:
digital
currency means:
(a) a
digital representation of value that:
(i) functions
as a medium of exchange, a store of economic value, or a unit of account; and
(ii) is
not issued by or under the authority of a government body; and
(iii) is
interchangeable with money (including through the crediting of an account) and
may be used as consideration for the supply of goods or services; and
(iv) is
generally available to members of the public without any restriction on its use
as consideration; or
(b) a
means of exchange or digital process or crediting declared to be digital
currency by the AML/CTF Rules;
but does not include any right or thing that, under the
AML/CTF Rules, is taken not to be digital currency for the purposes of this
Act.[63]
The new definition is broader, capturing crypto-currencies
such as Bitcoin that are backed by cryptographic algorithms as well as those
backed by physical things such as bullion or a precious metal. The definition
has been drafted to include only convertible digital currencies, which carry
higher ML/TF risks:
As non-convertible digital currencies cannot be freely
exchanged for fiat currencies, they rarely intersect with the regulated
financial system and are generally not an attractive mechanism for laundering
the proceeds of crime. In contrast, convertible digital currencies are able to
be exchanged for fiat currencies and can thus transfer value between
individuals quickly and easily.[64]
The definition of money in section 5 of
the AML/CTF Act currently includes e-currency. Digital currency will be
treated separately and not included in the definition of money.[65]
The Bill includes several consequential amendments to amend existing references
to money to instead refer to money or digital currency.[66]
Regulation
of digital currency exchange providers
The RIS outlined three potential options for addressing
the ML/TF risks associated with digital currencies:
- maintaining
the status quo (no AML/CTF Regulation of the sector)
- ‘light
touch’ regulation under the AML/CTF regime whereby digital currency exchange
providers would be required to enrol with AUSTRAC, undertake customer due
diligence, make suspicious matter reports and meet record-keeping requirements
or
- full
regulation of digital currency exchange providers under the AML/CTF regime.[67]
Full regulation was the Government’s preferred option. This
was because light touch regulation was assessed as not being commensurate to
the recognised ML/TF risks of digital currencies and inconsistent with
international best practice, and because robust AML/CTF Regulation is expected
to build public confidence in the sector.[68]
The Bill will implement the full regulation option.
The regulatory requirements under the AML/CTF Act are
imposed on the basis of provision of ‘designated services’. If a person
provides a designated service listed in section 6 of the AML/CTF Act,
that person is a ‘reporting entity’, triggering a range of obligations under
the Act as outlined below.
Item 15 of Schedule 1 will insert a new
designated service into the table of financial services in subsection 6(2)
of the AML/CTF Act of ‘exchanging digital currency for money (whether
Australian or not) or exchanging money (whether Australian or not) for digital
currency, where the exchange is provided in the course of carrying on a digital
currency exchange business’. This will make digital currency exchange providers
reporting entities under the AML/CTF Act, thereby requiring them to:
- enrol
with AUSTRAC (Part 3A of the AML/CTF Act)
- verify
the identities of their customers and carry out ongoing customer due diligence
(Part 2 of the AML/CTF Act)
- report
suspicious matters and threshold transactions to AUSTRAC (Part 3 of the AML/CTF
Act)
- adopt
and maintain an AML/CTF program to identify, mitigate and manage ML/TF risks
(Part 7 of the AML/CTF Act), which under the AML/CTF Rules must
provide for:
-
a
ML/TF risk assessment
- risk
awareness training for employees
- an
employee due diligence program
- oversight
of the program by boards and senior management
- designation
of a person as an AML/CTF compliance officer
- systems
and controls to ensure compliance with reporting obligations and procedures for
responding to AUSTRAC feedback
- ongoing
customer due diligence procedures
- a
framework for identifying customers and beneficial owners of customers and
- collection
and verification of customer and beneficial owner information and
- keep
records relating to transactions, customer identification and the provider’s
AML/CTF program for seven years (Part 10 of the AML/CTF Act).[69]
Issue:
offshore businesses providing exchange services to Australian customers not
regulated
Under section 6 of the AML/CTF Act, a person
who provides a designated service to an Australian customer is only captured by
the AML/CTF regime if:
-
the designated service is provided at or through a permanent
establishment of the provider in Australia
- the provider is a resident of Australia and the designated
service is provided at or through a permanent establishment of the provider in
a foreign country or
- the provider is a subsidiary of a company that is a resident of
Australia and the service is provided at or through a permanent establishment
of the subsidiary in a foreign country.
This limitation applies across all but one of the existing
designated services and will also apply to digital currency exchange services,
meaning only exchange providers with a presence in Australia will be subject to
Australia’s AML/CTF regime.
The requirement for a geographic link was identified as a
shortcoming of Australia’s AML/CTF regime by the statutory review. The review
recommended that AUSTRAC identify designated services that pose a high ML/TF
risk when provided to Australian customers by offshore providers, and that AGD
and AUSTRAC should develop an appropriate model for applying AML/CTF
obligations to those high risk services when they are provided by offshore
providers.[70]
AGD’s project plan indicates that legislative proposals to address this gap are
expected to be developed by the second half of 2018.[71]
Issue:
reporting requirements
Threshold transaction reports will only be required for
transactions involving the transfer of physical currency (coins and notes) of A$10,000
or more.[72]
The AML/CTF Act provides that the regulations may stipulate threshold
amounts for transactions involving money (defined to include money held in an
account or on deposit as well as physical currency) and property, but no such
amounts have been prescribed.[73]
It also currently requires threshold transaction reports to be submitted for
transactions involving the transfer of e-currency of $10,000 or more. Items 11
and 12 of Schedule 1 will amend the definition of threshold
transaction in section 5 to remove the existing requirement
relating to e-currency and instead provide that the regulations may prescribe a
threshold amount for digital currency. This amended definition will apply
across all reporting entities. The Explanatory Memorandum does not state
whether there is any intention to make a regulation in the near future to
prescribe a threshold at which transactions involving digital currency must be
reported.
The RIS indicates that unlike other reporting entities,
digital currency exchange providers will not be required to report to AUSTRAC
on international funds transfer instructions (IFTI):
Under the AML/CTF Act, the ‘sender’ of an IFTI transmitted
out of Australia, or the ‘recipient’ of an IFTI transmitted into Australia,
must report the instruction to AUSTRAC within 10 business days after the day
the instruction was sent or received. These reports allow AUSTRAC to track
movements of funds in and out of Australia.
It would be impractical to apply IFTI reporting obligations
to digital currency exchange providers because they have no visibility of the
location to where digital currencies are sent, resulting in an intelligence
gap. For example, digital currency exchange providers will not know the
location of the bitcoin address to which a customer’s bitcoin is sent because
there is no geographical data attached to a bitcoin address (which is an
identifier of 26-35 alphanumeric characters). In the instance in which a
digital currency exchange provider will be expected to transfer fiat currency
to a nominated bank account overseas, this IFTI will be reported by the digital
currency exchange provider’s bank.[74]
The consultation paper on digital currencies proposed that
a threshold of $0 apply to digital currency exchange providers, meaning they
would be required to report all transactions as threshold transaction reports
‘in lieu of an obligation to report international funds transfer instructions’.[75]
In contrast, under the Bill, digital currency exchange providers would be
required to provide threshold transaction reports on very few transactions. The
RIS stated: ‘99% of cash transactions (which would only be 5% of all
transactions) would be below the $10,000 threshold. Majority of providers don’t
accept cash at all’.[76]
Registration
of digital currency exchange providers
Item 20 of Schedule 1 will insert new
Part 6A into the AML/CTF Act to establish the Digital Currency
Exchange Register (DCE Register). Proposed Part 6A will require the
AUSTRAC CEO to maintain the DCE Register, provide a framework for registration
and suspension and cancellation of registration, and introduce offences and
civil penalties for providing digital currency exchange services without being
registered. It is modelled on Part 6 of the AML/CTF Act, under
which the Remittance Sector Register operates (as amended by Part 3
of Schedule 1 of the Bill, which will expand the AUSTRAC CEO’s powers to
cancel registration).
Proposed sections 76B and 76C will require the
AUSTRAC CEO to maintain the DCE Register and outline the information it must
contain. The DCE Register will not be a legislative instrument and may be
maintained by electronic means. For each person the AUSTRAC CEO decides to register,
the DCE Register must include:
- the
person’s name
- any
conditions to which the person’s registration is subject
- the
date on which registration takes effect and
- the
‘registrable details’ of the person (defined in existing section 5 to mean
information relating to a person as specified in the AML/CTF Rules). The
information is likely to be similar to that which must be included on
remittance network providers in the equivalent register, which includes things
such as the business name, street address and other contact details, ABN (where
applicable), details of any overseas registration or license, and a description
of the business carried on.[77]
Proposed section 76D provides that a person
may apply in writing to the AUSTRAC CEO for registration as a digital currency
exchange provider. The application must be in the approved form and include the
information required under the AML/CTF Rules.
Under proposed section 76E, the AUSTRAC CEO
must consider each application and must register a person if satisfied that it
is appropriate to do so, having regard to:
- whether
registering the person would involve a significant money laundering, financing
of terrorism or other serious crime risk and
- any
other matters specified in the AML/CTF Rules. A non-exhaustive list of matters
that may be specified in the AML/CTF Rules is set out in proposed
subsection 76E(3): offences for which the applicant or any other
person has been charged or convicted, compliance or non-compliance with the AML/CTF
Act and with other laws, and the legal and beneficial ownership and control
of the applicant or any other person.
Unless the period is extended, the AUSTRAC CEO will be deemed
to have refused an application if he or she has not made a decision about an
application within 90 days of the application being made or the last day on
which further information relating to the application was provided.[78]
Under proposed section 76G, the AUSTRAC CEO
may impose conditions to which the registration of a person is subject,
including but not limited to the value of digital currency or money exchanged,
the volume of digital currency exchanged, the kinds of digital currencies
exchanged and requiring notification of certain matters.
Under proposed section 76H, registration will
generally cease three years after the day on which it takes effect, unless it
is renewed under the AML/CTF Rules as provided for in proposed
section 76L. It will also cease if the person’s registration is
cancelled, if the entry in the DCE Register relating to the person is removed
at the person’s request under proposed subsection 76M(2), when a
registered individual dies and when a registered body corporate ceases to
exist.
Proposed sections 76J and 76L will provide for
cancellation and renewal of registration respectively. Proposed section 76K
will provide that the AML/CTF Rules may make provision for and in relation to
suspension of registration.
Under proposed section 76Q, the AUSTRAC CEO
may request further information from any person for the purpose of making a
decision under proposed Part 6A.
Review of decisions
Decisions not to register a person (including deemed
refusal), to impose conditions on a person’s registration, and to cancel a
person’s registration will be reviewable decisions (dealt with under
Part 17A of the AML/CTF Act).[79]
Except for a deemed refusal to register a person, this will require the AUSTRAC
CEO to give written notice of those decisions as soon as practicable after they
are made that includes the terms and reasons for the decision, the person’s
right to review under Part 17A and, for a decision to cancel registration,
the date of effect.[80]
Part 17A provides for applications to be made for reconsideration by the
AUSTRAC CEO of decisions made by a delegate and applications for review by the
Administrative Appeals Tribunal of decisions made by the AUSTRAC CEO.
Proposed subsection 76S will also require the
AUSTRAC CEO, before making a reviewable decision under proposed Part 6A,
to give the person to whom the decision relates a written notice outlining the
terms and reasons for the proposed decision, and providing the opportunity to
make a submission in relation to the proposed decision within 28 days. However,
under proposed subsection 76S(2), the AUSTRAC CEO is not required
to give such a notice if he or she is satisfied that it is inappropriate to do
so because of the urgency of the circumstances. As noted above, the Scrutiny of
Bills Committee sought the Minister’s advice on why this exception is necessary
and appropriate. The Minister stated that the exception to the notice
provisions was required to address circumstances where providing notice might
risk suspected criminal activities continuing (this would be due to the
requirement to provide the recipient of a notice 28 days to respond to the
notice) and/or the loss of evidence.[81]
The AML/CTF Rules may provide for review of decisions
relating to suspension of a person’s registration.[82]
Offences
and civil penalties
Proposed section 76A will establish civil
penalties and offences relating to provision of digital currency exchange
services without being registered or in breach of a condition to which a
person’s registration is subject.
Under proposed subsection 76A(1), a person
must not provide a ‘registrable digital currency exchange service’ (one that is
a designated service and that is not of a kind specified in the AML/CTF Rules[83])
to another person if the first person is not a registered digital currency
exchange provider. Under proposed subsection 76A(2), a person must
not breach a condition to which their registration as a digital currency
exchange provider is subject. Proposed subsection 76A(11) provides
that those subsections are civil penalty provisions. Under the AML/CTF Act,
the same maximum pecuniary penalties apply to all civil penalty
provisions—100,000 penalty units (currently $21 million) for a body
corporate and otherwise 20,000 penalty units (currently $4.2 million).[84]
Under proposed subsection 76A(3), it will be
an offence (the basic offence) if:
- a
person was subject to a requirement under proposed subsection 76A(1) or
(2)
- the
person engaged in conduct and
- the
person’s conduct breached the requirement.
Strict liability will apply to the second and third
elements above, meaning that the prosecution will not be required to prove
fault for those elements, but the defence of honest and reasonable mistake of
fact will be available.[85]
As noted earlier in this Digest, the Scrutiny of Bills Committee sought further
justification for the application of strict liability. The Committee considered
that the Minister’s response also failed to explain the legitimate grounds. It
reiterated its opposition to the use of strict liability in offences carrying a
penalty of imprisonment and left the question of the appropriateness of those
provisions to the Senate as a whole.[86]
The maximum penalty for the basic offence will be two
years imprisonment and/or a fine of 500 penalty units (currently $105,000). The
maximum pecuniary penalty for a corporation will be 2,500 penalty units
($525,000).[87]
Proposed subsections 76A(5), (7) and (9) will
create aggravated offences with higher penalties that will apply if:
- the
AUSTRAC CEO had previously given the person a remedial direction (under
section 191) or accepted an enforceable undertaking (under
section 197) in relation to proposed subsection 76A(1) or (2)
on one occasion: maximum penalty of four years imprisonment and/or a fine of 1,000
penalty units (currently $210,000)
- the
AUSTRAC CEO had previously given the person a remedial direction or accepted an
enforceable undertaking in relation to proposed subsection 76A(1)
or (2) on more than one occasion: maximum penalty of seven years
imprisonment and/or a fine of 2,000 penalty units (currently $420,000) or
- the
person had previously been convicted of an offence against proposed
subsection 76A(3), (5) or (7), or an order had been made against the
person under section 19B of the Crimes Act 1914 for an offence
against one of those provisions, and the conviction or order has not been set
aside: maximum penalty of seven years imprisonment and/or a fine of 2,000
penalty units (currently $420,000).
Under proposed section 76P, a registered
person will be required to advise the AUSTRAC CEO of any change in
circumstances that could materially affect the person’s registration and any
other matters specified in the AML/CTF Rules. This will also be a civil penalty
provision.
As noted earlier in this Digest, the Scrutiny of Bills
Committee and the Parliamentary Joint Committee on Human Rights both raised
concerns about the civil penalty provisions in the Bill. The Scrutiny of Bills Committee
recommended that the information in the Minister’s response to its initial
report, which included matters that the Federal Court must consider in
determining the appropriate penalty in a particular case, be incorporated into
the Explanatory Memorandum.[88]
The Parliamentary Joint Committee on Human Rights considered that the civil
penalty provisions may be characterised as criminal and because the Minister’s
response to its initial report on the Bill did not address criminal process
rights, it was ‘unable to conclude that the measure is compatible’ with those
rights.[89]
Items 24–33 will amend provisions in
Division 3 of Part 15 of the AML/CTF Act to extend the
existing infringement notice scheme to include the proposed new civil penalty
provisions relating to digital currency exchange services. This will provide
the option of dealing with breaches through the issue of a notice and payment
of a lower penalty instead of taking a matter to court. The penalty amount for
a body corporate will be 60 penalty units, and for other persons will be 12
penalty units, unless the AML/CTF Rules specify higher amounts.[90]
The AML/CTF Rules may specify maximum penalties of up to 120 penalty units for
a body corporate and 24 penalty units for other persons.[91]
Part 3—Remittance
activities
Part 6 of the AML/CTF Act establishes the
Remittance Sector Register. Section 75G allows the AUSTRAC CEO to cancel a
person's registration in certain circumstances. Recommendation 11.4(a)
of the statutory review was that the AUSTRAC CEO should be able to cancel a person’s
registration under the Remittance Sector Register if the person is not
conducting remittance activities.[92]
The report stated:
A power to suspend or cancel a remitter’s registration once
the registered remitter ceases to carry on a remittance business would ensure that
the registration certificate is not passed to a third party who may wish to
avoid scrutiny by AUSTRAC. For instance, a registered remitter subject to
AUSTRAC interest may seek to be removed from the RSR but later ‘activate’ a
dormant business registered under another company name. AUSTRAC has already
detected this sort of activity.[93]
Item 41 of Schedule 1 will implement that
recommendation by inserting proposed subsection 75G(1A), under
which the AUSTRAC CEO may cancel a person's registration if he or she has
reasonable grounds to believe that the person no longer carries on a business
that requires registration under Part 6 of the AML/CTF Act.
Decisions under section 75G are reviewable decisions under Part 17A
of the AML/CTF Act, and notice of proposed cancellation decisions is
required under section 75Q.
In decisions relating to registration and cancellation of
registration, the AUSTRAC CEO is to take account of whether the person’s
registration may involve ‘a significant money laundering, financing of
terrorism or people smuggling risk’. Items 38 and 40 will amend
sections 75C (registration by AUSTRAC CEO) and 75G (cancellation of
registration) so that those decisions may also take account of ‘other serious
crime’ risks.
Part 4—Removing
sectors from AML/CTF Regulation and reducing obligations for regulated entities
Deregulation
of the cash-in-transit sector
The statutory review recommended the deregulation of the
cash-in-transit sector on the basis that it poses a low ML/TF risk and that AUSTRAC
would retain visibility of large cash deposits and cross-border transfers
through separate reporting requirements.[94]
The report stated:
Since the commencement of Australia’s AML/CTF regime, the
ML/TF risks posed by businesses that transport cash domestically have not been
considered to be high at the international level. There are no inherent ML/TF
risks associated with the domestic transportation of cash from one place to
another by a contractor such as a CIT [cash-in-transit] operator as opposed to
the domestic transportation of cash by any other business that transports a
person or goods. Moving cash within Australia is not, in itself, a money
laundering typology and the FATF standards do not require countries to apply
AML/CTF Regulation to CIT operators. The physical movement of cash
internationally across borders is however established money laundering
typology. The risks associated with the physical movement of cash
internationally are addressed through Australia’s cross-border cash reporting
regime established in Part 4 of the AML/CTF Act.[95]
Item 44 of Schedule 1 will implement recommendation 4.1
of the statutory review by repealing items associated with the cash-in-transit
sector (related to collecting, holding and delivering physical currency) from Table
1 of designated financial services in subsection 6(2) of the AML/CTF
Act.[96]
Deregulation
of insurance intermediaries and general insurance providers
The statutory review noted that the FATF Recommendations
only require life insurance and investment-related insurance products to be
regulated, and recommended that insurance intermediaries and general insurance
providers other than motor vehicle dealers should be deregulated.[97]
While the Financial Transaction Reports Act 1988 was
largely replaced by the AML/CTF Act, it continues to impose some
regulatory requirements on 'cash dealers' and solicitors. Insurers and
insurance intermediaries are included in the definition of cash dealer
in subsection 3(1).
Item 56 will implement recommendation 18.2
of the statutory review by repealing and replacing paragraph (c) of the
definition of cash dealer in the Financial Transaction Reports
Act so that it only captures 'a motor vehicle dealer who acts as an insurer
or insurance intermediary'.
Correspondent
banking
The AML/CTF Act defines a correspondent banking
relationship as one that involves the provision of financial services by one
financial institution to another.[98]
The AML/CTF Act requires financial institutions to
conduct due diligence assessments of foreign entities with which they enter
into correspondent banking relationships.[99]
If the foreign entity is not a financial institution within the meaning of the AML/CTF
Act, the Australian financial institution needs to comply with more
stringent customer due diligence obligations under Chapter 4 of the
AML/CTF Rules. The statutory review found that the narrow definition of
financial institution in the AML/CTF Act meant that the definition of
correspondent banking relationship was ‘unduly narrow, failing to recognise
other correspondent banking arrangements that financial institutions can enter into’
with foreign entities that are not financial institutions under the Act.[100]
Recommendation 10.3(a) was for the definition of correspondent banking
to be expanded, ‘in line with international approaches that are consistent with
the FATF standards’.[101]
Item 43 of Schedule 1 will amend the
definition of financial institution in section 5 of the AML/CTF
Act to allow the AML/CTF Rules to specify different persons to be financial
institutions for the purposes of different provisions of the Act. This will
allow additional institutions to be specified as financial institutions only
for the purposes of Part 8 of the AML/CTF Act, which deals with
correspondent banking. AGD gave the example of Paypal, which is regulated as a
financial institution in the US but does not meet the current Australian
definition, as an institution that could be listed for the purposes of the
proposed provision.[102]
There are two types of accounts associated with
correspondent banking:
- nostro account—an account that a bank holds, usually in a foreign
currency, in another bank, and
- vostro account—an account that other banks have with the
bank, usually in the bank's domestic currency.[103]
Some submissions to the statutory review raised concerns
that it was unclear whether the due diligence requirements for correspondent
banking were intended to apply to both types of accounts. The statutory review
recommended that the issue be clarified as part of a broader simplification of
correspondent banking obligations.[104]
The Explanatory Memorandum states that the due diligence requirements under
Part 8 of the AML/CTF Act were intended only to apply to vostro
accounts, ‘consistent with the FATF's international standards and international
banking practice’.[105]
Items 47–50 will amend sections 97, 98 and 99
of the AML/CTF Act in line with that intention, making it clear that the
due diligence requirements apply only to vostro accounts.
Corporate
sharing of information
The AML/CTF Act allows for the formation of ‘designated
business groups’ (DBGs), under which two or more associated businesses or
persons who are reporting entities may share certain obligations under the Act.[106]
For example, a designated business group may have a joint AML/CTF program and
its members may share information about suspicious matter reports without
breaching the ‘tipping off’ provisions of the AML/CTF Act.[107]
DBGs are intended to allow reporting entities to manage ML/TF risks and comply
with their obligations under the AML/CTF regime while minimising regulatory burden.[108]
The statutory review found that the DBG framework had
several shortcomings, both in terms of minimising regulatory burden and
enabling effective supervision by AUSTRAC:
The DBG framework does not align with how businesses
currently structure themselves into ‘corporate groups’, particularly businesses
that are part of multi-national corporate groups. For example, one large
financial institution in Australia has two DBGs within its corporate group.
This restricts the ability of the institution to achieve regulatory
efficiencies, share SMR [suspicious matter report]-related information across
the corporate group, and manage and mitigate its ML/TF risk at the corporate
group level. The splitting of a corporate group across two DBGs also makes it
difficult for AUSTRAC to effectively regulate and supervise reporting entities
at the group level and monitor all aspects of the business conducted by a group
worldwide. This is contrary to the Basel Committee on Banking Supervision’s
Core Principles for Effective Supervision, which the FATF standards require
member countries to apply.[109]
Recommendation 7.5 of the statutory review was
that the AML/CTF Act and the rules should be amended to replace DBGs and
joint programs with ‘a framework that allows an AML/CTF program to incorporate
all reporting entities within a corporate group’.[110]
The Bill will introduce the concept of a ‘corporate group’,
but it will sit alongside that of a DBG, instead of replacing it. The
Explanatory Memorandum states that this approach has been taken to ensure that
businesses that fall within the DBG concept but not that of a corporate group
can continue to share information without breaching the tipping off provisions.[111]
Items 51–54 will amend section 123 of the
AML/CTF Act to allow reporting entities to share information about
suspicious matters with other reporting entities in the same DBG or corporate
group for the purpose of informing them of the risks involved in dealing with a
customer without breaching the tipping off provisions. Item 55 will
insert proposed subsection 123(12) to provide that for the purposes
of the AML/CTF Act, a ‘corporate group’ means ‘a group of 2 or more
bodies corporate that are related to each other under section 50 of the Corporations
Act 2001’.
While the amendments will facilitate broader sharing of
information between reporting entities, as recommended by the statutory review,
King & Wood Mallesons suggested that the proposed changes will not fully overcome
barriers to information sharing across multinational corporate groups.[112]
This is because the relevant exemption to the tipping off offence, as amended
by the Bill, would still only permit disclosure to other reporting entities
within a corporate group. King & Wood Mallesons argue that this restriction
will mean that reporting entities will continue to be prevented from escalating
potential ML/TF issues to senior management and legal and compliance personnel,
who may be in a part of a corporate group that is not a reporting entity.
Services
provided in the course of carrying on a business
The phrase ‘in the course of carrying on a business’ is
used in many of the descriptions of designated services in the tables in
section 6 of the AML/CTF Act. In most instances, the type of
business in which the service is being provided is specified. However, in some
cases it is not. Consultations undertaken for the statutory review revealed
concerns that the phrase's use without further specification in the tables of
designated bullion and gambling services potentially captured businesses that
provided particular services incidentally or very occasionally, rather than as
part of their core business. Recommendation 4.5 was that use of the
term should be qualified so that AML/CTF Regulation only applies where a
service is provided routinely or regularly.[113]
Items 45 and 46 will amend several
descriptions of designated services in tables 2 (bullion) and 3 (gambling) in
section 6 so that the services are only captured if they are provided in the
course of carrying on a bullion-dealing business and gambling business
respectively.
The Senate Legal and Constitutional Affairs Legislation Committee
recommended that the Government consider whether the term ‘in the course of
carrying on a business’ could be better defined in the Bill and the Explanatory
Memorandum. The recommendation was made on the basis of concerns raised by the
LCA that the Bill would not fully implement the review recommendation.[114]
The LCA suggested that the AML/CTF Act be amended to make clear ‘that a
reference in section 6 to a particular kind of business is intended to
limit the broad scope of the defined term ‘business’ so that it applies only
when the specified business is a core function or a substantive part of the
operations of the relevant entity’.[115]
Part 5—Investigation
and enforcement
Expanding
the infringement notice scheme
Division 3 of Part 15 of the AML/CTF Act
sets out an infringement notice scheme (INS) under which an authorised officer,
Customs officer or police officer may issue a notice requiring a person to pay
a fine within 28 days in order to avoid court proceedings for a breach of the AML/CTF
Act.[116]
The INS can currently only be employed for a small number of civil penalty
provisions.[117]
The statutory review recommended that the INS be expanded
to apply to a broader range of regulatory breaches on the basis that ‘would give
the AUSTRAC CEO additional, more expedient means for promoting and encouraging
compliance, as an alternative to applying for a civil penalty order through the
Federal Court’.[118]
It outlined the impacts of a lack of options for securing compliance with section 49
notices (requiring a reporting entity to provide further information in
relation to a suspicious matter, threshold transaction or international funds
transfer instruction report it made to AUSTRAC) as an example:
Non-compliance with these notices can delay or frustrate
investigations into serious crimes and ideally such non-compliance should be
dealt with swiftly and summarily. However, to take action against a reporting
entity that contravenes a section 49 notice, AUSTRAC must conduct civil
proceedings through the courts. This process is costly and time consuming and
does not always allow AUSTRAC to respond in a timely and proportionate manner
to secure reporting entity compliance.[119]
The consultation paper on Phase 1 reforms proposed that
the INS be expanded to include breaches of an additional 13 provisions.[120]
Items 59 and 61 would amend section 184 of the AML/CTF Act
to expand the INS to include breaches of nine of those 13 additional
provisions, relating to customer identification procedures; reporting of suspicious
matters, threshold transactions and international funds transfer instructions,
and compliance with the AML/CTF regime; providing further information in
relation to a reported matter; and making and retaining certain records. These
will be ‘designated infringement notice provisions’, a subset of ‘infringement
notice provisions’ for which only the AUSTRAC CEO will be able issue notices.[121]
Authorised officers, Customs officers and police officers will retain the power
to issue notices for other infringement notice provisions.[122]
Item 62 will insert proposed
section 186B to provide that the penalty to be specified in an
infringement notice for a designated infringement notice provision is
60 penalty units for a body corporate and 12 penalty units for other
persons.
Remedial
directions
Section 191 of the AML/CTF Act gives the
AUSTRAC CEO the power to issue a remedial direction to a reporting entity,
requiring it to take certain action to avoid breaching its AML/CTF obligations.
The statutory review found that the inability to issue a remedial direction
requiring a reporting entity to take action to rectify a previous breach was a
shortcoming of the existing regime, particularly in relation to obligations to
submit reports: ‘to retrospectively enforce compliance with these obligations—and
require the entity to submit the required reports—currently AUSTRAC must resort
to enforceable undertakings or a court-issued injunction’.[123]
Item 63 will implement recommendation 15.3
of the statutory review by amending section 191 so that the AUSTRAC CEO
may issue a remedial direction requiring a reporting entity to remedy a
contravention of a reporting requirement by providing the relevant report
within a specified time. This option will only be available in relation to
obligations to report threshold transactions and international fund transfer
instructions and provide AML/CTF compliance reports.
The AUSTRAC CEO will only be able to issue a remedial
direction relating to a past contravention up to two years from the date of
that contravention, and must first assess the risks that have arisen from the
contravention and determine that a remedial direction is an appropriate and
proportionate response.
Search and
seizure powers and civil penalties relating to physical currency and bearer
negotiable instruments
Division 8 of Part 15 of the AML/CTF Act sets
out the powers of police and Customs officers to question and search people
entering or leaving Australia for the purpose of enforcing restrictions on the
cross-border movement of physical currency and bearer negotiable instruments
such as travellers’ cheques. It also includes offences for failing to declare
matters or produce physical currency or bearer negotiable instruments when
required by a police or Customs officer to do so.
The Bill will:
- expand
the circumstances in which search and seizure powers can be exercised in
relation to physical currency
- expand
the circumstances in which bearer negotiable instruments may be seized and
- introduce
new civil penalties for non-compliance as an alternative to the existing
offences.
These amendments implement and go beyond what was suggested
in recommendations 12.4 and 12.6 of the statutory review.
Currently, a police officer or Customs officer may search
a person and examine articles in a person’s possession only for the purpose of
finding out if the person has physical currency in relation to which a report
is required under section 53 of the AML/CTF Act ($10,000 or more),
and seize physical currency only where it may afford evidence of an offence
against section 53.[124]
The statutory review recommended an officer also be able to search for and
seize physical currency where there is a suspicion of money laundering,
terrorism financing or other serious criminal offence.[125]
Items 67–73 of Schedule 1 will amend
section 199 of the AML/CTF Act so that in addition to the current
powers, a police officer or Customs officer may search a person and examine
articles in a person’s possession if he or she has reasonable grounds to
suspect that the person has physical currency that ‘may be of interest’ under proposed
subsection 199(14), which will be where it:
- may
be relevant to the investigation or prosecution of an offence
- may
be of assistance in the enforcement of the Proceeds of Crime Act 2002 or
regulations under it or
- may
be of assistance in the enforcement of a state or territory proceeds of crime
law.
Seizure of physical currency will be permitted if the
police officer or Customs officer has reasonable grounds to suspect it ‘may be
of interest’ (on the same grounds).
The search and examination powers in relation to bearer
negotiable instruments will remain unchanged, but a police officer or Customs
officer will be permitted to seize a bearer negotiable instrument produced or
found if he or she has reasonable grounds to believe it may be relevant to the
investigation or prosecution of an offence, or of assistance in the enforcement
of a proceeds of crime law.[126]
It is not clear why different thresholds are proposed for seizing physical
currency (reasonable grounds to suspect) and bearer negotiable instruments
(reasonable grounds to believe).
These amendments are broadly consistent with recommendation 12.4
of the statutory review, but go further in that they will be exercisable in
relation to any offence rather than only a serious offence.
As noted earlier in this Digest, the Scrutiny of Bills
Committee sought the Minister’s detailed justification for giving police and Customs
officers power to seize items without a warrant. The Minister stated that the
key reason for enabling seizure without a warrant is ‘the time-sensitive nature
of operations at the border’, pointing out that currency may be seized from a
person shortly before an international flight. The Committee maintained its
concerns and noted that the Minister’s response did not address the issue of
accountability.[127]
The Senate Legal and Constitutional Affairs Legislation
Committee recommended that the Government consider whether the term ‘article’ could
be more clearly defined. It made the recommendation on the basis of concerns
raised by law firm Nyman Gibson Miralis that the term, which is not defined in
the AML/CTF Act, could be interpreted broadly and relied on to search
and seize items such as laptops and smart phones.[128]
However, given the search powers may only be used for the purpose of finding
out if a person is in possession of physical currency or bearer negotiable
instruments, and only permit seizure of physical currency and bearer negotiable
instruments, those concerns appear to be misplaced.
The existing offences for failing to comply with requirements
made by police or Customs officers under sections 199 (physical currency) and
200 (bearer negotiable instruments) carry maximum penalties of one year’s
imprisonment and/or 60 penalty units. Items 73 and 75
will implement recommendation 12.6 of the statutory review by inserting
civil penalty provisions for breaching those requirements.
As noted earlier in this Digest, under the AML/CTF Act,
the same maximum pecuniary penalties apply to all civil penalty
provisions—100,000 penalty units (currently $21 million) for a body
corporate and otherwise 20,000 penalty units (currently $4.2 million). Accordingly,
there is a significant discrepancy between the maximum penalties that will
apply to offences and civil penalty provisions relating to the same breaches of
the AML/CTF Act.
As detailed earlier in this Digest, the Scrutiny of Bills
Committee and the Parliamentary Joint Committee on Human Rights both raised
concerns about the civil penalty provisions in the Bill. The Scrutiny of Bills
Committee recommended that the information in the Minister’s response to its
initial report, which included matters that the Federal Court must consider in
determining the appropriate penalty in a particular case, be incorporated into
the Explanatory Memorandum.[129]
The Parliamentary Joint Committee on Human Rights considered that the civil
penalty provisions may be characterised as criminal and because the Minister’s
response to its initial report on the Bill did not address criminal process
rights, it was ‘unable to conclude that the measure is compatible’ with those
rights.[130]
Part 6—Amendments
to definitions
Items 76–79 of Schedule 1 will amend the
definitions of eligible place, investigating officer,
signatory and stored value card in section 5
of the AML/CTF Act. The amendments to the definitions of signatory
and stored value card will implement recommendations 19.1(f)
and 19.1(g) of the statutory review respectively.[131]
The Senate Legal and Constitutional Affairs Legislation
Committee recommended that the Government consider whether stored value
card could be better defined. It made the recommendation on the basis
of the LCA’s suggestion that both the existing and proposed definitions relied
on what it considered to be an unhelpful distinction between debit cards issued
by financial institutions and other types of stored value cards.[132]
Part 7—Other
regulatory matters
Functions
of the AUSTRAC CEO
Section 212 of the AML/CTF Act sets out the
functions of the AUSTRAC CEO. Items 80–82 of Schedule 1 will
amend section 212 to expand the AUSTRAC CEO’s functions relating to
obtaining and sharing information and intelligence, implementing recommendation 16.1(b)
of the statutory review. Item 83 will insert a general function of
doing anything that is incidental or conducive to a listed function,
implementing recommendation 16.1(a).[133]
Granting of
exemptions
Section 248 of the AML/CTF Act gives the
AUSTRAC CEO the power to exempt specified persons from certain provisions of
the Act, or modify the way certain provisions apply to specified persons, by
written instrument. FATF’s latest evaluation of Australia concluded that
exemptions granted under Australia’s AML/CTF regime were not in line with the
FATF Recommendations, because they were not granted solely on the basis of low
ML/TF risk, and in fact some ‘appear to be granted solely on the basis of
excessive regulatory burden’.[134]
Recommendation 17.1 of the statutory review was that the AML/CTF
Act be amended to ‘set out specific matters that the AUSTRAC CEO must take
into account when determining exemptions, with the level of ML/TF risk posed
being the prime consideration’.[135]
Item 84 would insert proposed
subsection 212(3A) to require the AUSTRAC CEO to be satisfied that the
ML/TF risk associated with an exemption or modification is low. While this
amendment will go some way to addressing the shortcomings identified in the
FATF evaluation and recognised in the statutory review, it falls short of the
recommended changes.
[1]. Financial
Action Task Force (FATF), ‘Who we are’,
‘What we do’ and ‘History of the FATF’,
FATF website.
[2]. FATF,
International
standards on combating money laundering and the financing of terrorism and
proliferation, (FATF Recommendations), FATF, Paris, February 2012;
C Barker, ‘New
international standards on countering money laundering and terrorist financing
released’, FlagPost, Parliamentary Library blog, 29 February 2012.
[3]. FATF,
‘About: members
and observers’, FATF website.
[4]. FATF,
‘Topic:
mutual evaluations’ and ‘Topic:
high-risk and non-cooperative jurisdictions’, FATF website.
[5]. FATF,
FATF Recommendations, op. cit.
[6]. Ibid.,
recommendation 1.
[7]. Australian
Transaction Reports and Analysis Centre (AUSTRAC), Terrorism
financing in Australia 2014, AUSTRAC, Sydney, 2014, p. 10.
[8]. AUSTRAC,
‘About AUSTRAC’ and ‘AUSTRAC: Australia’s
financial intelligence unit’, AUSTRAC website.
[9]. FATF,
Virtual
currencies: key definitions and potential AML/CFT risks, FATF report,
Paris, June 2014, p. 4. Footnote references have been omitted from
this quotation and can be viewed in the source document.
[10]. Ibid.;
A Wagner, ‘Digital
vs. virtual currencies’, Bitcoin Magazine, 22 August 2014.
[11]. FATF,
Virtual
currencies: key definitions and potential AML/CFT risks, op. cit.,
pp. 4–5; D He et al, Virtual
currencies and beyond: initial considerations, IMF staff discussion
note, SDN/16/03, International Monetary Fund, January 2016, pp. 8–9
(quote taken from p. 9).
[12]. For
an overview of how the system works, see: D Miller, ‘Bitcoin
explained: the digital currency making millionaires’, ABC News, (online edition),
updated 9 December 2015.
[13]. CoinMarketCap,
‘Cryptocurrency
market capitalizations: all coins’, CoinMarketCap website, accessed
25 October 2017.
[14]. See
for example J Eyers,‘IMF
urges central banks to study digital currencies’, The Australian
Financial Review, 20 June 2017, p. 17; E Curran,
P Skolimowski and C Torres, ‘Central
banks can’t ignore the cryptocurrency boom’, Bloomberg Markets, 30 August 2017;
Senate Economics References Committee, Digital
currency–game changer or bit player, The Senate, Canberra,
August 2015.
[15]. Attorney-General’s
Department (AGD), Regulating
digital currencies under Australia’s AML/CTF regime: consultation paper,
AGD, December 2016, p. 3. See further: AGD, Report
on the statutory review of the Anti-Money Laundering and Counter-Terrorism
Financing Act 2006 and associated rules and regulations, (AML/CTF
Review), AGD, Canberra, April 2016, pp. 47–48; FATF, Virtual
currencies: key definitions and potential AML/CFT risks, op. cit.,
pp. 9–12.
[16]. FATF,
Guidance
for a risk-based approach to virtual currencies, FATF, Paris,
June 2015, pp. 6–7.
[17]. Senate
Economics References Committee, Digital
currency: game changer or bit player, op. cit., pp. 58–62,
recommendation 4.
[18]. Productivity
Commission (PC), Business
set-up, transfer and closure, Inquiry report, 75, PC, Canberra,
30 September 2015, pp. 240–244, recommendation 9.3.
[19]. Ibid.,
pp. 229, 243–244.
[20]. AML/CTF
Review, op. cit.
[21]. FATF,
Anti-money
laundering and counter-terrorist financing measures : Australia : mutual
evaluation report, FATF, Paris, April 2015. The evaluation found
Australia to be fully compliant with 12 standards, largely compliant with 12,
partially compliant with ten and non-compliant with six. Of the 16 standards of
which Australia was rated as partially compliant or non-compliant, 12 relate to
the legislative framework.
[22]. Senate
Legal and Constitutional Affairs Legislation Committee, Anti-Money
Laundering and Counter-Terrorism Financing Amendment Bill 2017, Committee
Hansard, (proof), 20 September 2017, pp. 11–12.
[23]. For
information on other measures being progressed to implement statutory review
recommendations, see: AGD, ‘AML/CTF
statutory review implementation’, AGD website and AGD, Project
plan: implementation of the recommendations from the statutory review of the
anti-money laundering and counter-terrorism financing regime, AGD, Canberra,
February 2017. AUSTRAC has started work on amendments to the AML/CTF Rules:
AUSTRAC, ‘Draft AML/CTF
Rules’, AUSTRAC website, 24 July 2017.
[24]. AGD,
Regulating
digital currencies under Australia’s AML/CTF regime: consultation paper,
op. cit.
[25]. AGD,
Enhancing
Australia’s AML/CTF regime: Phase 1 amendments to the Anti-Money Laundering and
Counter-Terrorism Financing Act 2006: industry consultation paper, AGD,
December 2016. Submissions are available online at: AGD, ‘AML/CTF
statutory review implementation’, op. cit. The review recommendations
included in that consultation paper but not implemented in the Bill are: 3.2
(inserting principles), 5.9 (prohibiting the provision of a service if customer
due diligence cannot be completed), 5.12 (relating to reliance on third
parties for customer due diligence), 11.2 (amending the definition of designated
remittance arrangement), 14.1 and 14.2 (amendments to secrecy
and information access provisions to facilitate information sharing) and 15.5
(allowing additional agencies to issue infringement notices and apply for civil
penalty orders).
[26]. Andrew
Walter, Acting First Assistant Secretary, Criminal Justice Policy and Programs
Division, told the Committee: ‘One of the first things we have already started
work on—we had hoped to get it into this Bill but we didn't—is around the
secrecy and access provisions in the act [sic], which relates to tipping off
and other things’: Senate Legal and Constitutional Affairs Legislation
Committee, Anti-Money Laundering and Counter-Terrorism Financing Amendment
Bill 2017, Committee
Hansard, (proof), op. cit., p. 9.
[27]. Senate
Legal and Constitutional Affairs Legislation Committee, Anti-Money
Laundering and Counter-Terrorism Financing Amendment Bill 2017 [Provisions],
The Senate, 16 October 2017.
[28]. Ibid.,
p. 21.
[29]. Senate
Standing Committee for the Scrutiny of Bills (Scrutiny of Bills Committee), Scrutiny
digest, 10, 2017, The Senate, 6 September 2017, pp. 1–9.
[30]. Scrutiny
of Bills Committee, Scrutiny
digest, 12, 2017, The Senate, 18 October 2017,
pp. 72–75.
[31]. Scrutiny
of Bills Committee, Scrutiny
digest, 10, op. cit., pp. 4–5.
[32]. Scrutiny
of Bills Committee, Scrutiny
digest, 12, op. cit., pp. 77–79.
[33]. AML/CTF
Act, Division 2 of Part 15, specifically subsections 175(4) and
(5). The value of a penalty unit is set under the Crimes
Act 1914, section 4AA(1) and is currently $210.
[34]. Scrutiny
of Bills Committee, Scrutiny
digest, 10, 2017, op. cit., pp. 5–6.
[35]. Scrutiny
of Bills Committee, Scrutiny
digest, 12, op. cit., pp. 80–82.
[36]. Ibid.,
pp. 82–83.
[37]. Scrutiny
of Bills Committee, Scrutiny
digest, 10, 2017, op. cit., p. 7.
[38]. Scrutiny
of Bills Committee, Scrutiny
digest, 12, op. cit., pp. 84–85.
[39]. Items 67–75.
[40]. Scrutiny
of Bills Committee, Scrutiny
digest, 10, 2017, op. cit., pp. 7–9.
[41]. Scrutiny
of Bills Committee, Scrutiny
digest, 12, op. cit., pp. 86–88.
[42]. C O’Neil,
‘Second
reading speech: Anti-Money Laundering and Counter-Terrorism Financing Amendment
Bill 2017’, House of Representatives, Debates, (proof),
24 October 2017, pp. 52–53.
[43]. AGD,
Final assessment regulation impact statement: Anti-Money Laundering and
Counter-Terrorism Financing Amendment Bill 2017, May 2017 (Annex A to
the Explanatory
Memorandum), p. 13.
[44]. Ibid.,
p. 18. The Code is available at ADCA, ‘Australian Digital Currency
Industry Code of Conduct’, ADCA website.
[45]. Australian
Digital Currency Commerce Association, Submission
to Senate Economics References Committee, Inquiry into digital currency,
November 2014, pp. 3–4, 8–9 (see also S Pandey, ‘Government
to strengthen money laundering rules, regulate bitcoin’, Australian
Financial Review, (online edition), 17 August 2017); Fintech
Australia and Blockchain Australia, Submission
to AGD, Regulating digital currencies under Australia’s AML/CTF, January 2017
(this submission opposed extending regulation to digital currency wallet
providers, which was recommended by the statutory review and proposed in the
discussion paper, but not included in the Bill). FinTech Australia published
its submission on its website. AGD has not made submissions received in
response to its consultation paper on regulating digital currencies publicly
available.
[46]. Living
Room of Satoshi, Submission
to Senate Legal and Constitutional Affairs Legislation Committee, Inquiry
into the Anti-Money Laundering and Counter-Terrorism Financing Amendment Bill
2017 [Provisions], 8 September 2017.
[47]. Australian
Bankers’ Association (ABA), Submission
to AGD, AML/CTF statutory review, 28 March 2014, p. 32;
Australian Financial Conference, Submission
to AGD, AML/CTF statutory review, 8 April 2014, p. 8.
[48]. Synod
of Victoria and Tasmania, Uniting Church in Australia (Uniting Church), Submission
to Senate Legal and Constitutional Affairs Legislation Committee, Inquiry
into the Anti-Money Laundering and Counter-Terrorism Financing Amendment Bill
2017 [Provisions], 8 September 2017, pp. 1–3.
[49]. Transparency
International Australia, Submission
to Senate Legal and Constitutional Affairs Legislation Committee, Inquiry
into the Anti-Money Laundering and Counter-Terrorism Financing Amendment Bill
2017 [Provisions], 4 October 2017, pp. 1–3.
[50]. ABA,
Submission
to Senate Legal and Constitutional Affairs Legislation Committee, Inquiry
into the Anti-Money Laundering and Counter-Terrorism Financing Amendment Bill
2017 [Provisions], 8 September 2017, pp. 1–2.
[51]. Law
Council of Australia (LCA), Submission
to Senate Legal and Constitutional Affairs Legislation Committee, Inquiry
into the Anti-Money
Laundering and Counter-Terrorism Financing Amendment Bill 2017 [Provisions],
15 September 2017.
[52]. Uniting
Church, Submission,
op. cit., pp. 3–4; King & Wood Mallesons, Submission
to Senate Legal and Constitutional Affairs Legislation Committee, Inquiry
into the Anti-Money Laundering and Counter-Terrorism Financing Amendment Bill
2017 [Provisions], 7 September 2017.
[53]. Explanatory
Memorandum, Anti-Money Laundering and Counter-Terrorism Financing Amendment
Bill 2017, p. 4.
[54]. Ibid.,
p. 4 and Annex A.
[55]. The
Statement of Compatibility with Human Rights can be found at page 5 of the Explanatory
Memorandum to the Bill.
[56]. Parliamentary
Joint Committee on Human Rights (PJCHR), Report,
10, 2017, 12 September 2017, pp. 2–4.
[57]. Ibid.,
p. 4.
[58]. Ibid.
[59]. PJCHR,
Report,
11, 2017, 17 October 2017, pp. 69–71.
[60]. The
Australian Criminal Intelligence Commission’s (ACIC) latest assessment of
organised crime in Australia stated that money laundering ‘remains a
fundamental enabler of profit-motivated crime’ and ‘is the common element in
almost all serious and organised crime’ affecting Australia: ACIC, Organised
crime in Australia 2017, ACIC, n.p., 2017, pp. 8–9.
[61]. See
further: AUSTRAC, ‘Case
studies’ and ‘AUSTRAC
typologies and case studies reports’, AUSTRAC website, 1 July 2015.
[62]. AML/CTF
Review, op. cit., pp. 19–21 (FATF’s mandate was expanded in 2012
to include developing measures to combat proliferation financing). The review
also recommended that providing for supervision and monitoring of reporting
entities’ compliance with Australian sanction laws be included, but that was
contingent on the implementation of recommendation 15.8, which, in
response to the findings of FATF’s evaluation of Australia, suggested that the
Government consider making AUSTRAC responsible for that function:
pp. 132–134.
[63]. Item 3
and 4 of Schedule 1.
[64]. AGD,
Regulating digital currencies under Australia’s AML/CTF regime: consultation
paper, op. cit., p. 4. See also FATF, Virtual currencies: key
definitions and potential AML/CFT risks, op. cit., pp. 9–10.
[65]. Items 5–7
of Schedule 1 will amend the definition of money in section 5
of the AML/CTF Act, and repeal the definition of precious metal,
which was only included for the purposes of the definition of e-currency.
[66]. Item 8
will amend the definition of property in section 5 of the
AML/CTF Act; items 16 and 17 will amend the descriptions of
designated services relating to the exchange of gaming tokens or chips in
subsection 6(4); items 21–23 will amend the offence for conducting
transactions so as to avoid reporting requirements relating to threshold
transactions in section 142.
[67]. AGD,
Final assessment regulation impact statement, op. cit.,
pp. 10–14.
[68]. Ibid.
[69]. A
beneficial owner of a customer means ‘a person who ultimately
owns or controls (directly or indirectly) the customer’: Anti-Money Laundering
and Counter-Terrorism Financing Rules Instrument 2007 (No. 1), (AML/CTF
Rules), Rule 1.2.1.
[70]. AML/CTF
Review, op. cit., pp. 51–54, recommendations 4.11 and 4.12.
[71]. AGD,
Project plan, op. cit., p. 9.
[72]. Definitions
of threshold transaction (as amended by the Bill) and physical
currency in section 5 of the AML/CTF Act.
[73]. Definitions
of threshold transaction and money in section 5
of the AML/CTF Act.
[74]. AGD,
Final assessment regulation impact statement, op. cit., p. 11.
[75]. AGD,
Regulating
digital currencies under Australia’s AML/CTF regime: consultation paper,
op. cit., p. 14.
[76]. AGD,
Final assessment regulation impact statement, op. cit., p. 26.
[77]. AML/CTF
Rules, chapter 27.
[78]. Proposed
subsections 76D(4) and (5).
[79]. Item 34
of Schedule 1 will amend the table of reviewable decisions in
section 233B of the AML/CTF Act.
[80]. AML/CTF
Act, section 233C as amended by items 36 and 37 of
Schedule 1.
[81]. Scrutiny
of Bills Committee, Scrutiny
digest, 12, op. cit., pp. 84–85.
[82]. Proposed
paragraph 76K(2)(f).
[83]. Item 9
of Schedule 1 will insert a definition of registrable digital
currency exchange service into section 5 of the AML/CTF Act.
It will mean a designated service that is covered by item 50A of table 1 in
section 6 and that is not of a kind specified in the AML/CTF Rules.
[84]. AML/CTF
Act, Division 2 of Part 15, specifically subsections 175(4)
and (5).
[85]. Proposed
subsection 76A(4). Strict liability is provided for under
section 6.1 of the Criminal Code
Act 1995, and the defence of mistake of fact under
section 9.2 of the same Act.
[86]. Scrutiny
of Bills Committee, Scrutiny
digest, 12, op. cit., pp. 72–75.
[87]. Subsection
4B(3) of the Crimes Act 1914 allows a court to impose a maximum
pecuniary penalty that is five times the amount of the maximum pecuniary
penalty that could be imposed on an individual for the same offence.
[88]. Scrutiny
of Bills Committee, Scrutiny
digest, 12, op. cit., pp. 80–82.
[89]. PJCHR,
Report,
11, op. cit., pp. 69–71.
[90]. AML/CTF
Act, section 186A as amended by items 25–31 of Schedule 1.
[91]. AML/CTF
Act, subsection 186A(5).
[92]. AML/CTF
Review, op. cit., p. 105.
[93]. Ibid.,
p. 103. Footnote references have been omitted from this quotation and can
be viewed in the source document.
[94]. Ibid.,
p. 24.
[95]. Ibid.
Footnote references have been omitted from this quotation and can be viewed in
the source document. The report also noted: ‘Where CIT operators deposit large
amounts of cash into accounts on behalf of a customer, the authorised
deposit-taking institution accepting the deposit will still have [customer due
diligence] and reporting obligations in relation to the customer and the
transaction’.
[96]. Item 57
of Schedule 1 will make a consequential amendment to the definition of cash
dealer in subsection 3(1) of the Financial Transaction Reports
Act 1988 so that cash-in-transit operators will not become subject to
reporting obligations under that Act following the repeals effected by item 44.
[97]. AML/CTF
Review, op. cit., pp. 140–141.
[98]. AML/CTF
Act, section 5.
[99]. Ibid.,
sections 97 and 98.
[100]. AML/CTF
Review, op. cit., pp. 95–96.
[101]. Ibid.,
p. 97.
[102]. Senate
Legal and Constitutional Affairs Legislation Committee, Official
committee Hansard, op. cit., p. 3.
[103]. Explanatory
Memorandum, op. cit., p. 31.
[104]. AML/CTF
Review, op. cit., pp. 94–97 (covered by broader recommendation 10.1).
[105]. Explanatory
Memorandum, p. 31. See FATF Recommendations, op. cit., recommendation 13.
[106]. AML/CTF
Act, section 5.
[107]. The
‘tipping off’ provisions in section 123 of the AML/CTF Act are
designed to prevent information about a suspicious matter report reaching the
person to whom the report related.
[108]. AML/CTF
Review, op. cit., p. 87.
[109]. Ibid.
Footnote references have been omitted from this quotation and can be viewed in
the source document.
[110]. Ibid.,
p. 89.
[111]. Explanatory
Memorandum, p. 32.
[112]. King
& Wood Mallesons, Submission,
op. cit.
[113]. AML/CTF
Review, op. cit., pp. 25–27.
[114]. Senate
Legal and Constitutional Affairs Legislation Committee, Anti-Money
Laundering and Counter-Terrorism Financing Amendment Bill 2017 [Provisions],
op. cit., pp. 9–10.
[115]. LCA,
Submission,
op. cit., pp. 1–2.
[116]. Under
section 5 of the AML/CTF Act, and authorised officer
is the AUSTRAC CEO or a person for whom an appointment as an authorised officer
is in force under section 145 (which allows the AUSTRAC CEO to appoint, in
writing, members of AUSTRAC staff and certain other persons whose services are
made available to the AUSTRAC CEO).
[117]. AML/CTF
Act, subsection 184(1A).
[118]. AML/CTF
Review, op. cit., pp. 129–131, 133 (quote taken from p. 131)
(recommendation 15.4).
[119]. Ibid.,
p. 130.
[120]. AGD,
Enhancing
Australia’s AML/CTF regime: Phase 1 amendments to the Anti-Money Laundering and
Counter-Terrorism Financing Act 2006: industry consultation paper,
op. cit., p. 8.
[121]. Subsection 184(1A)
as amended by item 59 of Schedule 1; proposed subsection 184(1B)
inserted by item 60; proposed subsection 184(4) inserted by item 61.
[122]. AML/CTF
Act, subsection 184(1).
[123]. AML/CTF
Review, op. cit., p. 129.
[124]. AML/CTF
Act, sections 53 (reports about physical currency) and 199 (powers).
[125]. AML/CTF
Review, op. cit., pp. 110–112.
[126]. Item 74,
inserting proposed subsection 200(13A).
[127]. Scrutiny
of Bills Committee, Scrutiny
digest, 12, op. cit., pp. 86–88.
[128]. Senate
Legal and Constitutional Affairs Legislation Committee, Anti-Money
Laundering and Counter-Terrorism Financing Amendment Bill 2017 [Provisions],
op. cit., pp. 10–11. See further Nyman Gibson Miralis, Submission
to Senate Legal and Constitutional Affairs Legislation Committee, Inquiry
into the Anti-Money Laundering and Counter-Terrorism Financing Amendment Bill
2017 [Provisions], n.d., pp. 4–7.
[129]. Scrutiny
of Bills Committee, Scrutiny
digest, 12, op. cit., pp. 80–82.
[130]. PJCHR,
Report,
11, op. cit., pp. 69–71.
[131]. AML/CTF
Review, op. cit., pp. 144–145, 148.
[132]. Senate
Legal and Constitutional Affairs Legislation Committee, Anti-Money
Laundering and Counter-Terrorism Financing Amendment Bill 2017 [Provisions],
op. cit., pp. 8–9. See further LCA, Submission,
op. cit., pp. 2–3.
[133]. AML/CTF
Review, op. cit., pp. 135–136.
[134]. FATF,
Anti-money
laundering and counter-terrorist financing measures: Australia : mutual
evaluation report, op. cit., pp. 18, 43–45, 85, 125–127, 149
(quote taken from page 125).
[135]. AML/CTF
Review, op. cit., pp. 137–139 (quote taken from page 139).
For copyright reasons some linked items are only available to members of Parliament.
© Commonwealth of Australia
Creative Commons
With the exception of the Commonwealth Coat of Arms, and to the extent that copyright subsists in a third party, this publication, its logo and front page design are licensed under a Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Australia licence.
In essence, you are free to copy and communicate this work in its current form for all non-commercial purposes, as long as you attribute the work to the author and abide by the other licence terms. The work cannot be adapted or modified in any way. Content from this publication should be attributed in the following way: Author(s), Title of publication, Series Name and No, Publisher, Date.
To the extent that copyright subsists in third party quotes it remains with the original owner and permission may be required to reuse the material.
Inquiries regarding the licence and any use of the publication are welcome to webmanager@aph.gov.au.
Disclaimer: Bills Digests are prepared to support the work of the Australian Parliament. They are produced under time and resource constraints and aim to be available in time for debate in the Chambers. The views expressed in Bills Digests do not reflect an official position of the Australian Parliamentary Library, nor do they constitute professional legal opinion. Bills Digests reflect the relevant legislation as introduced and do not canvass subsequent amendments or developments. Other sources should be consulted to determine the official status of the Bill.
Any concerns or complaints should be directed to the Parliamentary Librarian. Parliamentary Library staff are available to discuss the contents of publications with Senators and Members and their staff. To access this service, clients may contact the author or the Library‘s Central Enquiry Point for referral.