The Attorney-General’s Department (AGD) has launched a public consultation on a proposed simplification and extension of Australia’s anti-money laundering and counter-terrorism financing (AML/CTF) rules.
The consultation will seek views on “streamlining”, “modernising” and providing greater clarity on key obligations for regulated entities under the AML/CTF Act.
Without significant reform of the compliance regime, Australia risks “significant economic costs” and could emerge as a haven for money laundering activities, the AGD warned.
The consultation is guided by recommendations from a 2016 Statutory Review which found existing AML/CTF rules overly complex, ultimately impeding regulated entities’ ability to meet compliance requirements.
For instance, following the review recommendations, the AGD has called for simplification of the AML/CTF program document (which lists out potential AML/CTF risks a business may face, how those risks can be managed, and its approach to meeting customer due diligence obligations), acknowledging the current requirements for regulated entities are “confusing and difficult to follow”.
The AGD also advised for the creation of an “express statement” within the Act or Rules which would more clearly set out the requirement for regulated entities to conduct an ML/TF assessment, which it said is lacking “despite many of the requirements for risk-based systems and controls implicitly requiring it”.
The rules could also be updated to provide clearer steps on what regulated entities need to mitigate AML/CTF risks, “improving their understanding of the nature and extent of the risks they face”.
“[An] explicit requirement to assess risk is absent from the current regime, with the obligation to assess risk implied from a number of provisions,” the consultation paper noted.
The AGD also noted that there are currently “no specific internal control risk mitigation measures” in the current rules that “clearly distinguish them from broader risk mitigation measures”.
Internal control obligations should be clearly articulated in the Act, being necessary to support “risk mitigation measures and ensure a culture of compliance”.
The AGD also called for improvements to customer due diligence obligations, setting out clearer rules that specify how such obligations are to be met, with accompanying AUSTRAC guidance materials that provide “practical, implementable advice” on meeting these obligations.
Meeting global standards
Existing safe harbour and simplified due diligence provisions (used for certain low-risk entities) were found not to meet international best practice, with the Financial Action Task Force’s (FATF’s) 2015 Mutual Evaluation for Australia report finding them to be insufficiently risk-based, the AGD said.
Australia was found non-compliant or only partially compliant with 16 out of the 40 FATF Recommendations (which promote effective implementation of legal, regulatory and operational measures for AML/CTF), with the global financial crimes watchdog flagging concerns over Australia’s inadequate customer due diligence processes, as well as insufficient rules for monitoring correspondent banking services, wire transfer services, third parties, and non-financial institutions, such as casinos.
Australia is set to undergo its next Mutual Evaluation between 2025 and 2027. Without significant reform of AML/CTF rules, the AGD warned, Australia risks “receiving low ratings and potential grey listing” – that is, Australian organisations being publicly listed and subject to increased international monitoring.
For instance, the AGD called for a reduction in the customer due diligence exemption threshold for gambling services to AU$4,000, in line with international standards.
Currently, Australia’s AML/CFT rules exempt regulated entities from performing customer due diligence procedures when providing some gambling services which involve less than AU$10,000. However, this rule remains inconsistent with Australia’s international obligations under the FATF Standards, which call for customer due diligence checks where the transaction is equal to or above US$/EUR3000 (approximately AU$4,500 at current exchange rates).
Beyond the simplification and modernisation of AML/CTF rules, the consultation paper also proposed extending the regime to cover certain high-risk ‘tranche-two’ entities, including lawyers, accountants, trust and company service providers, real estate agents and dealers in precious metals and stones.
The AGD notes that, out of more than 200 jurisdictions, Australia is now one of only five (alongside China, Haiti, Madagascar and the United States) jurisdictions in the FATF Global Network that do not regulate tranche-two entities.
The Australian Institute of Criminology estimates that serious and organised crime cost the Australian community up to $60.1 billion in 2020-21, with illicit financing at the centre of most crime types.
Submissions to the AGD AML/CTF reform consultation paper can be made until 16 June 2023.
A second consultation paper, informed by industry submissions on this to-be-released paper, will be released in the latter half of 2023.