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Major AML/CTF reforms proposed to bring lawyers, accountants and others within the regime

Major AML/CTF reforms proposed to bring lawyers, accountants and others within the regime

The Attorney-General has proposed changes to Australia’s AML-CTF laws, and is calling for submissions.  Its April 2023 Consultation Paper proposes a range of changes to the law.  

The changes aim to simplify the AML/CTF regime, ostensibly to ‘make it easier for regulated entities to understand and comply with their obligations.’ 

However, the changes include extending coverage of the laws to lawyers, accountants, trust and company service providers, real estate agents and dealers in precious metals and stones (also known as ‘tranche-two entities’). If the changes become law, those tranche-two entities will need to meet requirements to conduct KYC checks on clients/customers, report to AUSTRAC  and maintain a program to mitigate financial risks.

Submissions on the Consultation Paper can be made until 16 June 2023.
 

Nana Owusu, Maddocks Lawyers

What is the AML/CTF regime and why does the Department propose to reform it?

The regime imposed by the AML/CTF Act and Rules,  is a key part of Australia’s strategy to prevent illegal financial activity and the funding of terrorist organisations. AUSTRAC is the Government agency which administers the regime.

The Consultation Paper follows a 2016 statutory review of the AML/CTF Act which found that the scale, structure and density of the Act made the regime overly complex and hard to follow. In order to address these issues the Department has proposed a range of measures intended to simplify and clarify the regime for the entities which it regulates. 
The Consultation Paper also highlights the global scale of money laundering (estimated to be between $800 billion USD - $2 trillion USD per year) and the threat that such activities pose to Australia’s national security. According to the Department, Australia has become increasingly attractive for money-laundering due to its failure to reform the AML/CTF regime to respond to changing threats and international standards. 
Currently, the regime under the AML/CTF Act only applies to specific types of businesses which provide a ‘designated service’ (including financial services, bullion, gambling and digital currency exchanges). The Department notes that the services provided by tranche-two entities as being particularly vulnerable to potential misuse and exploitation by organised crime and terrorist groups. Accordingly, the Department proposes that the application of the regime should be expanded to cover tranche-two entities in order to mitigate the risk of exploiting of these industries in order to conduct illegitimate financial practices such as concealing and transferring money internationally.

In addition to simplification and expanded application of the regime, the Department’s objectives in recommending the proposed reforms include:

  • protecting the integrity of Australia’s financial system and responding to evolving threats relating to money laundering and financing of terrorism; and
  • aligning the Australian AML/CTF regime with international standards set by the global money laundering and terrorist financing watchdog, the Financial Action Task Force.

What entities and services would be covered by the reforms to the AML/CTF regime?

The tranche-two entities which are proposed to be covered by the reforms include providers of legal, accounting and conveyancing services. The types of services provided by these entities which would be covered include: 

  • buying and selling of real estate;
  • managing client money, securities or other assets;
  • managing bank, savings or securities accounts; 
  • organisation of contributions for the creation, operation or management of companies
  • creation, operation or management of legal persons or legal arrangements (eg trusts); and
  • buying and selling of business entities. 

Providers of trust and company services will also be covered in respect of the above services, as well as in relation to:

  • acting as a formation agent of legal persons; 
  • acting as (or arranging for another person to act as) a director or secretary of a company, a partner of a partnership, or a similar position in relation to other legal persons;
  • providing a registered office, business address or accommodation, correspondence or administrative address for a company, a partnership or any other legal person or arrangement;
  • acting as (or arranging for another person to act as) a trustee of an express trust or performing the equivalent function for another form of legal arrangement, and 
  • acting as (or arranging for another person to act as) a nominee shareholder for another person. 

The Department also proposes that the regime should cover:

  • real estate agents and property developers involved in transactions to buy or sell real estate; and
  • dealers in precious metals and stones when they engage in any cash transaction with a customer equal to or above $10,000 AUD, including in the capacity of an agent or auctioneer

What do the proposed changes mean for tranche-two entities such as lawyers, accountants and real estate agents?

If the Department’s proposals are implemented, these entities will be required to comply with a range of existing obligations under the AML/CTF regime (subject to any additional reforms which may be made to the regime as proposed in the Consultation paper). 

In particular, there are six key AML/CTF obligations under the regime which may be extended to apply to tranche-two entities, which are as follows: 

  • Initial Customer Due Diligence: Entities regulated by the AML/CTF are required to verify a customer’s identify before providing them with services and must ensure that they understand the relevant customer’s risk profile.
  • Ongoing Customer Due Diligence: The AML/CTF regime also requires the conduct of ongoing customer due diligence throughout the course of the relationship, including transaction monitoring and enhanced due diligence processes. 
  • Reporting: Regulated entities must report all ‘suspicious matters’ to AUSTRAC, as well as reporting cash transactions of $10,000 AUD or more, all instructions for the transfer of value sent in and out of Australia cross border movements of monetary instruments above $10,000 AUD and submitting annual compliance reports.
  • AML/CTF Program: Entities must ensure that they identify the risks involved in providing their services to customers, and develop and maintain an AML/CTF program which implements systems and controls to mitigates and manage those risks.
  • Record keeping: There is also a requirement to create and retain records that can assist with the investigation of financial crimes or that are related to the entity’s compliance with the AML/CTF regime. These records must be kept for a period of 7 years and must also be made available to law enforcement, if required.
  • AUSTRAC enrolment and registration: Regulated entities must enrol with AUSTRAC if they provide a designed service. Certain specified service providers (currently remittance service providers and digital currency exchange providers) must also register with AUSTRAC.  

What exceptions are proposed for the application of the AML/CTF regime to tranche-two entities?

The Department has indicated that there should be certain exceptions for the application of the AML/CTF requirements to tranche-two entities, including:

  • where services are provided for non-commercial purposes, such as an accountant who manages their family’s property and accounts; and 
  • where a legal professional is representing a client in litigation, unless in the course of the litigation they also engaged in one the specified services captured by the regime. 

What are the next steps for the proposed AML/CTF reforms? 

The Department is currently consulting with industry and is accepting submissions from interested parties in respect of the reforms proposed in the Consultation Paper. The Department will also conduct roundtable discussions with key stakeholders.

Submissions and feedback can be submitted through the Department’s Consultation hub (linked here) until 16 June 2023.

Later this year, the Department will release a second consultation paper released which will be informed by its consultations with industry. 

More information from Maddocks

For more information, contact Maddocks on (03) 9288 0555 and ask to speak to a member of the Commercial team.

More Cleardocs information on related topics

You can read earlier ClearLaw articles on a range of topics here https://www.cleardocs.com/clearlaw/index.html  
 

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Last revised on : 31-05-2023
 

Lawyer in Profile

Georgia Borg
Georgia Borg
Lawyer
+61 3 9258 3554
georgia.borg@maddocks.com.au

Qualifications: LLB, University of Sheffield, LLM(CL), University of British Columbia

Georgia is a member of Maddocks Commercial team and assists in a variety of commercial and corporate matters for private, public and not-for-profit clients.

Her expertise includes advising on general commercial law, wills and estates law, charities and not-for-profit law along with corporate law.

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