Background

On 9 December 2013, AUSTRAC released draft amendments to the Anti-Money Laundering and Counter-Terrorism Financing Rules Instrument 2007 (No. 1) ("AML/CTF Rules") in relation to customer due diligence ("CDD").

The draft amendments have been prepared in light of submissions received in response to the Discussion Paper titled "Consideration of possible enhancements to the requirements for customer due diligence" released in May 2013. 

Summary

Chapter 1 – key terms and concepts

Amendments have been made to the definition of 'beneficial owner' and new definitions of 'politically exposed person' and 'senior managing official' have been added.

In addition, the new definition of beneficial owner specifies meanings for the words 'control' and 'owns'.

Chapter 4 – customer identification and verification

The amendments to Chapter 4 have:

  • expanded the money-laundering and terrorism-financing ("ML/TF") risk matters which a reporting entity must consider before providing a designated service to a customer.  These include risks relating to the beneficial owner of the customer, whether the customer or beneficial owner is a politically exposed person ("PEP"), the source of funds and wealth of the customer and understanding the business or occupation of the customer;
  • introduced a requirement that reporting entities must identify and take reasonable measures to verify the identify of beneficial owners, if any, of individuals, companies, trusts, partnerships, incorporated and unincorporated associations, and registered co-operatives;
  • introduced new identification procedures in relation to beneficial owners.  Reporting entities are now required to collect and use reasonable measures to verify the full name and full residential address of the beneficial owner and must use reliable and independent documentation, electronic data or a combination of both as the basis of the identification.
  • set out measures to be undertaken before providing a designated service to a customer who is a PEP;
  • introduced measures relating to the identification and verification of the settlors of trusts; and
  • provided safe harbour provisions if the beneficial owner or PEP is considered to be of medium or lower ML/TF risk.

It is likely that AUSTRAC, in determining whether reasonable measures have been taken, will draw on the Financial Action Task Force ("FATF") definition of reasonable measures.  FATF defines reasonable measures to mean "appropriate measures which are commensurate with the money laundering or terrorist financing risk". Reporting entities should note that in respect of companies/trusts, beneficial ownership information need not be obtained from the types of companies/trusts specified under the simplified company/trustee verification procedure in Chapter 4.

Chapter 5 – special AML/CTF program

The amendments update references to provisions in the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) ("AML/CTF Act") which relate to Part A and Part B of AML/CTF programs and to record-keeping obligations.

Chapter 8 and 9 – standard and joint AML/CTF programs

The amendments updated references as above.

In addition, the amendments introduced a requirement for reporting entities to understand the business, occupation or control structure of a customer and assess any related ML/CF risk.

Chapter 15 – ongoing CDD

The amendments to Chapter 15 have:

  • clarified that the requirements in Chapter 15 related to ongoing customers rather than new customers;
  • introduced a requirement that reporting entities must take reasonable measures to keep, update and review their records in relation to the identification of customers and beneficial owners;
  • introduced a requirement that, in relation to an Enhanced Customer Due Diligence ("ECDD") program:
    • the program must be triggered in regard to a customer who is a foreign PEP;
    • reporting entities must clarify or collect information about the beneficial owner of the customer (and the source of a beneficial owner's wealth and funds), in addition to that collected in relation to the customer;
    • senior management approval must be sought for continuing a business relationship with a customer who is a foreign PEP or whose beneficial owner is a foreign PEP; and
  • deleted the definition of 'ultimate beneficial ownership' as an amended definition of 'beneficial owner' has been inserted in Chapter 1.

Chapter 30 – disclosure certificates

The amendments to Chapter 30 allow a reporting entity to use, in certain circumstances, a disclosure certificate from a customer to verify the identity of a beneficial owner of a company, trust, partnership, association or registered co-operative.