Are you at risk of money laundering and terrorism financing?
http://moorestephensresources.com.au/articles/13/1/Are-you-at-risk-of-money-laundering-and-terrorism-financing/Page1.html
By Neil Pace
Published on 18/09/2008
Accountants, real estate agents and lawyers are being targeted by the new draft legislation which is expected to be passed into law this year.
The Anti-Money Laundering and Counter Terrorism Financing Act 2006 (AML/CTF ) was introduced in 2006 to bring Australia into line with the 40 anti-terrorism financing recommendations made by the global body, the Financial Action Task Force (FATF).
The Act aims to reduce the estimated $4.5 billion that money laundering costs the Australian economy each year while simultaneously reducing the supply of funds to terrorism groups. The Act is regulated by AUSTRAC and is backed by considerable fines and criminal penalties.
The first tranche of the legislation that came into effect gradually between December 2006 and December 2007 was aimed primarily at the financial services industry and providers of a list of prescribed designated services.
The second tranche is aimed at accountants, lawyers and real estate agents. These are businesses which the government feels are gatekeepers to financial services. They create trusts and perform financial transactions and could potentially facilitate money laundering or terrorism financing activity.
Compliance
As with the first tranche, the second tranche of AML/CTF legislation utilises a risk based approach to meeting compliance obligations.
The first tranche requires any organisation covered or ‘caught’ by the act to actively assess and manage the risk of money laundering and terrorism financing that could exist within their organisation.
The organisation is required to develop a formal AML/CTF program within their business, setting up appropriate processes and procedures, having regard to the nature, size and complexity of the business for assessing risk, customer identification and verification, ongoing customer due diligence and employee due diligence.
Customer due diligence involves verifying the customer’s identity as well as ongoing monitoring of customer activities.
Hiring staff
As part of the AML/CTF program, reporting entities must also implement employee due diligence programs designed to address any money laundering and terrorism financing risks relating to the provision of designated services.
Employees who could be in a position to facilitate a money laundering or terrorism financing offence may need to be screened. As with other aspects of the AML/CTF program, these employee’s due diligence procedures should take into account the nature, size and complexity of the reporting entity.
This aspect of compliance will prove a challenging one for many small and medium sized firms (SMEs).
The legislation also creates requirements to consider third party contractors so you need to incorporate relationships with many contract service providers into your compliance plans.
Many SMEs engage contractors or outsource work to third parties. Relationships with these third parties have often been formed via personal referral or reputation – with little done in the way of formal due diligence.
The risk for SMEs is most prominent where there is a very nebulous procedure or no procedure for engaging contract skills, whether outsourced on a fixed term or assignment basis.
To mitigate risk, businesses should recommend companies over freelancers with little more than an ABN and should make the relevant checks on the authenticity of company certificates for any contractor being considered.
Reporting entities are required to appoint an AML/CTF compliance officer to manage the process, an independent panel and/or governing board to review it and a staff training program to teach employees about their obligations and the consequences of non-compliance.
Annual reporting
Organisations covered by the first tranche are required to submit annual compliance reports to the regulator, AUSTRAC.
As yet, it has not been determined whether such reports will be required by organisations covered by the second tranche.
Breaches of the AML/CTF Act can result in both criminal and civil penalties. Criminal penalties include imprisonment for up to 10 years and fines of up to $11 million, while civil penalties can attract fines of up to $11 million per corporation and $2.2 million per individual.
There doesn’t have to be money laundering discovered to be penalised, rather it is important to be able to demonstrate compliance. Breaches so far have all been about repetitive non-compliance – about not having that record keeping and processes in place. You can be penalised for not being compliant or not taking the compliance effort seriously!
Timing of the second tranche
Given the intention to engage in significant consultation with stakeholders, the Attorney General’s department has been unable to indicate when the second tranche of reforms might be passed as law.
The Federal Government could aim to pass the second tranche of reforms as early as October. It has not scored favourably in FATF evaluations in the past and is required to report back to the FATF on an annual basis to keep it up-to-date with its progress on Australia’s AML/CTF efforts. The government would be highly motivated to have the second tranche passed into law before it next reports to FATF in October.
The first tranche compliance obligations were phased in gradually to allow the banks and financial institutions time to comply. In addition to this staged implementation, the government allowed a cooling off period whereby if an organisation took reasonable steps towards compliance, it would not prosecute you for a breach.
Designated services
The AML/CTF legislation is activities based, imposing compliance obligations on those reporting entities which provide any of the designated services’ listed.
It is essential that only those services, which represent a money laundering or terrorism financing (ML/TF) risk are included as designated services to ensure that the regime is efficiently implemented by businesses of all sizes without an undue compliance burden.
If the definitions of designated services proposed for insertion into the Act are so broad then services that represent an insignificant risk will be inadvertently brought into the AML/CTF regime. The combined effect of these designated services is that small businesses providing services that are one-off or incidental to their core services and of insignificant ML/TF risk may be brought into the AML/CTF regime.
Of concern is that the wording used might have some unintended consequences.
Accountants, real estate agents and lawyers, are specifically being targeted by the new draft legislation expected to be pass into law this year.
Accountants, real estate agents and lawyers are being targeted by the new draft legislation which is expected to be passed into law this year.
The Anti-Money Laundering and Counter Terrorism Financing Act 2006 (AML/CTF ) was introduced in 2006 to bring Australia into line with the 40 anti-terrorism financing recommendations made by the global body, the Financial Action Task Force (FATF).
The Act aims to reduce the estimated $4.5 billion that money laundering costs the Australian economy each year while simultaneously reducing the supply of funds to terrorism groups. The Act is regulated by AUSTRAC and is backed by considerable fines and criminal penalties.
The first tranche of the legislation that came into effect gradually between December 2006 and December 2007 was aimed primarily at the financial services industry and providers of a list of prescribed designated services.
The second tranche is aimed at accountants, lawyers and real estate agents. These are businesses which the government feels are gatekeepers to financial services. They create trusts and perform financial transactions and could potentially facilitate money laundering or terrorism financing activity.
Compliance
As with the first tranche, the second tranche of AML/CTF legislation utilises a risk based approach to meeting compliance obligations.
The first tranche requires any organisation covered or ‘caught’ by the act to actively assess and manage the risk of money laundering and terrorism financing that could exist within their organisation.
The organisation is required to develop a formal AML/CTF program within their business, setting up appropriate processes and procedures, having regard to the nature, size and complexity of the business for assessing risk, customer identification and verification, ongoing customer due diligence and employee due diligence.
Customer due diligence involves verifying the customer’s identity as well as ongoing monitoring of customer activities.
Hiring staff
As part of the AML/CTF program, reporting entities must also implement employee due diligence programs designed to address any money laundering and terrorism financing risks relating to the provision of designated services.
Employees who could be in a position to facilitate a money laundering or terrorism financing offence may need to be screened. As with other aspects of the AML/CTF program, these employee’s due diligence procedures should take into account the nature, size and complexity of the reporting entity.
This aspect of compliance will prove a challenging one for many small and medium sized firms (SMEs).
The legislation also creates requirements to consider third party contractors so you need to incorporate relationships with many contract service providers into your compliance plans.
Many SMEs engage contractors or outsource work to third parties. Relationships with these third parties have often been formed via personal referral or reputation – with little done in the way of formal due diligence.
The risk for SMEs is most prominent where there is a very nebulous procedure or no procedure for engaging contract skills, whether outsourced on a fixed term or assignment basis.
To mitigate risk, businesses should recommend companies over freelancers with little more than an ABN and should make the relevant checks on the authenticity of company certificates for any contractor being considered.
Reporting entities are required to appoint an AML/CTF compliance officer to manage the process, an independent panel and/or governing board to review it and a staff training program to teach employees about their obligations and the consequences of non-compliance.
Annual reporting
Organisations covered by the first tranche are required to submit annual compliance reports to the regulator, AUSTRAC.
As yet, it has not been determined whether such reports will be required by organisations covered by the second tranche.
Breaches of the AML/CTF Act can result in both criminal and civil penalties. Criminal penalties include imprisonment for up to 10 years and fines of up to $11 million, while civil penalties can attract fines of up to $11 million per corporation and $2.2 million per individual.
There doesn’t have to be money laundering discovered to be penalised, rather it is important to be able to demonstrate compliance. Breaches so far have all been about repetitive non-compliance – about not having that record keeping and processes in place. You can be penalised for not being compliant or not taking the compliance effort seriously!
Timing of the second tranche
Given the intention to engage in significant consultation with stakeholders, the Attorney General’s department has been unable to indicate when the second tranche of reforms might be passed as law.
The Federal Government could aim to pass the second tranche of reforms as early as October. It has not scored favourably in FATF evaluations in the past and is required to report back to the FATF on an annual basis to keep it up-to-date with its progress on Australia’s AML/CTF efforts. The government would be highly motivated to have the second tranche passed into law before it next reports to FATF in October.
The first tranche compliance obligations were phased in gradually to allow the banks and financial institutions time to comply. In addition to this staged implementation, the government allowed a cooling off period whereby if an organisation took reasonable steps towards compliance, it would not prosecute you for a breach.
Designated services
The AML/CTF legislation is activities based, imposing compliance obligations on those reporting entities which provide any of the designated services’ listed.
It is essential that only those services, which represent a money laundering or terrorism financing (ML/TF) risk are included as designated services to ensure that the regime is efficiently implemented by businesses of all sizes without an undue compliance burden.
If the definitions of designated services proposed for insertion into the Act are so broad then services that represent an insignificant risk will be inadvertently brought into the AML/CTF regime. The combined effect of these designated services is that small businesses providing services that are one-off or incidental to their core services and of insignificant ML/TF risk may be brought into the AML/CTF regime.
Of concern is that the wording used might have some unintended consequences.
| Steps to Compliance Read up on what designated services are caught by the Act. Do you offer any such service? If you do provide such a designated service, conduct a risk assessment of your business – determining the level of risk to which the provision of those services could facilitate money laundering or terrorism financing activities. Develop a program for the collection and verification of necessary customer and employee information and the maintenance and continual verification of records. Appoint an AML/CTF compliance officer to manage the compliance effort. Develop a training program so that staff understand their obligations. |
Neil Pace,