Chapter 2 - Overveiw of the Bill
2.1
This chapter briefly outlines the purpose and
main provisions of the Exposure Bill.
Purpose of the Exposure Bill
2.2
The Exposure Bill is intended to provide a generic
framework enabling individual businesses to manage money laundering and
terrorism financing risks specific to their industry sector. The Bill
purports to adopt a risk-based – rather than a prescriptive – approach. The
general principles set out in the Exposure Bill will be supplemented by
legally-binding Rules, and non-binding Guidelines.[11]
2.3
The Rules are intended to establish operational
details, including relevant standards and specific requirements for matters
such as customer identification procedures, the monitoring of customer
activity, reporting suspicious matters, appropriate 'risk-trigger' events, and
the development of AML/CTF Programs.
2.4
The Guidelines will provide guidance only and
may be issued by AUSTRAC from time-to-time to assist reporting entities to
interpret their obligations under the AML/CTF legislative framework.
2.5
AUSTRAC would continue to be Australia's
financial intelligence unit and AML/CTF regulator. AUSTRAC would regulate
reporting entities covered under the Exposure Bill and continue to collect,
retain, analyse and disseminate financial intelligence to designated law
enforcement, revenue, national security, social justice and other regulatory
agencies. AUSTRAC would also have an enhanced enforcement and monitoring role
under the Exposure Bill.[12]
Main provisions of the Exposure Bill
General outline
2.6
Banks and other 'cash dealers' are already
subject to AML/CTF measures under the FTR Act. However, the Exposure Bill (as
well as the amendments to the FTR Act, and other related legislation, made by
the Anti-Terrorism Bill (No 2) 2005) extends these measures beyond 'cash
dealers' to include a range of other financial service providers.
2.7
AML/CTF obligations under the Exposure Bill will
no longer be linked to cash transactions. Instead, an activities-based
definition will be introduced under which a person who provides, deals in, or
handles a 'financial product'[13] will
be subject to customer due diligence and enhanced reporting obligations.
2.8
The Exposure Bill sets out the primary
obligations of 'reporting entities' when providing 'designated services'. A 'reporting
entity' is a financial institution, or other person. The key obligations for
reporting entities under the Exposure Bill include:
-
verifying the identity of new customers;
-
monitoring customers and their transactions;
-
reporting specified transactions and suspicious
matters; and
-
implementing and maintaining AML/CTF Programs.
2.9
AML/CTF Rules will set out the specific
requirements to underpin the broader obligations contained in the Exposure Bill.
The Rules will enable the flexible application of the Exposure Bill's broader
principles such as customer due diligence. The Rules are being developed by AUSTRAC,
in consultation with industry, and will be legally binding.
2.10
The Rules would cover the following types of
matters:
-
standards and/or procedures that reporting
entities should use when verifying the identify of a customer – procedures may
apply to different types of customers (for example, individuals, companies and
other legal entities);
-
the matters that reporting entities should take
into account in determining whether a matter is suspicious and should be
reported to AUSTRAC;
-
the matters that reporting entities should
address in their AML/CTF Programs, including:
-
systems to identify and mitigate money
laundering and terrorism financing risks;
-
a customer due diligence program; and
-
a staff risk-awareness training program;
-
when reporting entities should re-verify the
identity of customers;
-
the details that reporting entities should
include in their reports to AUSTRAC of threshold transactions, suspicious
matters and funds transfer instructions; and
-
the matters that reporting entities should
assess when conducting a due diligence assessment of a correspondent banking
relationship.[14]
2.11
The Guidelines would not be legally binding. They
will be developed by AUSTRAC in consultation with industry.[15]
2.12
The following provides a brief summary of each
Part of the Exposure Bill.
Part 1 - Introduction
2.13
Part 1 provides the objects of the Exposure Bill.
Definitions are contained in proposed section 5.
2.14
As noted above, a 'reporting entity' is a
financial institution, or other person, who provides 'designated services'.
Designated services are listed in the tables in proposed section 6. Reporting
entities will have customer due diligence, reporting and record-keeping
obligations for such designated services. As the tables list services rather
than specific service providers, any business that supplies one of the listed
services will be covered, for example, lawyers and accountants who provide
financial services.
2.15
Whether the person (legal or natural) providing
the designated service is a 'reporting entity' will also be determined by
whether the service is provided:
-
at or through a permanent establishment of the
person in Australia;
-
by a resident of Australia at or through a
permanent establishment of the person in a foreign country (foreign branch); or
-
by a subsidiary of a company that is a resident
of Australia at or through a permanent establishment of the subsidiary in a
foreign country (foreign subsidiary) (proposed subsection 6(4)).
2.16
A service provider that does not have one of
these geographical links to Australia
is not a 'reporting entity' under the Exposure Bill.
2.17
Reporting entities that are foreign branches or
foreign subsidiaries of Australian residents will be required to apply the principles
of Australian AML/CTF obligations through their AML/CTF Programs to the extent
possible under local law.
Part 2 – Identification procedures
2.18
Part 2 provides customer identification
obligations of reporting entities, which form part of their customer due
diligence responsibilities. A reporting entity must carry out a procedure to
verify a customer's identity before providing a designated service to the
customer. However, in special cases, customer identification procedures may be
carried out after the provision of
the designated service. Such special circumstances would involve instances
where identifying the customer before the provision of the designated service
would disrupt the ordinary course of business, and the service is specified in
the AML/CTF Rules, and:
-
is not provided on a face-to-face basis; or
-
consists of acquiring or disposing of a security
or derivative on behalf of a customer; or
-
consists of issuing or undertaking liability as
the insurer under a life policy or a sinking fund policy.
2.19
Existing customers will not be subject to
initial customer identification requirements and will only need to have their
identity re-verified where warranted by materiality and risk. However, existing
customers would be subject to ongoing due diligence obligations.
2.20
The AML/CTF Rules will set out circumstances in
which the identity of all customers will be required to be re-verified. The
Rules may vary customer identification procedures for the provision of certain
designated services taken to be low-risk services. The Rules will include a
mechanism to allow a third party to carry out customer identification
procedures on the reporting entity's behalf.
Part 3 – Reporting obligations of
reporting entities
2.21
A reporting entity must give AUSTRAC reports
about suspicious matters (proposed section 39).
2.22
Issues to be taken into account in determining
whether to report a suspicious matter will be set out in the AML/CTF Rules.
Relevant issues may include whether a transaction was complex, unusual or large,
or whether it involves a resident of a particular foreign country.
2.23
Further, if a reporting entity provides a
designated service that involves a threshold transaction ($10,000, unless
changed by regulation), the reporting entity must give AUSTRAC a report about
the transaction within 10 business days after the day on which the transaction
takes place (proposed section 41).
2.24
If a reporting entity provides a designated
service that relates to an international funds transfer instruction, the
reporting entity must give AUSTRAC a report about the provision of the service
within 10 business days after the day on which the service commenced to be
provided (proposed section 42).
Part 4 – Reports about cross-border
movements of physical currency and bearer negotiable instruments
2.25
Cross-border movements of physical currency must
be reported to AUSTRAC, a customs officer or a police officer, if the total
value moved is above a threshold of $10,000 (proposed section 49).
2.26
If a bearer negotiable instrument is produced to
a police officer or a customs officer by a person leaving or arriving in Australia,
the officer may require the person to give a report about the instrument to
AUSTRAC, a customs officer or a police officer (proposed section 55).
Part 5 – Funds transfer
instructions
2.27
Reporting entities must verify the identity of
customers originating a funds transfer and transmit originator information with
the funds transfer (proposed sections 58, 60 and 61).
2.28
Where a reporting entity receives two or more
incoming funds transfer instructions from an overseas counterpart that do not
include appropriate originator information, AUSTRAC may direct the reporting
entity to request their overseas counterpart to include appropriate originator
information in all future funds transfer instructions (proposed section 59).
Part 6 – Register of providers of
designated remittance services
2.29
AUSTRAC must maintain a register of providers of
designated remittance services (proposed section 71). Persons who provide
designated remittance services must provide business details to AUSTRAC for
inclusion on the register (proposed section 70).
Part 7 – Anti-money laundering and
counter-terrorism
2.30
Reporting entities must develop, maintain and
comply with AML/CTF Programs (proposed section 73).
2.31
An AML/CTF Program is defined in proposed
section 74. An AML/CTF Program is a program that is designed to identify and 'materially
mitigate' the risk that the provision of a designated service might involve or
facilitate a transaction that is connected with the commission of:
-
a money laundering offence; or
-
a financing of terrorism offence.
2.32
Amongst other things, AML/CTF Programs must require
the monitoring by reporting entities of their provision of designated services
to each of their customers (monitoring forms part of their ongoing customer due
diligence obligations).
Part 8 – Correspondent banking
2.33
Financial institutions must not enter into a
correspondent banking relationship with a shell bank or another financial
institution that maintains accounts with a shell bank (proposed section 78).
2.34
Before a financial institution enters into a
correspondent banking relationship with another financial institution, the
financial institution must carry out a due diligence assessment (proposed
section 79).
2.35
If a financial institution has entered into a
correspondent banking relationship with another financial institution, the
financial institution must carry out regular due diligence assessments
(proposed section 80).
2.36
A financial institution must not enter into a
correspondent banking relationship with another financial institution unless
the respective rights, obligations and responsibilities of the parties are set
out in a written agreement (proposed subsection 79(5)).
Part 9 – Countermeasures
2.37
Regulations may prohibit or regulate
transactions with residents of prescribed foreign countries (proposed section
83).
Part 10 – Record-keeping
requirements
2.38
If a reporting entity makes a record of a
designated service, the reporting entity must retain the record for a certain number
of years (to be agreed after consultation) (proposed section 85).
2.39
If a customer of a reporting entity gives the
reporting entity a document relating to the provision of a designated service,
the reporting entity must retain the document for a certain number of years (to
be agreed after consultation) (proposed section 86).
2.40
A reporting entity must retain a record of an
applicable customer identification procedure for a certain number of years (to
be agreed after consultation) after the end of the reporting entity's
relationship with the relevant customer (proposed section 87).
2.41
A person who carries out an applicable customer
identification procedure on behalf of a reporting entity must give a record of
the procedure to the reporting entity (proposed section 88). The reporting
entity must retain the record for a certain number of years after the end of
the reporting entity's relationship with the relevant customer (proposed
section 89).
Part 11 – Secrecy and access
2.42
Specified government agencies (the Australian
Taxation Office (ATO) and other designated agencies) will be able to access
information held by AUSTRAC, under certain conditions. In the case of the ATO, information
may be accessed for any purpose relating to facilitation of the administration
or enforcement of a taxation law; in the case of other agencies, information
may be accessed for the purposes of performing that agency's functions and
exercising the agency's powers (proposed sections 98 and 99).
2.43
Reporting entities must not disclose that they
have formed an applicable suspicion or have reported information to AUSTRAC
under the suspicious matter reporting requirements, or that they have given
further information to a law enforcement agency in response to a request
(proposed section 95).
Part 12 – Offences
2.44
Part 12 of the Exposure Bill establishes
offences for:
-
providing false or misleading information or
documents (proposed sections 107 and 108);
-
forging identity documentation (proposed section
109);
-
providing or receiving a designated service
anonymously or using a false customer name (proposed sections 110 and 111); or
-
structuring a transaction to avoid a reporting
obligation (proposed sections 112 and 113).
2.45
Other offences are contained in other Parts of
the Exposure Bill for failure to comply with specific requirements set out in
those Parts.
Part 13 – Audit
2.46
An 'authorised officer' (a member of the staff
of AUSTRAC, appointed in writing by AUSTRAC) may enter any reporting entity
business premises by consent or under a monitoring warrant to monitor
compliance with obligations under the Exposure Bill (proposed section 117).
2.47
Monitoring powers of authorised officers are
contained in proposed sections 118 and 119.
Part 14 – Information gathering
powers
2.48
Part 14 enables authorised officers to give a
notice requiring the giving of information or the production of documents from
a reporting entity or a person suspected of being a reporting entity (proposed
section 131).
Part 15 – Enforcement
2.49
Part 15 provides a civil penalty framework as an
alternative enforcement mechanism to criminal offence provisions.
2.50
In addition to the criminal offences in Part 12,
there are criminal offences in other Parts of the Exposure Bill for failure to
comply with requirements set out in those Parts. For many of those offences,
the same conduct that constitutes the criminal offence may also be the subject
of a civil penalty provision. This creates a two-tier system of penalty
provisions, whereby civil penalties would be used in situations where the
offending conduct does not warrant criminal prosecution; criminal sanctions
would be sought for more serious failures to comply with obligations.
2.51
Pecuniary penalties are payable for
contravention of civil penalty provisions (proposed section 140).
2.52
Authorised officers, customs officers and police
officers may issue infringement notices where a report that is required for
cross-border movements of physical currency or bearer negotiable instruments is
not made (proposed sections 149 and 150).
2.53
AUSTRAC is to monitor compliance by reporting
entities of their obligations under the Exposure Bill (proposed section 155).
2.54
The Federal Court may grant injunctions in
relation to contraventions of the Exposure Bill (proposed sections 156 and 157).
2.55
Customs officers and police officers may
exercise powers of questioning, search, seizure and arrest in connection with a
cross-border movement of physical currency or bearer negotiable instruments
(proposed sections 161, 162 and 163).
Part 16 – Administration
2.56
Part 16 establishes AUSTRAC, its functions and
staffing arrangements; and provides that AUSTRAC may issue legislative
instruments, known as AML/CTF Rules.
Part 17 – Vicarious liability
2.57
Part 17 establishes a standard of proof for
liability in matters involving employees or agents of reporting entities.
Part 18 – Miscellaneous
2.58
Part 18 contains miscellaneous provisions:
-
partnerships, trusts and unincorporated
associations are to be treated as persons for the purposes of the Exposure Bill
(proposed sections 196, 197 and 198);
-
the Exposure Bill is not intended to affect the
concurrent operation of state and territory laws (proposed section 199);
-
the Exposure Bill does not affect the law
relating to legal professional privilege (proposed section 201);
-
a contravention of the Exposure Bill does not
affect the validity of any transaction (proposed section 202);
-
provision is made in relation to the making of
reports to AUSTRAC (proposed section 203); and
-
the Governor-General may make regulations for
the purposes of the Exposure Bill (proposed section 205).
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