Explanatory Statement – Amendment of Anti-Money Laundering and Counter-Terrorism Financing Rules Instrument 2007 (No. 1)
1. Purpose and operation of Anti-Money Laundering and Counter-Terrorism Financing Rules (AML/CTF Rules) amending Chapter 15
Section 229 of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act) provides that the AUSTRAC Chief Executive Officer (AUSTRAC CEO) may, by writing, make AML/CTF Rules prescribing matters required or permitted by any other provision of the AML/CTF Act.
Amendments to Chapter 15
Section 36 (Ongoing customer due diligence) of the AML/CTF Act specifies that a reporting entity must monitor its customers with a view to identifying, mitigating, and managing money laundering or financing of terrorism in accordance with the AML/CTF Rules. Chapter 15 of the AML/CTF Rules sets out the requirements that reporting entities must follow in regard to ‘ongoing customer due diligence’ in relation to section 36.
Three major changes have been made to Chapter 15:
(a) paragraph 15.10 now specifies a reporting entity must undertake one or more of the actions specified in subparagraph 15.10(1)-(6), when that reporting entity has ascertained under its risk-based approach the money laundering/terrorism financing risk (ML/TF risk) is high or a suspicion has arisen for the purposes of section 41 (Reports of suspicious matters) of the AML/CTF Act. In addition, reporting entities are also now obliged to apply their enhanced customer due diligence program (ECDD) in a third circumstance as described in (b) below;
(b) ECDD must now be applied if a reporting entity is entering into or proposing to enter into a transaction and a party to the transaction is physically present in, or is a corporation incorporated in, a prescribed foreign country. The term ‘prescribed foreign country’ is defined in the AML/CTF Act to mean ‘a foreign country declared by the regulations to be a prescribed foreign country for the purposes of this Act’ and relates to prohibiting or regulating the entering into of transactions with countries that may pose a substantial ML/TF risk;
(c) the insertion of a definition of ‘ultimate beneficial ownership’ which does not replace the definition of ‘beneficial owner’ contained in Chapter 1 of the AML/CTF Rules and instead only applies to the circumstances covered by Chapter 15. The definition requires greater analysis to be to be carried out by reporting entities in order to ascertain the ultimate beneficial owner than is the case with the current definition of ‘beneficial owner’, however, this is considered appropriate in the high risk ML/TF situations specified in Chapter 15.
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 2011 (No.5).
Section 2
This section specifies that Schedule 1 commences on the day after it is registered.
Section 3
This section contains the Schedule which amends Anti-Money Laundering and Counter-Terrorism Financing Rules Instrument 2007 (No.1) as follows:
Schedule 1
This schedule amends Chapter 15.
3. Notes on items
Item 1
This item omits the redundant sentence ‘Rules commencing on 12 December 2008’.
Item 2
The substitution of paragraph 15.1 accommodates the new references to paragraphs 84(2)(c) and 85(2)(c) of the AML/CTF Act.
Item 3
This item deletes the full stop at the end of subparagraph 15.9(2) and adds a semi-colon in its place, to allow for the addition of subparagraph 15.9(3) as described in Item 4.
Item 4
This item adds a third situation which will trigger a reporting entity’s enhanced customer due diligence program and relates to transactions with a prescribed foreign country.
Item 5
This item inserts amendments to paragraph 15.10 which make it mandatory that one or more of the actions must be carried out by a reporting entity under its enhanced customer due diligence program. It is noted that reporting entities will also be required to submit a suspicious matter report if they form reasonable grounds for suspicion under section 41 (Reports of suspicious matters) of the AML/CTF Act.
Item 6
This item omits the redundant phrase ‘Terms’ from the Chapter.
Item 7
This item inserts the definition of ‘ultimate beneficial ownership’ into the Chapter.
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 have an impact on any reporting entity that provides a designated service covered by these AML/CTF Rules.
6. Assessment of benefits
The amendments to Chapter 15 will provide certainty to reporting entities in regard to what they must apply in regard to their enhanced customer due diligence programs, but also provide discretion to allow reporting entities to decide which measures are most appropriate for the situation which has triggered the application of the program.
7. Consultation
AUSTRAC has consulted with the Australian Taxation Office, the Australian Customs and Border Protection Service, the Australian Federal Police and the Australian Crime Commission in relation to these AML/CTF Rules.
On three separate occasions, AUSTRAC published on its website, draft amendments to Chapter 15.
8. Ongoing consultation
AUSTRAC will conduct ongoing consultation with stakeholders on the operation of these AML/CTF Rules.