Background  

In May 2013, the Australian Transaction Reports and Analysis Centre (AUSTRAC) released a discussion paper titled Consideration of possible enhancements to the requirements for customer due diligence.  Draft amendments to the Anti-Money Laundering and Counter-Terrorism Financing Rules Instrument 2007 (No. 1) (AML/CTF Rules) were prepared in light of submissions received in response to that discussion paper (First Consultative Version). 

AUSTRAC considered submissions received in respect of the First Consultative Version and, as a result, further amendments were made (Second Consultative Version). 

AUSTRAC then hosted a consultative forum to consider the Second Consultative Version and, as a result, further amendments were made (Third Consultative Version).  This Third Consultative Version was announced by AUSTRAC on 5 March 2014. 

In addition, AUSTRAC has published a draft supervisory approach to compliance with the additional customer due diligence requirements that the amendments will introduce. 

All the additional customer due diligence requirements that the amendments will introduce commence on 1 June 2014.

This Legal Alert only covers the amendments introduced by the Third Consultative Version and AUSTRAC's draft supervisory approach.

Summary 

Chapters of AML/CTF Rules amended

The following chapters of the draft AML/CTF Rules have been amended in the Third Consultative Version:

  • Chapter 4 (relating to customer identification);
  • Chapter 8 (relating to Part A of a standard anti-money laundering and counter-terrorism financing (AML/CTF) program); and
  • Chapter 9 (relating to Part A of a joint AML/CTF program).

Supervisory approach

AUSTRAC's draft supervisory approach to the amendments relating to customer due diligence is that it will not commence, prior to 1 January 2016, civil penalty proceedings under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006(AML/CTF Act) (in specified circumstances), in relation to those reporting entities which fail to comply with the additional customer due diligence requirements. 

Amendment to paragraph 4.1.3

Paragraph 4.1.3 sets out factors that a reporting entity must consider in identifying its money laundering and terrorism financing (ML/TF) risk.  Currently these factors include customer types, types of designated services it provides, methods by which it delivers designated services and foreign jurisdictions in which it deals.  In the Second Consultative Version the additional factor was added (amongst others) that the "nature of it's customers' business, occupations and control structures" be considered.

In the Third Consultative Draft, the term 'occupation' has been omitted (as it did not provide information as to purpose or intended nature of business relationship) and the Financial Action Task Force (FATF) requirement that reporting entities should form an "understanding and, as appropriate, obtain… information on the purpose and intended nature of the business relationship" has been included (on an 'as appropriate' basis).

Amendment to paragraph 4.12.1

Paragraph 4.12.1 was proposed in the First Consultative Version and relates to the collection and verification of beneficial owner information.  The Second Consultative Version included a requirement that a reporting entity "identify each beneficial owner of a customer" but did not specify what 'identify' meant in respect to the action that the reporting entity must undertake. 

In the Third Consultative Version, in order to clarify the obligation, the requirement to "identify each beneficial owner of a customer" has been deleted and replaced with a requirement to collect and take reasonable measures to verify the beneficial owner's full name and either the date of birth or full residential address.

Amendment to paragraph 4.12.2

Paragraph 4.12.2 has been redrafted to remove any obligation that the beneficial owner of a foreign listed public company which is subject to disclosure requirements to ensure transparency of beneficial ownership which are, or are comparable to, the requirements in Australia, must be identified and verified.

Amendment to paragraphs 8.1.5 and 9.1.5

Paragraphs 8.1.5 and 9.1.5 relate to what Part A of an AML/CTF program must be designed to enable a reporting entity to do. 

Currently, AML/CTF programs must be designed to identify and recognise significant changes in ML/TF risk and assess ML/TF risk posed by all new designated services, all new methods of designated service delivery and all new or developing technologies used for the provision of a designated service. 

In the Second Consultative Version, an AML/CTF program was also required to be designed to enable a reporting entity to "understand the nature of the business or occupation of each customer". 

In the Third Consultative Version, the term 'occupation' has been omitted and the FATF requirement that reporting entities "understanding and, as appropriate, obtain… information on the purpose and intended nature of the business relationship" has been included (on an 'as appropriate' basis).

Next steps

A public consultation period for the Third Consultative Version and draft supervisory approach is open from 5 March 2014 to 19 March 2014.  We would be happy to assist you in preparing a submission.

The additional customer due diligence requirements that the amendments will introduce commence on 1 June 2014.  The amendments relate to Chapters 1, 4, 5, 8, 9, 15 and 30 of the AML/CTF Rules.  Please note that this Legal Alert has only covered the amendments introduced in the Third Consultative Version.

For more information  

The First Consultative Version and Third Consultative Version can be accessed here.  The Second Consultative Version was not made publically available.  To enable stakeholders to more easily identify changes, the Third Consultative Version is marked-up to show the amendments made to the Second Consultative Version in track changes.   

To view the Explanatory Statement for the draft AML/CTF Rules, click here.

To view AUSTRAC's draft supervisory approach, click here.