EXPLANATORY STATEMENT
Select Legislative Instrument 2007 No. 71
Issued by authority of the Treasurer
Banking Act 1959
Banking (Foreign Exchange) Amendment Regulations 2007 (No. 1)
Subsection 39(1) of the Banking Act 1959 (the Act) provides that the Governor‑General may make regulations in accordance with that section, where he considers it expedient to do so, for purposes related to, amongst other things, foreign exchange or the foreign exchange resources of Australia. The Banking (Foreign Exchange) Regulations 1959 (the Principal Regulations) have been made in accordance with this authority.
The purpose of the Regulations is to amend the Principal Regulations to ensure that directions given by the Reserve Bank of Australia (RBA) under regulation 5 are enforceable, and that breaches are subject to penalties equivalent to those outlined in the general offence provision of the Principal Regulations.
Subregulations 5(1), (2) and (3) of the Principal Regulations empower the RBA to direct a person or resident not to buy, borrow, sell, lend or exchange foreign currency, or deal with foreign currency in any way, where the transaction relates to assets controlled by persons named by the RBA (a RBA direction). The RBA utilises this power when directed to do so by the Treasurer, pursuant to subsection 39(7) of the Act.
The Australian Government currently relies on RBA directions to give effect to bilateral financial sanctions against certain individuals and entities including (at present) entities associated with North Korea, supporters of the former government of Yugoslavia and certain senior Zimbabwe government officials.
It was brought to the Australian Government’s attention that the previous Principal Regulations did not explicitly state that a breach of a RBA direction was an offence under the Principal Regulations. While subregulation 42(1) dealt generally with offences where there was contravention of any provisions of the Principal Regulations, it is desirable to put beyond doubt that a breach of the Principal Regulations includes a failure to comply with a RBA direction made under subregulations 5(1), (2) and (3). The Regulations make it clear that it is an offence to breach a RBA direction.
The penalties imposed for breaching a RBA direction are the equivalent of those outlined in the general offence provision of the Principal Regulations, although in accordance with the Crimes Act 1914, they are described in penalty units. The maximum penalty is a fine of not more than 1,000 penalty units or imprisonment of not more than five years if the case is prosecuted upon indictment, that is, if the case is prosecuted in a court higher than a Court of summary jurisdiction. A fine of 10 penalty units or six months imprisonment is the maximum penalty if the case is prosecuted in a Court of summary jurisdiction.
Treasury has consulted with officials from the Department of Foreign Affairs and Trade, the Attorney‑General’s Department and the Reserve Bank of Australia regarding this Regulation. As the amendment is minor in nature, and does not change the intent of the Principal Regulations, further consultation is not considered necessary.
An exemption from a Regulatory Impact Statement has been provided by the Office of Best Practice Regulation for this amendment, as it was believed to be of low or no regulatory impact.
The Act specifies no conditions that need to be satisfied before the power to make the Regulations may be exercised.
The Regulations commenced on the day after the registration on the Federal Register of Legislative Instruments.
Overview
The Banking (Foreign Exchange) Amendment Regulations 2007 (No. 1) were enacted under the authority of the Treasurer, pursuant to subsection 39(1) of the Banking Act 1959. This legislation was introduced to address the need for clarity in the enforcement of directions given by the Reserve Bank of Australia (RBA) concerning foreign exchange transactions. The problem identified was that the existing Banking (Foreign Exchange) Regulations 1959 did not explicitly state that a breach of a RBA direction constituted an offence under the Principal Regulations, despite the general provision for offences against the regulations. This amendment aimed to ensure that a failure to comply with a RBA direction is unequivocally an offence, thereby aligning the regulations with the intent to enforce financial sanctions effectively. The policy objective is to support the Australian Government's implementation of bilateral financial sanctions against specified individuals and entities, such as those associated with North Korea and supporters of the former government of Yugoslavia.
Scope and Application
The Banking (Foreign Exchange) Amendment Regulations 2007 (No. 1) amends the Banking (Foreign Exchange) Regulations 1959 under the authority granted by the Banking Act 1959. These regulations apply to individuals and entities that engage in foreign exchange transactions within Australia, including the buying, borrowing, selling, lending, and exchanging of foreign currency, as well as any dealings with foreign currency. The regulations extend to all persons and entities operating within the Australian jurisdiction, and are intended to enforce directions made by the Reserve Bank of Australia under the Act, particularly in the context of implementing financial sanctions against specific individuals and entities. The penalties for breaching these regulations are substantial, with fines of up to 1,000 penalty units or imprisonment for up to five years if prosecuted upon indictment, and up to 10 penalty units or six months imprisonment if prosecuted in a Court of summary jurisdiction. The Regulations clarify that a breach of a Reserve Bank of Australia direction is explicitly an offence under the Principal Regulations, ensuring that there is no ambiguity in this regard. The amendment is minor and deemed to have low regulatory impact, hence it did not require extensive consultation beyond relevant departments.
Key Provisions
The Banking (Foreign Exchange) Amendment Regulations 2007 (No. 1) primarily amend the Banking (Foreign Exchange) Regulations 1959 (Principal Regulations) to ensure that directions given by the Reserve Bank of Australia (RBA) under subregulations 5(1), (2) and (3) are enforceable, and that any breaches of these directions are subject to penalties. These subregulations empower the RBA to direct a person or resident not to engage in certain foreign currency transactions, particularly those involving assets controlled by entities named by the RBA (referred to as an RBA direction). The key purpose of these regulations is to align the legal status of breaches of RBA directions with the general offence provisions of the Principal Regulations, making it explicitly clear that such breaches constitute an offence.
Under these regulations, any breach of an RBA direction is an offence, with penalties equivalent to those outlined in the general offence provision of the Principal Regulations. This means that individuals or entities that fail to comply with an RBA direction can face significant penalties. The maximum penalty for such an offence is a fine of up to 1,000 penalty units or imprisonment for up to five years if the case is prosecuted upon indictment, i.e., in a higher court. Alternatively, if the case is prosecuted in a Court of summary jurisdiction, the maximum penalty is a fine of 10 penalty units or imprisonment for up to six months. These penalties reflect the seriousness with which the Australian Government views compliance with foreign exchange regulations and sanctions.
The obligations imposed by these regulations on the parties or entities they govern are straightforward but critical. They must adhere strictly to any RBA direction that affects their foreign currency transactions, particularly those involving specified assets. Failure to comply with these directions not only constitutes an offence but also potentially engages the broader legal and financial implications of breaching a regulation backed by the Banking Act 1959. The regulations ensure that any entity or individual dealing with foreign currency is aware of their obligations and the severe consequences of non-compliance.
Given the nature of these regulations, the consequences for breach are significant. The penalties are designed to deter non-compliance and ensure that the Australian Government's foreign exchange policies and sanctions are effectively enforced. The potential for both fines and imprisonment underscores the seriousness of these obligations and the importance of compliance. The amendments to the Principal Regulations aim to clarify the legal status of breaches of RBA directions and ensure that these breaches are treated with the same gravity as other contraventions of the Principal Regulations.