As part of a recently announced consultation process on proposed changes to Australia’s AML/CTF regime, the Department has asked for submissions on the proposal to amend the AML/CTF regime so that it applies to Tranche 2 entities. This proposal is contained in Part 2 of the consultation paper (available here). Part 1 relates to proposals to “simplify and modernise” the operation of the existing AML/CTF regime, which we discuss in our article here.
Why did this come about?
Australia, a founding member of the global money laundering and terrorism financing watchdog, the Financial Action Task Force (FATF), has been non-compliant with a number of recommendations made by the FATF, including that there be regulation of Tranche 2 entities.
In June 2021, the Senate Legal and Constitutional Affairs Committee referred the adequacy and efficacy of Australia’s AML/CTF regime to the Legal and Constitutional Affairs References Committee (Committee) for inquiry and report. In its March 2022 report, the Committee made four recommendations, including that the AML/CTF regime be extended to the Tranche 2 entities.
What is involved in the consultation process?
The Government is inviting submissions on the proposals and on questions that are set out in the consultation paper. The closing date for the submissions is 16 June 2023. The Government will also hold roundtable discussions with key stakeholders throughout May and June 2023. The industry submissions and discussions will then inform a second consultation paper that is proposed to be released in late 2023.
As to Tranche 2 entities, submissions are asked to address the following questions:
- What services by lawyers, accountants, conveyancers and trust and company service providers should be regulated under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act) so that they can manage their AML/CTF risks? Are there international examples that have worked well for these sectors?
- What guidance could be provided to assist those providing proposed legal, accounting, conveyancing, and trust/company services in managing these AML/CTF obligations?
- Are there any existing practices within the accounting, legal, conveyancing and trust/company sectors that would duplicate the six key AML/CTF obligations relating to customer due diligence, ongoing customer due diligence, reporting, developing and maintaining an AML/CTF program, record keeping and enrolment and registration with AUSTRAC? If so, do you have any suggestions on how these practices could be leveraged for the purpose of AML/CTF compliance?
Sector specific questions have also been asked in relation to each category of the proposed Tranche 2 entities, which are detailed in the consultation paper. This includes specific questions that relate to the protection of legal professional privilege and how that should be managed in regulating the proposed obligations of lawyers under the AML/CTF regime.
What does this mean for Tranche 2 entities?
Undoubtedly, the extension of the AML/CTF regime to the proposed Tranche 2 entities will impose an additional regulatory burden on those businesses. The current AML/CTF Act imposes requirements that include obligations for regulated entities to:
- identify the risks they face in providing designated services (which are defined in the AML/CTF Act) to customers, and develop and maintain an AML/CTF program containing systems and controls to identify, mitigate and manage money laundering and terrorism financing risks faced by the specific entity;
- verify a customer’s identity before providing a designated service and understand the customer’s risk profile;
- conduct ongoing customer due diligence throughout the course of the business relationship, including by transaction monitoring and enhanced customer due diligence;
- report to AUSTRAC all “suspicious matters”, cash transactions of AUD10,000 or more, all instructions for the transfer of value sent into or out of Australia and annual compliance reports;
- make and retain certain records that can assist with the investigation of financial crime or that are relevant to their compliance with the AML/CTF regime for seven years, and ensure they are available to law enforcement, if required; and
- enrol with AUSTRAC if it provides a designated service.
Given the timeframe proposed for the consultation process, it seems unlikely that any amendments to the regime will be finalised before late 2023 or early 2024 at the very earliest. We expect Tranche 2 entities will also be given additional time to prepare for the implementation of the reforms once their content is finalised. Nevertheless, it is important for Tranche 2 entities to engage with the consultation process and start thinking about the new reforms, including by:
- engaging with financial crime and AML/CTF experts to understand the obligations imposed under the AML/CTF Act, how your organisation may be required to meet those obligations and what steps you can take now in preparing for the new reforms;
- considering the implementation of relevant policies and procedures;
- considering how your existing systems and processes can be leveraged to facilitate compliance with the AML/CTF regime;
- considering any technological upgrades or resourcing requirements that might be necessary to comply with the AML/CTF regime; and
- preparing to give training to your employees about these changes.
We will continue to monitor and provide updates in relation to the consultation process and proposed reforms.
For advice on what steps your organisation can take now or if you require any assistance in understanding the proposed reforms, please contact our dedicated AML/CTF team.
This article was written by Anthony Seyfort, Partner, Polat Siva, Partner and Vesa Prekazi, Special Counsel.