Explanatory note for consultation - proposed AML/CTF Rules amendments resulting from the Review of the AML/CTF Act
These draft AML/CTF Rules are a result of the AUSTRAC consultation in 2016 on proposed rule amendments resulting from the Statutory Review of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 and Associated Rules and Regulations (the Review). The Review is available at: Statutory Review
The draft amendments to Chapters 1, 4, 8, 9, 15, 30 and 36 do not require changes to the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act) to implement. It is also anticipated that they will provide regulatory benefits to industry while addressing certain issues identified in the Financial Action Task Force Anti-money laundering and counter-terrorist financing measures Australia Mutual Evaluation Report 2015, which are also discussed in the Review.
The following is a summary of the changes and the recommendations of the Review which have prompted them.
Chapter 1 (Definitions)
Recommendation 19.2
The AML/CTF Rules should be amended to:
…(b) make the definitions of ‘original primary photographic identification document’, an ‘original primary non-photographic identification document’ and an ‘original secondary identification document’ inclusive;
(c) include national identity cards issued by foreign countries that include unique identifiers rather than signatures (such as biometric identifiers) in the definition of ‘primary photographic identification document’…
(d) expand the definition of ‘certified copy’ to include foreign equivalents to the domestic list.
Amendments have been made to accommodate this recommendation.
Chapter 4 (Customer Due Diligence)
Recommendation 5.4
The safe harbour and simplified verification procedures under the AML/CTF Rules should be rationalised into a single simplified customer due diligence procedure.
Consideration of this recommendation has not been finalised, however, paragraph 4.12.2 (relating to beneficial owners) has been amended as a preliminary measure, to expand the exemptions for beneficial owners to include subsidiaries of foreign companies.
Recommendation 5.6
The AML/CTF Rules should explicitly allow for use of self-attestation to identify individual customers using a risk-based approach only as a measure of last resort where a customer’s identity cannot otherwise be reasonably obtained or verified.
A new section (Part 4.15 – Procedure to follow where a customer cannot provide satisfactory evidence of identity) has been inserted into Chapter 4 to aid reporting entities in identifying customers who do not have the usual means of identification. This is in response to the Review noting that ‘reporting entities are struggling to verify customers’ identities in some circumstances’ and has been an issue since the commencement of the AML/CTF Act in 2006.
The section provides non-prescriptive suggestions on how customer identification can be undertaken in these circumstances and is based upon the National Identity Proofing Guidelines. It can only be applied in circumstances of low ML/TF risk. ‘Self-attestation’ may only be applied if a customer is unable to be identified using the normal applicable customer identification procedure (ACIP) - it is not a substitute for carrying out the ACIP.
Chapters 8 and 9 (AML/CTF Programs)
Recommendation 7.3
The AML/CTF Rules should be amended to:
(a) require reporting entities to incorporate information provided by AUSTRAC or other relevant authorities on high ML/TF risks into their risk assessments;
(b) describe the role and functions of an AML/CTF Compliance Officer and associated AML/CTF compliance arrangements;
(c) guarantee the independence of the reviewer of AML/CTF programs; and
(d) require reporting entities to identify, mitigate and manage the ML/TF risks posed by new technologies.
The amendments for Recommendation 7.3(a) have been made to subparagraph 8.7.1 of Chapter 8 and 9.7.1 of Chapter 9 and also specify that the information from AUSTRAC or other relevant authorities, includes information provided directly to the reporting entity as well as published information which the reporting entity may generally access.
The amendments for Recommendation 7.3(b) are based upon the Duties of an AML/CTF Compliance Officer set out in the AUSTRAC Compliance Guide. It is intended that the list of duties specified is non-exhaustive and the reporting entity has the discretion to implement those which are relevant to its circumstances.
The amendments relating to Recommendation 7.3(c) provide a definition of ‘independence’ which is based in part upon the APES 110 Code of Ethics for Professional Accountants and provides detail on its practical application.
Although Recommendation 7.3(d) relates to ML/TF risk and new technologies, the amendment to subparagraph 8.1.5(a) of Chapter 8 and subparagraph 9.1.5(a) of Chapter 9, makes the identification, mitigation and management of ML/TF risk a general requirement in respect to new designated services, new methods of delivering designated services, new technologies and changes arising from the nature of business relationship and control of the customer.
AUSTRAC considers that Recommendation 7.3 will aid reporting entities in identifying, mitigating and managing ML/TF risk and therefore reduce the consequences (including cost to the reporting entity) if such risk is not appropriately managed.
Chapter 15 (Ongoing customer due diligence)
Recommendation 5.11
The AML/CTF Rules should be amended to require reporting entities to conduct specific enhanced customer due diligence measures (in line with the FATF standards) at the time of pay out where the beneficiary or beneficial owner of a life insurance policy is a politically exposed person and a higher ML/TF risk is identified.
Chapter 15 has been amended to specify that a reporting entity’s Enhanced Customer Due Diligence Program is applied when an item 39 (making a payment under a life policy) designated service is being provided by a reporting entity to a domestic or international politically exposed person in circumstances of high ML/TF risk.
Chapter 30 (Disclosure certificates)
Recommendation 5.7
The AML/CTF Rules should allow reporting entities to accept disclosure certificates certified by an acceptable officer using a risk-based approach.
Amendments have been made to allow reporting entities to accept disclosure certificates ‘certified’ by the customer. The meaning of ‘certified’ is intentionally broad to allow reporting entities the flexibility to determine what is acceptable by a reporting entity after a consideration of ML/TF risk.
Chapter 36 (Corporate structures)
Recommendation 19.2
The AML/CTF Rules should be amended to:
…(f) expand the circumstances in which a reporting entity is related to its customer in Chapter 36 of the AML/CTF Rules to include partnerships where justified by the ML/TF risk.
The Review states that the exemption should “only be extended to relationships that entail a sufficiently strong economic link between entities…joint venture and trust structures can be created and dissolved with relative ease…By contrast, partnerships could have a sufficiently real and tangible economic link to merit their inclusion”.
The AML/CTF Act contains a definition of ‘partnership’ which includes ‘limited partnerships’. However these could be ‘created and dissolved with relative ease’ and therefore be at odds with the policy intention of the Review.
Accordingly, a new paragraph has been inserted to exclude ‘limited partnerships’ as applying to Chapter 36 in order to resolve this issue.
Additions are in bold font and deletions are shown in strikethrough.
Calculation of regulatory costs or savings
If these draft AML/CTF Rules impose any regulatory costs or result in regulatory savings, AUSTRAC requests that industry provide, in any submission on these draft amendments, an estimate of those costs or savings that may result from their implementation. It is preferred that such estimates use the Regulatory Burden Measure (RBM) as a basis for the calculation, as the RBM has been mandated by the Australian Government for use by agencies. Further details on the RBM are available at Commonwealth Regulatory Burden Measure.
The Australian Government has implemented an annual $1 billion red tape reduction target to which agencies such as AUSTRAC are required to contribute if regulatory action by an agency results in a cost reduction to businesses, community organisations or individuals. Any identified savings may also be used by an agency to ‘offset’ regulatory action which may impose regulatory costs.
Further details on the Australian Government policy are available at Cutting Red Tape
Human Rights (Parliamentary Scrutiny) Act 2011 requirements
The Human Rights (Parliamentary Scrutiny) Act 2011 requires that Statements of Compatibility must be made by the rule-maker with regard to disallowable legislative instruments, and must contain an assessment of whether the legislative instrument is compatible with the rights and freedoms recognised in the seven core international human rights treaties that Australia has ratified.
It is considered that the draft amendments are compatible with the human rights and freedoms recognised or declared in the international instruments listed in the definition of ‘human rights’ in subsection 3(1) of the Human Rights (Parliamentary Scrutiny) Act 2011.
CHAPTER 1
[Recommendation 19.2 (d)]
certified copy means a document that has been certified as a true copy of an original document by one of the following persons:
(1) a person who, under a law in force in a State or Territory, is currently licensed or registered to practise in an occupation listed in Part 1 of Schedule 2 of the Statutory Declarations Regulations 1993;
(2) a person who is enrolled on the roll of the Supreme Court of a State or Territory, or the High Court of Australia, as a legal practitioner (however described);
(3) a person listed in Part 2 of Schedule 2 of the Statutory Declarations Regulations 1993. For the purposes of these Rules, where Part 2 uses the term ‘5 or more years of continuous service’, this should be read as ‘2 or more years of continuous service’;
(4) an officer with, or authorised representative of, a holder of an Australian financial services licence, having 2 or more years of continuous service with one or more licensees;
(5) an officer with, or a credit representative of, a holder of an Australian credit licence, having 2 or more years of continuous service with one or more licensees;
(6) a person in a foreign country who is the equivalent of a person specified in paragraphs (1)-(5) of the definition of ‘certified copy’;
(67) a person authorised as a notary public in a foreign country.
Note: The Statutory Declarations Regulations 1993 are accessible through the Commonwealth of Australia law website, www.comlaw.gov.au
certified extract means an extract that has been certified as a true copy of some of the information contained in a complete original document, by one of the persons described in paragraphs (1)-(6 7) of the definition of ‘certified copy’ in paragraph 1.2.1 of these Rules.
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[Recommendation 19.2 (b)(c)]
primary non‑photographic identification document means any of the following includes:
(1) a birth certificate or birth extract issued by a State or Territory;
(2) a citizenship certificate issued by the Commonwealth;
(3) a citizenship certificate issued by a foreign government that, if it is written in a language that is not understood by the person carrying out the verification, is accompanied by an English translation prepared by an accredited translator;
(4) a birth certificate issued by a foreign government, the United Nations or an agency of the United Nations that, if it is written in a language that is not understood by the person carrying out the verification, is accompanied by an English translation prepared by an accredited translator;
(5) a concession card, as defined from time to time in the Social Security Act 1991, or an equivalent term which expresses the same concept in relation to concession holders.
primary photographic identification document means any of the following includes:
(1) a licence or permit issued under a law of a State or Territory or equivalent authority of a foreign country for the purpose of driving a vehicle that contains a photograph of the person in whose name the document is issued;
(2) a passport issued by the Commonwealth;
(3) a passport or a similar document issued for the purpose of international travel, that:
(a) contains a photograph and the signature of the person in whose name the document is issued;
(b) is issued by a foreign government, the United Nations or an agency of the United Nations; and
(c) if it is written in a language that is not understood by the person carrying out the verification ‑ is accompanied by an English translation prepared by an accredited translator.
(4) a card issued under a law of a State or Territory for the purpose of proving the person’s age which contains a photograph of the person in whose name the document is issued.
(5) a national identity card issued for the purpose of identification, that:
(a) contains a photograph and either:
(i) the signature of the person in whose name the document is issued; or
(ii) any unique identifier of the person in whose name the document is issued;
(b) is issued by a foreign government, the United Nations or an agency of the United Nations; and
(c) if it is written in a language that is not understood by the person carrying out the verification ‑ is accompanied by an English translation prepared by an accredited translator;
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secondary identification document means any of the following includes:
(1) a notice that:
(a) was issued to an individual by the Commonwealth, a State or Territory within the preceding twelve months;
(b) contains the name of the individual and his or her residential address; and
(c) records the provision of financial benefits to the individual under a law of the Commonwealth, State or Territory (as the case may be);
(2) a notice that:
(a) was issued to an individual by the Australian Taxation Office within the preceding 12 months;
(b) contains the name of the individual and his or her residential address; and
(c) records a debt payable to or by the individual by or to (respectively) the Commonwealth under a Commonwealth law relating to taxation;
(3) a notice that:
(a) was issued to an individual by a local government body or utilities provider within the preceding three months;
(b) contains the name of the individual and his or her residential address; and
(c) records the provision of services by that local government body or utilities provider to that address or to that person.
(4) In relation to a person under the age of 18, a notice that:
(a) was issued to a person by a school principal within the preceding three months;
(b) contains the name of the person and his or her residential address; and
(c) records the period of time that the person attended at the school.
CHAPTER 4
[Recommendation 5.4]
4.12.2 The requirements of paragraph 4.12.1 may be modified: