By Daniel Knight and Grace Hall
The Australian Government has committed to reforming Australia’s AML/CTF regime, with proposed reforms aimed to strengthen and modernise the framework.
In April 2023, the Attorney-General released the first of two consultation papers outlining the proposed reforms to the regime. Subsequently, as part of the 2023-24 Federal Budget, the Government announced that it will provide $14.3 million in funding over the next four years to support policy and legislative reforms to the AML/CTF regime.
The proposed reforms
Currently, Australia’s regulatory framework spans various legislative instruments including the Anti-Money Laundering and Counter Terrorism Financing Act 2006 (the Act) and the Anti-Money Laundering and Counter-Terrorism Financing Rules Instrument 2007 (No. 1) (the Rules).
The consultation paper proposes reforms to the current framework, and is separated into two parts:
- Part 1 details reforms to simplify and modernise the operation of the regime. This part responds to calls from industry to streamline the obligations under the AML/CTF regime, as well as addressing recommendations made by the 2016 Report on the Statutory Review of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006.
- Part 2 proposes to extend the operation of the regime to “tranche-two entities”. This part aims to align Australia’s regime with international standards, including the recommendations of the Financial Action Task Force.
Simplifying and modernising the regime
Part 1 proposes substantive changes the Act to clearly specify the core AML/CTF obligations and to reinforce the risk based focus of the regime. It also proposes changes to the Rules to assist entities in understanding their obligations, as well as guidance materials to further support entities in meeting their obligations.
The key proposals include:
|One AML/CTF program||Streamlining Part A and Part B to provide for a single requirement to develop, implement and maintain an AML/CTF program.|
|Assessing and mitigating risk||Including in the Act clear overarching obligations in relation to assessing and mitigating risk and clearly outlining regulated entities’ internal control obligations. The Rules will specify the minimum set of risk mitigation measures and minimum categories of internal controls that are required.|
|Customer due diligence||Realigning the obligations in the Act, Rules and guidance. The core obligations will be set out in the Act, including the obligations to understand customer risk, know your customer, to apply ongoing customer due diligence and to apply enhanced customer due diligence where certain triggers are met. The Act will also specify the circumstances in which simplified due diligence is permitted, replacing the safe harbour provisions in the Rules. |
The Rules will specify how each obligation is to be met and AUSTRAC guidance will give practical advice on how to meet the obligations.
|Regulation of digital currency exchanges||Expanding the types of services regulated by the regime to include: |
• Exchanges between forms of digital currency;
• Transfers of digital currency on behalf of a customer;
• Safekeeping and administration of digital currency; and
• The provision of financial services related to the offer or sale of digital currency (eg Initial Coin Offerings)
|Modernising the travel rule||Updating the travel rule to require the inclusion of payee information and requiring payer information to be verified. |
Extending the application of the rule to remitters and digital currency exchange providers.
|Other proposals||•Lowering the reporting thresholds for the gambling sector |
•Amending the tipping-off offence
•Providing for a statutory exception for assisting an investigation of a serious offence
•Amending revised obligations during the COVID-19 pandemic
•Repealing the Financial Transaction Report Act 1988.
Extension to tranche-two entities
Part 2 proposes to extend the AML/CTF to tranche two entities, including lawyers, accountants, trust and company service providers, real estate agents and dealers in precious metals and stones in specified circumstances.
The proposal considers extending the regime to the following:
|Professional services||Lawyers, accountants, conveyancers and trust and company service providers where they prepare or carry out transactions for clients relating to: |
•buying and selling real estate or business entities
•managing client money or other assets
•managing bank, savings or security accounts
•creating, managing or operating legal persons
Trust and company service providers acting on behalf of clients in a broader range of circumstances
|Real estate||Real estate agents and property developers where they are involved in transactions to buy or sell real estate.|
May potentially capture property management and leasing services.
|Dealers in precious metals and stones||Dealers in precious metals and stones where they engage in a cash transaction with a customer equal to or above $10,000 AUD |
“Dealers” may include producers of precious metals and stones, intermediate buyers and brokers, stone cutters and polishers, jewellery manufacturers, retails sellers to the public and buys and sellers in the secondary markets
Reforms to the AML/CTF regime have been long awaited, and will concern significant changes if given effect to.
If implemented, a broader range of entities will be subject to the requirements of the AML/CTF regime, including tranche two entities and digital currency service providers. For entities already regulated by the regime, the reforms will sees changes to the requirements of the AML/CTF program, including risk mitigation and due diligence requirements and the travel rule. The proposed reforms are subject to consultation with industry, with the Attorney-General’s Department to release a further consultation paper later in the year following feedback from stakeholders. Submissions are open on the initial consultation paper until 16 June 2023.