AML/CTF Amendment Bill: Implications for new and existing reporting entities

Why is the AML/CTF regime being expanded?

The Explanatory Memorandum identifies the money laundering and terrorism financing risks in Tranche 2 and other high-risk sectors:

• Real estate transactions are an established, well-known method of laundering money internationally and in Australia. Real estate is one of the most common property types confiscated by the Australian Federal Police-led Criminal Assets Confiscation Taskforce, reflecting the ease with which illicit funds can be laundered and/or invested in this sector.
• Criminals are also known to seek out professional service providers for specialist skills, advice, technical proficiency or knowledge, to assist in money laundering schemes. Law enforcement has often observed these professionals may be either unwitting facilitators, or reckless as to the risk of illicit financing or concealment of illicit wealth.
• Precious metals and precious stones are often used for illicit financing purposes as they are small and easily concealable, may be readily purchased and sold anonymously using cash or virtual assets, and can be used to make untraceable payments for illicit goods and services.
• Virtual assets also allow criminal groups to move funds across borders quickly, cheaply and pseudo-anonymously.

Risk and Compliance Requirements

Most of the headline requirements in the current Act remain. However, the Bill substantially recasts some obligations for reporting entities.

At a high level, the new laws will require reporting entities to:

1. Undertake and update a risk assessment of the risks of money laundering, financing of terrorism and proliferation financing (ML/TF risks) that the reporting entity may reasonably face in providing its designated services.
2. Develop and comply with AML/CTF policies to appropriately manage and mitigate ML/TF risks and to comply with the Act.
3. Before providing regulated services to customers, take reasonable steps to:
   1. establish the identity of customers;
   2. identify the ML/TF risk of customers; and
   3. collect and verify KYC information (on a risk basis).
4. Carry out ongoing customer due diligence – including monitoring for unusual transactions and behaviours of customers, and reviewing and updating risk and KYC information (on a risk basis).
5. Appoint an AML/CTF Compliance officer to oversee and coordinate day-to-day AML/CTF compliance and the effective operation of AML/CTF policies.
6. Report various matters to AUSTRAC.
7. Have an independent review to assess AML/CTF compliance.

Changes impacting existing reporting entities

The changes for existing reporting entities are vast and will significantly impact business processes. If passed, some of the material changes include (we have paraphrased these for brevity):

• Oversight and Governance: Governing bodies (e.g. Boards and senior management) will be required to take reasonable steps to ensure the business is appropriately identifying, assessing, managing and mitigating ML/TF risks.
• Risk Assessment: The existing requirement will be clarified to expressly require reporting to undertake and update ML/TF risk assessments.
• Customer Due Diligence (CDD): As noted above, there will be substantially redesigned obligations for initial customer due diligence (before designated services are provided) as well as for ongoing due diligence during the course of a business relationship.
• Transfers of value and international value transfer services: The Bill will result in a significant re-working of the framework for electronic funds transfer instruction obligations, designated remittance arrangements and international funds transfer instruction (IFTI) reporting purposes. The amendments in Schedule 8 replace the previous funds transfer chain concept with an updated and simplified value transfer chain.
• Information Sharing and Tipping Off: Changes to the tipping off offence are proposed, to facilitate better information sharing to manage financial crime risks, unless disclosure would or could reasonably be expected to prejudice a law enforcement investigation.
• Reporting Group: The current concept of a ‘designated business group’ will be replaced with a ‘reporting group’ concept, imposing obligations and expanded liability on the ‘lead entity’ of a reporting group.

Timing and next steps

We anticipate the Bill will now be reviewed by the Senate in Committee, where amendments could potentially occur.

As currently drafted, reporting entities will need to be compliant by 2026. This will permit existing reporting entities to modify, and new reporting entities to create, their AML/CTF compliance programs. Of particular importance will be the AML/CTF Rules, which will be substantively redrafted by AUSTRAC, given the proposed legislative changes.

To stay up to date with these changes, subscribe to our Tranche 2 and AML/CTF Reforms https://www.nortonrosefulbright.com/en-au/knowledge/publications/bae065f5/tranche-2