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Focus: Road map to anti-money laundering and counter-terrorism financing reform

4 November 2016

In brief: The Federal Attorney-General's Department has released its draft Project Plan for the implementation of the wide-ranging recommendations arising from the recent statutory review of Australia's anti-money laundering and counter-terrorism financing regime. Partner Peter Haig (view CV), Associate Andrew Shetliffe and Lawyer Russ Marshall report. 

 
 

How does it affect you?

  • The draft Project Plan represents the 'road map' to the most significant reforms to Australia's anti-money laundering and counter-terrorism financing (AML/CTF) regime since it was introduced almost a decade ago.
  • These reforms will not only impact reporting entities, but may also subject other persons and entities (including lawyers, accountants, real estate agents and trust company servicer providers, together tranche two entities) to potentially onerous AML/CTF requirements.
  • Reporting entities and tranche two entities may wish to consider taking advantage of the opportunity to consult on the proposed reforms.
  • The draft Project Plan is currently subject to consultation and public comment. While submissions on this 'road map' close on 11 November 2016, the road itself will be long – the substantive consultation being timetabled to continue into 2018. 

Background

We reported earlier this year that the recommendations made in the Statutory Review of the AML/CTF Act 2006 and Associated Rules and Regulations (the Statutory Review Report) are commendably practical and, in some cases, sweeping. The focus of the 84 recommendations was the streamlining and strengthening of our AML/CTF regime. Notably – and laudably – the Statutory Review Report included a commitment to a 'genuine dialogue between government and industry [that] will help deliver a much simpler and streamlined regulatory framework'.1 The draft Project Plan continues in that consultative vein, referring to 'targeted consultation and co-design of reforms'.

So broad-ranging were the Statutory Review Report's recommendations that we queried how (and when) the contemplated reforms might be implemented. We are now closer to knowing.

Phase 1 and Phase 2 initiatives and reforms

The draft Project Plan outlines the procedure for consultation with industry and government stakeholders and allocates responsibility for progressing the reforms between the Attorney-General's Department and AUSTRAC. It sets out a proposed two stage process by which the proposed initiatives and reforms will be implemented:

  • Phase 1 will progress priority projects for completion in 2017. Priority projects include both:
    • legislative projects, such as regulating digital currencies (eg Bitcoin) and implementing customer due diligence (CDD) deregulatory relief, including improving the usability of the reliance provisions; and
    • non-legislative projects, such as conducting a cost-benefit analysis of models for the AML/CTF regulation of tranche two entities.
  • Phase 2 will progress the more 'sweeping' reforms, which will be developed over the longer term (out to 2019). The key 'project deliverable' represents no less than a complete overhaul of the current AML/CTF regime, with the aim of achieving:2

[a] modern AML/CTF regime with obligations that are easy to understand and which complies with international standards for combating [money laundering and terrorism financing]. This includes reforms to:

  • merge and streamline AML/CTF program requirements
  • clarify record-keeping requirements
  • simplify and streamline transaction reporting obligations
  • expand the range of businesses that can form a 'corporate group' for AML/CTF purposes, and
  • streamline and simplify correspondent banking arrangements.
 

Stakeholder consultation

The draft Project Plan is intended to reflect the Government's commitment to engaging with all relevant stakeholders to ensure that proposed reforms occur 'in an efficient way that minimises impact on industry and avoids regulatory fatigue.'3

The Attorney-General's Department proposes to establish and chair the National Anti-Money Laundering and Counter-Terrorism Financing Committee to oversee the project. This committee will be supported by an inter-departmental AML/CTF Coordinating Committee and bespoke government consultation groups.

The principal methods for engaging industry will be through the establishment of an AML/CTF Industry Consultation Council, the convening of bespoke industry working groups, and through the release of stakeholder consultation papers for public comment.

The delineation between Phase 1 projects and Phase 2 projects reflects the reality that there are some key recommendations from the Statutory Review Report that – following the extensive consultation process that led to the Statutory Review Report – ought to be able to be implemented with minimal further consultation. When it comes, however, to the 'co-design' of a new AML/CTF Act and Rules, significant further consultation is necessary. While the draft Project Plan would require some projects to be completed by December 2016, the bulk of the heavy lifting is scheduled to occur over the first half of 2017.

The authors of the Statutory Review Report bowed to the weight of submissions calling for a simplification of the AML/CTF regime, noting that this is a 'pressing need'. The indicative timeline leading to the implementation of a revised AML/CTF Act includes a 'policy development' stage that ends in July 2017, followed by six months of consultation and then the release of an exposure Bill and Rules in early 2018. The fact that the draft Project Plan's indicative timetable does not propose that the legislative process commence until late 2018 reflects the complexity of the task at hand, rather than any resiling from the need for urgent reform.

For a pointer as to how far-reaching the ambition to overhaul the AML/CTF regime is, and the need for 'co-design', it is worth revisiting what the Statutory Review Report said about its current state:4

The AML/CTF regime is overly complex, spanning 344 pages of primary legislation and 309 pages of legislative rules. All industry stakeholders and partner agencies indicated that this complexity impedes the ability of reporting entities to understand and comply with their AML/CTF obligations. The scale, structure and density of the AML/CTF Rules, in particular, was considered to be a major problem, rendering the Rules hard to follow and largely inaccessible, particularly for small business.

The feedback from industry indicates that there is a pressing need to simplify the AML/CTF Act and Rules, and streamline AML/CTF obligations. This could be achieved by establishing a more principles-based AML/CTF regime under the Act and providing some of the details surrounding the content of obligations in the Rules. The remaining details surrounding obligations could be provided in guidance. As part of this process, the AML/CTF Rules should be rationalised, drafted in plain language and presented in a user-friendly format.

 

Proposed reforms

A brief overview of some key reforms and initiatives, and their timing, is set out in the following table:

Phase 1
Time frame
Outcome

to be completed by December 2016

A feasibility study conducted on AUSTRAC supervising reporting entities for compliance with Australian sanctions law.

A risk assessment by AUSTRAC of ML/TF risks associated with stored value cards, cheque cashing facilities and traveller's cheques.

Simplification and streamlining by AUSTRAC of its exemptions process.

to be completed by mid-2017

A cost-benefit analysis by AUSTRAC of options for regulating tranche two entities.

Develop legislative proposals to:

  • expand the powers for the AUSTRAC CEO to direct reporting entities to remedy past contraventions of AML/CTF reporting obligations;
  • expand the use of the infringement notice provisions for minor regulatory offences;
  • simplify secrecy and access framework to govern access to, and the use of, AUSTRAC information;
  • regulate activities relating to digital currencies;
  • explicitly prohibit reporting entities from providing a regulated service if the applicable customer identification procedure cannot be carried out;
  • expand the ability of reporting entities to rely on customer identification procedures performed by a third party; and
  • narrow the definition of a 'designated remittance arrangement'.

to be completed by December 2017

Reporting entities to be provided by AUSTRAC with access to the reporting entity roll.

Phase 2
Time frame
Outcome

to be completed by mid-2018

Release of exposure draft AML/CTF amendment Bill and Rules for public comment, including reforms to simplify AML/CTF obligations of reporting entities, simplify CDD procedures, streamline transaction reporting, and prescribe new transaction recording procedures.

to be completed by December 2018

Legislative proposals to be developed from the above exposure draft Bill and Rules.

Development of legislative proposals to implement a model for regulating high-risk designated services provided by offshore service providers.

to be completed by 2019

Development by AUSTRAC of a new model for compliance reporting that is relevant to the needs of AUSTRAC and reduces unnecessary regulatory burden.

Publication by AUSTRAC of enhanced guidance on areas such as compliance outcomes, value of financial intelligence, assessment of ML/TF risks, offshore providers of designated services to Australian customers and CDD on customers unable to comply with conventional methods of identification.

Risk assessments into ML/TF risks associated with casinos, gambling, international funds transfers, offshore service providers, and new payment systems.

Submissions

The Attorney-General's department has indicated that feedback on how the proposals for reform are divided across the two phases and the timelines for completion would be particularly welcome. Submissions close on 11 November 2016.

Footnotes
  1. Attorney-General's Department Report on the Statutory Review of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 and Associated Rules and Regulations (29 April 2016), Minister's Foreword.
  2. Attorney-General's Department Draft Project Plan: Implementation of the recommendations form the statutory review of the anti-money laundering and counter-terrorism financing regime (25 October 2016), p 9.
  3. See Attorney-General's Department Consultation on AMLCTF review reform project plans.
  4. Attorney-General's Department Report on the Statutory Review of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 and Associated Rules and Regulations (29 April 2016), p 14.

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