Explanatory Statement – Amendment of the Anti-Money Laundering and Counter-Terrorism Financing Rules
1. Purpose and operation of Anti-Money Laundering and Counter-Terrorism Financing Rules (AML/CTF Rules) amending Chapter 11 and adding Chapters 40, 41, 42 and 43 of the AML/CTF Rules
Section 229 of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act) provides that the AUSTRAC Chief Executive Officer may, by writing, make AML/CTF Rules prescribing matters required or permitted by any other provision of the AML/CTF Act.
Amendment of Chapter 11 of the AML/CTF Rules
Section 47 (AML/CTF compliance reports) of the AML/CTF Act states that AML/CTF Rules may specify the reporting and lodgement periods for a Compliance Report. The amendment specifies that the reporting period for 2009 commences on 1 January 2009 and ends on 31 December 2009.
Chapter 40 ‘Definition of ‘exempt legal practitioner service’
Section 5 of the AML/CTF Act defines ‘exempt legal practitioner service’ as being ‘a service that under the AML/CTF Rules, is taken to be an exempt legal practitioner for the purposes of this Act.’ These AML/CTF Rules provide that definition.
The definition is relevant to items 46 and 47 of table 1 of section 6 of the AML/CTF Act. Item 46 relates to the ‘providing of a custodial or depository service…in the course of carrying on a business…and the service is not an exempt legal practitioner service’, while Item 47 relates to the ‘providing of a safe deposit box…in the course of carrying on a business…and the service is not an exempt legal practitioner service.’
The intention of the AML/CTF Act definition is that if legal practitioners provide financial services in direct competition with the financial sector, then they will not be undertaking an ‘exempt legal practitioner service’, as they will have a competitive advantage over those providers of financial services who are providing such services.
These AML/CTF Rules will therefore exempt activities undertaken by legal practitioners under items 46 and 47 in the course of legal practice, but not financial services under the AML/CTF Act which may be undertaken by a legal practitioner on behalf of a customer.
The AML/CTF Act defines ‘providing a custodial or depository service’ by reference to the Corporations Act 2001 (Corporations Act) section 766E(1), but subject to the exceptions in section 766E(3) of the Corporations Act. A ‘custodial or depository service’ under the Corporations Act, is a service where there is an arrangement between a reporting entity and a customer in regard to a financial product or a beneficial interest in a financial product, which is held in trust by the reporting entity for the customer.
The exceptions in section 766E(3) of the Corporations Act include conduct detailed in Corporations Regulation 7.1.40, which provides an exemption for lawyers in relation to the acquiring, holding or disposing of a cash management trust interest where the lawyer is acting on instructions from the client, in his or her professional capacity; in the ordinary course of his or her activities as a lawyer; where the financial service is a necessary part of those activities; and where the lawyer does not receive a benefit in regard to those activities.
Chapter 41 ‘Cashing out of superannuation fund low balance accounts’
Subsection 39(4) of the AML/CTF Act allows exemption from a specified provision of Part 2 (identification procedures) in relation to a designated service that is provided in circumstances specified in the Rules.
These AML/CTF Rules exempt trustees of a superannuation fund from carrying out the customer identification requirements of the AML/CTF Act where the balance of the customer’s account balance is not greater than $1,000, the whole of the interest of the customer in the superannuation fund is cashed out and the account is closed as soon as practicable after the account has been cashed out to the customer.
It is considered an unnecessary financial and administrative burden on relevant reporting entities to carry out the applicable customer identification procedure in such circumstances.
Chapter 42 ‘Commodity warehousing of grain’
Subsection 247(3) of the AML/CTF Act allows for AML/CTF Rules to provide an exemption from the AML/CTF Act for a designated service that is provided in specified circumstances.
These Rules provide that the AML/CTF Act does not apply to reporting entities which provide loans to growers of grain who deliver grain into a grain pool and from which they draw down loans from the reporting entity until the grain pool is sold.
It is considered an unnecessary financial and administrative burden on relevant reporting entities to carry out the obligations of the AML/CTF Act in such circumstances.
Chapter 43 ‘Friendly Society closed funds’
Subsection 247(4) of the AML/CTF Act allows for AML/CTF Rules to provide an exemption from the AML/CTF Act for a specified provision that is provided in circumstances specified in the AML/CTF Rules.
These Rules provide that the AML/CTF Act does not apply to reporting entities that provide an approved benefit fund which is closed to new members and to which new policies cannot be written.
It is considered an unnecessary financial and administrative burden on relevant reporting entities to carry out the obligations of the AML/CTF Act in such circumstances.
2. Notes on sections
Section 1
This section sets out the name of the instrument, i.e. the Anti-Money Laundering and Counter-Terrorism Financing Rules Amendment Instrument 2009 (No.5).
Section 2
This section specifies that the Instrument commences on the day after it is registered.
Section 3
This section contains the Schedule which amends the Anti-Money Laundering and Counter-Terrorism Financing Rules Instrument 2007 (No.1) as follows:
Schedule 1
This schedule amends Chapter 11 and adds Chapters 40, 41, 42 and 43.
3. Notes on paragraphs
Paragraph 11.2
This paragraph states that the reporting period for 2009 will commence on 1 January 2009 and end on 31 December 2009.
Chapter 40 ‘Definition of ‘exempt legal practitioner service’
Paragraph 40.1
This paragraph specifies that these AML/CTF Rules have been made under section 229 of the AML/CTF Act.
Paragraph 40.2
This paragraph specifies that a designated service is an 'exempt legal practitioner service' when a custodial or depository service is provided that constitutes such a service under subsection 766E(1) of the Corporations Act 2001, but does not constitute such a service when the conduct is covered by subsection 766E(3) of that Act. It also specifies the provision of a safe deposit box or similar facility, except in relation to physical currency. These designated services must be provided in the ordinary course of carrying on a law practice, and do not apply if the legal practitioner is providing a financial service under the AML/CTF Act.
Paragraph 40.3
This paragraph defines ‘law practice’. The definition is consistent with the definition of ‘law practice’ contained in Chapter 23 of the AML/CTF Rules.
Chapter 41 ‘Cashing out of superannuation fund low balance accounts’
Paragraph 41.1
This paragraph specifies that these AML/CTF Rules have been made under section 229 of the AML/CTF Act.
Paragraph 41.2
This paragraph specifies that the customer identification procedures under the AML/CTF Act, do not apply to reporting entities providing the item 43(a) of table 1 designated service, subject to the conditions specified in paragraph 41.3.
Paragraph 41.3
This paragraph specifies the conditions that apply in regard to the exemption from the customer identification procedures of the AML/CTF Act. The intention of the paragraph is that potential money-laundering/terrorism financing risk is mitigated by ensuring that the accounts do not accept further contributions from a member, are completely cashed out and the account is closed as soon as practicable after the account has been cashed out.
Paragraph 41.4
This paragraph defines ‘member’.
Chapter 42 ‘Commodity warehousing of grain’
Paragraph 42.1
This paragraph specifies that these AML/CTF Rules have been made under section 229 of the AML/CTF Act.
Paragraph 42.2
This paragraph specifies the conditions that apply in regard to the exemption from the AML/CTF Act. The intention of the paragraph is that potential money-laundering/terrorism financing risk is mitigated by ensuring that the relevant designated services are provided to grain growers who deliver grain to a grain pool, and which form the basis of the loans provided by the reporting entities to such growers.
Paragraph 42.3
This paragraph defines ‘grain’ and ‘grain pool’.
Chapter 43 ‘Friendly Society closed funds’
Paragraph 43.1
This paragraph specifies that these AML/CTF Rules have been made under section 229 of the AML/CTF Act.
Paragraph 43.2
This paragraph specifies the relevant designated services to which the exemption from the AML/CTF Act is applicable.
Paragraph 43.3
This paragraph specifies the conditions that apply in regard to the exemption from the AML/CTF Act. The intention of the paragraph is to mitigate potential money-laundering/terrorism financing risk by ensuring that the reporting entity is a friendly society, and provides an approved benefit fund which is closed to new members and to which new policies cannot be written.
Paragraph 43.4
This paragraph defines ‘approved benefit fund’, ‘approved benefit fund rules’ and ‘friendly society’.
4. Legislative instruments
These AML/CTF Rules are legislative instruments as defined in section 5 of the Legislative Instruments Act 2003.
5. Likely impact
These AML/CTF Rules will not have a negative impact upon reporting entities as they reduce regulatory burden.
6. Assessment of benefits
Chapter 11
These AML/CTF Rules will provide certainty to reporting entities as they provide the reporting period for the 2009 Compliance Report which must be submitted under the provisions of section 47 of the AML/CTF Act.
Chapter 41
These AML/CTF Rules will exempt relevant reporting entities from the customer identification procedures of the AML/CTF Act in specified circumstances and therefore will substantially reduce compliance costs for those entities that provide the relevant designated services.
Chapters 40, 42 and 43
These AML/CTF Rules will exempt relevant reporting entities from the AML/CTF Act and therefore will substantially reduce or eliminate compliance costs for those entities, depending on whether the reporting entity solely provides the relevant designated service or in addition provides other designated services which are not covered by the exemptions.
7. Consultation
AUSTRAC has consulted with the Office of the Privacy Commissioner, the Australian Customs Service, the Australian Federal Police, the Australian Taxation Office and the Australian Crime Commission, in relation to these AML/CTF Rules.
AUSTRAC also published a draft of each of these AML/CTF Rules (excluding the amendment to Chapter 11) on its website for public comment.
8. Ongoing consultation
AUSTRAC will conduct ongoing consultation with stakeholders on the operation of these AML/CTF Rules.