This article was co-authored by Shumi Ruan.
The continuous disclosure obligations in the Corporations Act 2001 (Cth) (Corporations Act) and the Listing Rules of the Australian Securities Exchange (ASX) are intended to strike a balance between the market receiving information that will affect the price or value of an entity’s securities, and the interests of the entity in not having to disclose information prematurely.
At a fundamental level, listed entities’ compliance with the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) (AML/CTF Act) tests this balance, as it is a risk-based regime that makes the existence of a breach and the anticipated response from the regulator difficult to predict. This dynamic has become more challenging in an environment of heightened AUSTRAC enforcement, and the spectre of shareholder class actions relating to AML/CTF Act non-compliance.
This article is designed to raise certain issues that legal, risk and compliance professionals should consider in deciding when compliance with the AML/CTF Act becomes “market sensitive” information and has to be disclosed to the ASX. We also seek to highlight important considerations to keep in mind in drafting the relevant market announcement.
Continuous disclosure obligations: Listing rules
The continuous disclosure obligations are set out in Listing Rules 3.1, 3.1A and 3.1B. Listing Rule 3.1 contains the general rule that:
“Once an entity is or becomes aware of any information concerning it that a reasonable person would expect to have a material effect on the price or value of the entity’s securities, the entity must immediately tell ASX that information.”
As a single breach of the AML/CTF Act can technically attract a civil penalty of up to $27 million, it follows that a likely finding (either by self-assessment or determination by AUSTRAC) of serious and systemic breaches by a reporting entity should be disclosed in accordance with Listing Rule 3.1.
However, there are exceptions in Listing Rule 3.1A, which include circumstances in which the information comprises matters of supposition or information that is insufficiently definite to warrant disclosure. In certain circumstances, this exception can provide scope for reporting entities to take the time to be fully satisfied of the significance of the issues, including the potential response from the regulator, before disclosure to the market is made.
Matters of supposition or that are insufficiently definite to warrant disclosure
Guidance Note 8 explains that information about a matter will be “insufficiently definite to warrant disclosure” if:
- the information is so vague, embryonic or imprecise
- the veracity of the information is so open to doubt, or
- the likelihood of the matter occurring, or its impact if it does occur, is so uncertain that a reasonable person would not expect it to be disclosed to the market.
Depending on the nature and extent of the AML/CTF Act compliance issues, this exception to Listing Rule 3.1 can give reporting entities an opportunity to undertake an internal investigation and obtain legal advice to determine the significance of the compliance issues and engage with AUSTRAC to better understand the potential action that may eventuate.
In the past year, AUSTRAC has demonstrated a flexible approach to resolving enforcement matters, opting in certain instances not to commence civil penalty proceedings. This has principally included accepting enforceable undertakings from reporting entities under section 197 of the AML/CTF Act. In addition, AUSTRAC has the following alternative enforcement mechanisms at its disposal:
- Infringement notices under section 184 – which carry a $16,500 penalty per contravention, can be issued by the AUSTRAC CEO and can apply to breaches that occurred within 12 months of the issuance of the notice, and
- Remedial directions under section 191 – which are directions by the AUSTRAC CEO for a reporting entity to take specified action, which can include remedying deficiencies, and, in such a case, can apply to breaches that occurred within 24 months of the issuance of the direction.
In circumstances where AUSTRAC’s approach to the potential breaches may vary, reporting entities will need to make an independent assessment of the specific issues and determine the potential enforcement consequences. This should include considerations of:
- which provisions of the AML/CTF Act have been breached;
- whether those provisions have been previously enforced by AUSTRAC;
- any evidence to suggest the breaches have led to any criminal harm; and
- recent enforcement action, including whether a member of the same sector/industry has been subject to enforcement action.
The possibility of, and likely magnitude of, AUSTRAC enforcement action should then inform a reporting entity’s decision as to whether, and if so when, to make disclosures to the market in accordance with Listing Rule 3.1.
False or inaccurate statements
Once reporting entities are in a position to make a market announcement relating to AML/CTF Act compliance, the entities need to be careful not to make false or misleading statements. Both the ASX and the Australian Securities and Investments Commission (ASIC) can take necessary action if this occurs.
The recent case of Australian Securities and Investments Commission v Australian Mines Limited [2023] FCA 9 involved ASIC taking action against a listed entity for making false or inaccurate statements to shareholders. In that case, the Federal Court held that the relevant company was in contravention of section 674 of the Corporations Act 2001 (Cth) by making “false or materially misleading” representations during a presentation to its shareholders, when it incorrectly stated that the company had secured finance for the construction of a processing plant.
In this context, a further statutory obligation for consideration is section 1014H of the Corporations Act which prohibits conduct that is misleading or deceptive or is likely to mislead or deceive. This provision was also part of the recent successful claim by ASIC in Australian Securities and Investments Commission v GetSwift Limited (Penalty Hearing) [2023] FCA 100.
Recommendations on approaching disclosure of AML/CTF issues
Once a reporting entity becomes aware of any compliance issues with the AML/CTF Act, we recommend the following steps are taken:
- the issues are initially considered in relation to Listing Rules 3.1, 3.1A and 3.1B and Guidance Note 8 and obligations under the Corporations Act
- if the issues are “insufficiently definite to warrant disclosure” or satisfy another exception in Listing Rule 3.1A, an internal investigation/review is undertaken to assess the seriousness or materiality of the compliance issues and legal advice is sought
- depending on the outcome of the investigation and advice, AUSTRAC is engaged on the issues and regard is had to the possible consequences that may result, and
- the issues are reconsidered in relation to Listing Rules 3.1, 3.1A and 3.1B and Guidance Note 8 and Corporations Act, including reconsidering whether one or more of the exceptions in Listing Rule 3.1A remain satisfied.
Our Australian Risk Advisory team are leading experts in financial crime. Working with our offices across Australia and in other jurisdictions, we provide a global understanding of financial crime that enables us to manage regulatory reviews and investigate issues for clients across multiple jurisdictions. We provide a holistic service from compliance to providing critical and strategic support in circumstances where there is regulatory intervention. We help clients navigate the complexities of AML/CTF regulations and investigations, and implement effective and business-focussed solutions. This includes assessing development in regtech and fintech as well as the evolution of digital currencies and virtual assets.
