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Consultation process: Summary of the submissions to the Senate Legal and Constitutional Committee on the Exposure Draft of the Anti-Money Laundering and Counter-Terrorism Financing Bill 2005

Thirty-three submissions were received by the Senate Legal and Constitutional Committee (the Senate Committee) as part of its inquiry into the Exposure Draft of the Anti-Money Laundering and Counter-Terrorism Financing Bill 2005 (the Bill). A public hearing was also held by the Senate Committee on 14 March 2006.

The concerns raised in the submissions generally related to:

The timeframe for the consultation process and implementation

• Most industry groups were satisfied with the extent and nature of the consultation process. However, nearly all of the submissions expressed concern that the 4 month consultation period was not adequate for a thorough assessment of the regime, particularly given that the majority of the Rules had not yet been released. The Australian Bankers' Association (ABA) submitted that at least 5 or 6 weeks would be required from the date of delivery of the complete Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) package in order to conduct a comprehensive analysis and complete submissions.
• Given the extensive obligations imposed by the Bill and the anticipated costs of administration and compliance, including system changes, the majority of those who provided submissions were of the view that a period of 2 to 3 years would be necessary for implementation.

The need for a risk-based approach

• The majority of industry bodies argued that despite the purported risk based approach, the Bill was overly prescriptive. They argued that the prescriptive approach would impose a disproportionate burden on business and was not consistent with good regulatory practice. Many submissions maintained that industry preference was not for prescription but rather for guidance from the Australian Transaction Reports and Analysis Centre (AUSTRAC), Australia's anti-money laundering regulator and specialist financial intelligence unit, about AML/CTF risks and AUSTRAC's expectations about industry's response to those risks. The submissions of the Association of Superannuation Funds of Australia (ASFA), the ABA and the Insurance Australia Group (IAG), for example, argued the obligations of reporting entities should reflect self-assessed risk.
• As the regime captures a wide range of reporting entities and transactions, a 'one size fits all' framework of prescriptive obligations was considered to be undesirable (and, it was argued would have consequences for both business and the public in terms of inconvenience and compliance costs).
• Some of the submissions suggested the measures in the Bill go beyond the FATF Recommendations, further than AML/CTF legislation in the UK and US, and beyond the AML/CTF objectives stated by the Federal Government as the rationale for the Bill. A number of submissions and witnesses (for example the ABA, the Investment Financial Services Association (IFSA) and American Express) referred to the UK and US models as examples of effective risk based regimes.

The practical impact of the proposed regime

Scope and coverage of the Bill - 'designated services'

• The submissions reflected concern about the wide scope of the Bill. For instance, CPA Australia and the Institute of Chartered Accountants (ICAA) argued in their joint submission that the definitions of 'designated services' were too broad. The ABA noted that the list of designated services did not:
  1. draw distinctions on the basis of monetary limits;
  2. take into account whether activity was carried out on an occasional or regular basis;
  3. recognise to whom the service was provided (for example a related business).
• Numerous submissions (including American Express, and the Australian Privacy Foundation) suggested that financial thresholds should be set to determine 'designated services.'

Customer identification requirements (Part 2)

• As most of the detail in relation to customer identification requirements will be contained in Rules yet to be released, this created uncertainty for a number of industry groups.
• Some submissions (eg, ABA, CPA Australia and ICAA) argued that the customer identification requirements such as 'Know Your Customer' and customer due diligence, were not risk based as they did not distinguish between high and low risk products or customers, resulting in obligations not proportionate to risk. Many also argued that the requirements were too complicated and intrusive.
• Many submissions (eg, IFSA, American Express, GE Capital Finance, Pay Pal, ING Direct) raised concerns that electronic verification processes had not been expressly provided for. As many businesses currently use electronic verification to check customer information and interact with customers and potential customers on a non face-to-face basis, it was submitted that express recognition of this method should be set out in the Rules. The ABA also noted that entities should be able to decide whether to adopt face-to-face or non face-to-face identification procedures.
• Some argued that the procedures relating to third party verification identification might not be practicable. ING Direct noted that the proposed regime contemplated third parties such as mortgage brokers undertaking the identification process on behalf of lending institutions, however how this was to occur had not been made clear. The CPA and Institute of Chartered Accountants believed the proposed procedures would result in unnecessary duplication and the Financial Planning Association of Australia (FPAA) raised a similar concern. The Securities & Derivatives Industry Association (SDIA) argued that certain arrangements involving third parties should be exempt from the due diligence requirements. Allens Arthur Robinson's (AAR) submission pointed out that, while section 34 allowed third parties to carry out customer identification procedures, section 12 prohibited them from providing information obtained by that procedure to anyone but the reporting entity. This would cause practical difficulties for related entities.

Reporting obligations (Part 3)

• Some submissions (eg, ABA) commented that the Rules pertaining to the reporting of suspicious matters were too prescriptive as too many matters must be taken into account in determining whether there were reasonable grounds for forming a suspicion (for the purposes of a report).
• Some submissions (eg, AAR, Liberty Victoria) argued that the extension of the suspicious matters reporting obligations to cases where it was suspected there had been a breach of foreign law (section 40) were onerous and unworkable.
• Numerous organisations argued that the current $10,000 reporting threshold was too low and should be reconsidered.

AML/CTF programs

• Specific issues raised in relation to the requirement to implement AML/CTF Programs included: the costs of implementation; the merging of the separate activities of AML and CTF in AML/CTF Programs; the possible implications (for instance, allegations of discrimination) of a reporting entity rejecting a potential customer on the basis of its AML/CTF Program; risk classification of existing customers; the requirement that an AML/CTF program must take into consideration foreign AML/CTF laws; and the lack of adequate defences.

Obligation to 'materially mitigate' risk

• Several submissions (eg, ABA and American Express) expressed concern that the requirement in section 74 for an AML/CTF Program to 'materially mitigate' the risk of money laundering and terrorist financing was too prescriptive, unrealistic and difficult to define.

Secrecy and access provisions

• Some submissions raised concerns in relation to section 95 which states that reporting entities must not disclose that they have formed a suspicion, given a suspicious matter report to AUSTRAC or, given further information to a law enforcement agency. It was suggested this provision was a concern because it failed to recognise the existence of corporate groups, which provide customers with multiple products and services and which need to monitor multiple activities to satisfy AML/CTF requirements. Some organisations (eg, AAR, American Express) suggested that where a reporting entity is part of a group, it should be able to make disclosure to other entities in its group, so long as the disclosure does not prejudice any investigation.
• Submissions were also received about the lack of defences in the Bill in relation to the secrecy provisions. Concern was expressed that legitimate actions by employees attempting to comply with the AML/CTF regime might result in an inadvertent breach of the 'tipping off' provisions.

Interaction between the Bill and other legislative regimes

• Some submissions pointed out that interaction between the Bill and other legislation such as privacy, discrimination, proceeds of crime, corporations and electronic transactions legislation must be taken into account, and any inconsistencies should be addressed.

Specific issues arising for particular industries

Superannuation

• Superannuation fund trustees will be considered reporting entities for the purposes of AML/CTF obligations as they provide a designated service. IAG, IFSA, and ASFA all argued that regulated superannuation entities (excluding self managed super funds) should be characterised as low risk and should not be subject to the stringent requirements for services considered high risk. This is particularly because regulated superannuation funds are already regulated by the Australian Prudential Regulation Authority.
• ASFA pointed out that the proposed $10,000 threshold for reporting a transaction was too low for superannuation contributions.

Financial planners

• Submissions were made that the provision of financial advice should not be listed as a designated service for the purpose of the AML/CTF regime. The FPAA argued that the giving of advice itself should not trigger the AML/CTF obligations. The obligation for financial planners should instead depend on any actions taken to implement their client's strategy.
• The FPAA also argued that the requirement for customers to identify themselves whenever they consult with a financial planner would not be practical.
• The FPAA also argued that the requirements of the regime would be particularly onerous for sole practitioners.

Insurance

• Although general insurance is not listed as a designated service, IAG was concerned that a general insurer authorised to provide financial product advice in relation to life products, limited risk insurance products and products issued by a life insurance company, could be deemed to be providing a designated service and therefore bound by the AML/CTF regime.
• Submissions were made by IFSA in relation to life products. As most life risk insurance products share the same characteristics as general insurance it was argued that they should be minimal to low risk. It was acknowledged that because investment life products have a surrender value, are transferable and can have high lump sum premiums or payouts they could be considered medium risk and would require a greater level of due diligence than life risk products.
• IFSA submitted that life risk insurance, life products acquired by super funds and life products with an annual premium of no more than A$1,500 (or a single premium of no more than A$4,000) should be classified as low risk for the purposes of section 28 of the Bill.

Privacy Concerns

• Submissions were made by the Office of the Privacy Commissioner, the Australian Privacy Foundation, the Office of the NSW Privacy Commissioner, the NSW Council for Civil Liberties and Liberty Victoria in relation to the possible impact of the AML/CTF regime on the privacy and civil rights of individuals. See our privacy pages for further information as to these submissions.