BILLS DIGEST NO. 47, 2017–18              25 October 2017

Anti-Money Laundering and Counter-Terrorism Financing Amendment Bill 2017

Cat Barker
Foreign Affairs, Defence and Security Section

Date introduced:  17 August 2017

House:  House of Representatives

Portfolio:  Justice

Commencement: On Proclamation or six months after Royal Assent, whichever occurs first.

Links: The links to the Bill, its Explanatory Memorandum and second reading speech can be found on the Bill’s home page, or through the Australian Parliament website.

When Bills have been passed and have received Royal Assent, they become Acts, which can be found at the Federal Register of Legislation website.

All hyperlinks in this Bills Digest are correct as at October 2017.

The Bills Digest at a glance

•       The Anti-Money Laundering and Counter-Terrorism Financing Amendment Bill 2017 (the Bill) contains the first set of amendments resulting from a statutory review of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act) and related Regulations and rules that was completed by the Attorney-General’s Department (AGD) in 2016.

•       The review examined the operation of Australia’s anti-money laundering and counter-terrorism financing (AML/CTF) regime, the extent to which the policy objectives of the regime remain appropriate, and whether it remained appropriate for achieving those objectives. It also took account of the findings and recommendations of the Financial Action Task Force’s (FATF) 2015 evaluation of Australia’s compliance with the international AML/CTF standards, which was completed while the review was underway.

•       The review resulted in 84 recommendations. AGD is progressing consultations on and implementation of the recommendations in phases. The measures in the Bill are those that AGD identified as being more straightforward and able to be implemented quickly. Work is still underway on the more substantial and complex reforms recommended by the review, including simplification and rationalisation of the AML/CTF regime, inclusion of businesses based offshore and the possible extension of the regime to particular services provided by lawyers, accountants, conveyancers, real estate agents, high-value dealers, and trust and company service providers.

•       The Bill will address 19 of the review recommendations by:

–      bringing digital currency exchange providers under the AML/CTF regulatory regime (Part 2 of Schedule 1)

–      removing the cash-in-transit sector, insurance intermediaries and general insurance providers from the regulatory regime, and making other amendments to reduce the regulatory burden of the regime (Part 4)

–      expanding the powers available for investigations and enforcement related to the regulatory regime (Part 5)

–      extending the powers of the CEO of the Australian Transaction Reports and Analysis Centre (AUSTRAC) to cancel the registration of a remittance service provider (Part 3)

–      expanding the objects of the AML/CTF Act to reflect the domestic as well as international objectives of AML/CTF regulation (Part 1)

–      expanding the functions of the CEO of AUSTRAC (Part 7) and

–      revising definitions used for the purposes of the AML/CTF Act (Part 6).

•       AML/CTF regulation of digital currency businesses was also recommended by the Senate Economics References Committee in August 2015 and the Productivity Commission in September 2015 in the context of broader reviews related to digital currency and business set up, transfer and closure respectively. Regulating digital currency exchange providers is consistent with FATF’s guidance on a risk-based approach to digital currencies.

•       The Senate Legal and Constitutional Affairs Legislation Committee inquired into the Bill and recommended that the Senate pass the Bill but that the Government consider whether certain terms could be better defined in the Bill and the Explanatory Memorandum to address the uncertainty expressed by some submitters to the inquiry. Submitters to the inquiry were generally supportive of the Bill, but raised concerns about some of the details of the proposed amendments.

•       The Senate Standing Committee for the Scrutiny of Bills had concerns about several amendments, including the provision for certain matters relating to registration of digital currency exchange providers to be dealt with in delegated legislation, proposed new civil penalty provisions and powers to seize physical currency and bearer negotiable instruments without a warrant.

•      The Parliamentary Joint Committee on Human Rights considered that the civil penalty provisions may be characterised as criminal and because the Minister’s response to its initial report on the Bill did not address criminal process rights, it was ‘unable to conclude that the measure is compatible’ with those rights.

Purpose and structure of the Bill

The purpose of the Bill is to amend the AML/CTF Act and the Financial Transaction Reports Act 1988 to:

•       bring digital currency exchange providers under the AML/CTF regulatory regime (Part 2 of Schedule 1)

•       remove the cash-in-transit sector, insurance intermediaries and general insurance providers from the regulatory regime, and make other amendments to reduce the regulatory burden of the regime (Part 4)

•       expand the powers available for investigations and enforcement related to the regulatory regime (Part 5)

•       extend the powers of the AUSTRAC CEO to cancel the registration of a remittance service provider (Part 3)

•       expand the objects of the AML/CTF Act to reflect the domestic as well as international objectives of AML/CTF Regulation (Part 1)

•       expand the functions of the AUSTRAC CEO (Part 7) and

•       revise the definitions of eligible place, investigating officer, signatory and stored value card, used for the purposes of the AML/CTF Act (Part 6).

Background

International anti-money laundering and counter-terrorism financing framework

FATF is an intergovernmental body established to develop and promote national and international policies to combat money laundering and terrorist financing. It was established in 1989 by the Group of 7 (G7) and Australia has been a member since 1990.[1]

The FATF Recommendations, first issued in 1990 and revised most recently in 2012, set the international benchmark for money laundering and terrorist financing counter measures.[2] While not binding under international law, they are supported by leading intergovernmental institutions such as the G20, United Nations, World Bank and the International Monetary Fund.[3] Monitoring of member jurisdictions through a system of mutual evaluation and formalised processes for identifying high-risk or non-cooperative countries provide incentives for countries to fully implement the FATF Recommendations.[4]

Some of the key requirements under the FATF Recommendations are for countries to:

•       criminalise money laundering and terrorist financing and enable the freezing, restraint and recovery of associated funds or assets

•       establish a financial intelligence unit (FIU) that serves as a national centre for the collection, analysis and dissemination of information about potential money laundering or terrorist financing

•       require financial institutions and other ‘designated non-financial businesses and professions’ (DNFBPs, such as casinos, real estate agents, legal professionals and accountants) to undertake thorough customer due diligence and maintain proper records

•       require financial institutions and DNFBPs to report suspicious transactions to the FIU

•       require financial institutions and DNFBPs to develop programs against money laundering and terrorist financing

•       ensure financial institutions are subject to adequate regulation and supervision and that appropriate sanctions are available to deal with non-compliance

•       establish measures to prevent the misuse of legal persons and legal arrangements by money launderers and

•       afford each other the widest measure of international cooperation, including through mutual legal assistance, extradition, freezing, restraint and confiscation of funds and assets, and timely and constructive exchanges of information.[5]

Amongst the 2012 revisions to the FATF Recommendations was the introduction of an enhanced and overarching risk-based approach aimed at better enabling countries and the private sector to target resources to higher risks and apply simplified measures to lower risks across the AML/CTF regime.[6]

Australia’s anti-money laundering and counter-terrorism financing regime

The AML/CTF Act and related rules provide the framework for the Australian regulatory regime aimed at preventing and detecting money laundering and terrorism financing. The AML/CTF Act applies to ‘designated services’ provided by financial institutions, bullion dealers and the gambling industry, as well as designated remittance service providers. Australia’s AML/CTF regulator and financial intelligence unit, the Australian Transaction Reports and Analysis Centre (AUSTRAC), has summarised the key obligations under Australia’s AML/CTF regime as follows:

Entities providing a ‘designated service’ under the AML/CTF Act are ‘reporting entities’ and are subject to a range of obligations. These include:

·          enrolling with AUSTRAC as a reporting entity (and also registering if they provide a designated remittance service)

·          conducting customer identification, verification, ongoing due diligence and transaction monitoring

·          reporting suspicious matters, threshold transactions (cash or certain e-currency transactions of AUD10,000 or more) and international funds transfer instructions

·          conducting a money laundering and terrorism financing risk assessment

·          developing and maintaining an AML/CTF program

·          conducting AML/CTF training for employees and agents

·          making and retaining certain records for seven years.

The AML/CTF Act also requires the reporting of cross-border movements of physical currency (whether carrying, mailing or shipping) and, upon request, bearer negotiable instruments (BNIs) such as cheques, travellers cheques and money orders (when carried by an individual).[7]

Like the FATF Recommendations, Australia’s AML/CTF regime is premised on a risk-based approach to regulation.

AUSTRAC analyses the information contained in reports it receives, along with other inputs, to develop financial intelligence that it shares with partner agencies, including law enforcement agencies, the Australian Taxation Office and international counterparts.[8]

Digital currencies

The FATF has defined virtual currency as:

… a digital representation of value that can be digitally traded and functions as (1) a medium of exchange; and/or (2) a unit of account; and/or (3) a store of value, but does not have legal tender status (i.e., when tendered to a creditor, is a valid and legal offer of payment) in any jurisdiction. It is not issued nor guaranteed by any jurisdiction, and fulfils the above functions only by agreement within the community of users of the virtual currency. Virtual currency is distinguished from fiat currency (a.k.a. “real currency,” “real money,” or “national currency”), which is the coin and paper money of a country that is designated as its legal tender; circulates; and is customarily used and accepted as a medium of exchange in the issuing country. It is distinct from e-money, which is a digital representation of fiat currency used to electronically transfer value denominated in fiat currency. E-money is a digital transfer mechanism for fiat currency—i.e., it electronically transfers value that has legal tender status. [Emphasis in original.][9]

While digital currency can refer to a representation of either virtual or fiat currency, the terms virtual currency and digital currency are often used interchangeably, and the Australian Government has adopted the term digital currency to refer to what might be more accurately called virtual currency.[10] The term ‘digital currency’ is adopted in this Bills Digest.

There are many different types of digital currency, but key distinctions include whether they are:

•       convertible (can be exchanged for fiat currency) or non-convertible (cannot be exchanged, operate in a self-contained environment, such as a loyalty scheme or online game) and

•       centralised (where a single administrating authority issues the currency and controls the system) or decentralised (which are there is no central administering authority; instead there is ‘a framework of internal protocols that govern the operation of the system and allow the verification of transactions to be performed by the system participants themselves’).[11]

The most well-known digital currency, Bitcoin, is an example of a convertible, decentralised digital currency. Bitcoin and similar currencies such as Ethereum, Ripple, Litecoin and Monero use techniques from cryptography to operate, so are sometimes called cryptocurrencies.[12] While Bitcoin is the best known and accounts for around 50 percent of the market, there are over 800 cryptocurrencies that together represented approximately US$158 billion in market capitalisation as at 6 September 2017.[13]

National governments and actors in the traditional financial system and are in the process of grappling with the policy and regulatory challenges associated with digital currencies as their use increases.[14] In the context of money laundering and terrorism financing, AGD summarised the key risks associated with digital currencies as:

·          greater anonymity (or pseudonymity) compared with traditional non-cash payment methods

·          transactions are made on a peer-to-peer basis, generally outside the regulated financial systems, and

·          different components of a digital currency system may be located in many countries and subject to varying degrees of AML/CTF oversight.[15]

FATF guidance

FATF released guidance on a risk-based approach to virtual currencies, including the application of the FATF Recommendations, in June 2015. The guidance suggested that countries should consider applying AML/CTF Regulation to convertible virtual currency exchanges and other institutions that provide an interface between virtual currencies and the regulated financial system.[16]

Previous consideration of extending AML/CTF Regulation to digital currency exchange providers

The Senate Economics References Committee reported in August 2015 on its inquiry into digital currency. The Committee strongly supported applying AML/CTF Regulation to digital currency exchanges, and noted that it would be consistent with steps taken in Canada, the United Kingdom and Singapore. It recommended that the statutory review consider the matter.[17]

In its September 2015 report on business set up, transfer and closure, the Productivity Commission recommended that AML/CTF Regulation be extended to include digital currency businesses.[18] It made the recommendation on the basis that providing a sound regulatory framework for digital currency businesses, including by mitigating money laundering and terrorism financing (ML/TF) risks, would reduce barriers to setting up such businesses in Australia. The Commission noted that Canada, the UK and the United States had moved to bring digital currency intermediaries under their AML/CTF regimes, and that the experience of those businesses in the US ‘suggests that the regulation has increased businesses’ legitimacy, assisted in forming banking partnerships and investment, and helped to deter criminals’.[19]

FATF evaluation and statutory review

AGD completed a statutory review of the AML/CTF Act and the associated rules and regulations in April 2016.[20] The review examined the operation of the AML/CTF regime, the extent to which the policy objectives of the regime remain appropriate, and whether it remained appropriate for achieving those objectives. The review also took account of the findings and recommendations of FATF’s 2015 evaluation of Australia’s compliance with the international AML/CTF standards, which was completed while the review was underway.[21]

The review produced a long list of recommendations (84 in total), but many of them addressed only what should happen, not how. While the report provided a clear framework for modernising the AML/CTF regime, this meant there was significant work left to be done before some of the amendments could be brought before the Parliament. AGD is progressing consultations on and implementation of the review recommendations in phases, and the Bill contains the first set of the resulting reforms to the AML/CTF Act. The measures in the Bill are those that AGD identified as being more straightforward and able to be implemented quickly.[22] Work is still underway on the more substantial and complex reforms recommended by the review (and those more likely to face stakeholder resistance), including simplification and rationalisation of the AML/CTF regime, inclusion of businesses based offshore and the possible extension of the regime to particular services provided by lawyers, accountants, conveyancers, real estate agents, high-value dealers, and trust and company service providers.[23]

AGD released a consultation paper on regulating digital currencies under the AML/CTF regime in December 2016 and sought submissions by 31 January 2017.[24] The consultation paper outlined proposed reforms to implement recommendations 4.8–4.10 of the statutory review. The Bill will implement recommendations 4.9 and 4.10 of the review (relating to regulation of digital currencies, specifically expanding the definition to include those not backed by a physical thing and regulating digital currency exchange providers). However, it will not implement recommendation 4.8, which was to ensure that digital currency wallets are comprehensively captured by AML/CTF regulation.

AGD also released a separate industry consultation paper in December 2016 that outlined the remaining changes included in the Bill and several other proposed reforms to implement review recommendations (again with submissions due by 31 January 2017).[25] It is not clear whether a decision has been taken not to proceed with the other reforms outlined in the consultation paper, or whether they are still being progressed and will be included in one or more future Bills. On the basis of AGD’s evidence to the Committee inquiry into the Bill, it appears that at least some of those reforms are still being progressed.[26]

The other review recommendations that the Bill would address (though not in all cases implement in full) are:

•       3.1—expanding the objects of the AML/CTF Act to reflect the domestic as well as international objectives of AML/CTF regulation

•       4.1—removing collection and delivery of physical currency, and the holding of physical currency from or on behalf of a person, from the list of designated services

•       4.5—narrowing the scope of the designated services listed as bullion and gambling services to circumstances where those services are provided in the course of carrying out a core activity of a business

•       7.5—supplementing the concept of a ‘designated business group’ with the more flexible concept of a ‘corporate group’ (the initial recommendation had been to replace rather than supplement)

•       10.1 (in part)—providing that due diligence requirements relating to correspondent banking (where one financial institution provides banking services to another) apply only to the bank providing that service

•       10.3(a)—expanding the definition of correspondent banking

•       11.4(a)—enabling the CEO of AUSTRAC to deregister remitters that are not conducting remittance activities

•       12.4—enabling police and Customs officers to search for and seize cash where there is either a suspicion of serious criminal offences or a breach of the cross-border reporting requirements under the AML/CTF Act

•       12.6—creating civil penalties for failure to comply with declaration requirements or questioning and search powers in relation to physical currency and bearer negotiable instruments (BNIs, such as traveller’s cheques), so they can be used as an alternative to the existing criminal offences

•       15.3—expanding the power for the AUSTRAC CEO to issue remedial directions to include directions requiring reporting entities to remedy past contraventions of civil penalty provisions

•       15.4—expanding the infringement notice scheme under the AML/CTF Act so that notices can be issued for a wider range of minor regulatory offences

•       16.1(a) and (b)—expanding the scope of the AUSTRAC CEO’s functions, and including a power for the CEO to do all things necessary or convenient for the performance of his or her duties

•       17.1—setting out specific matters that the AUSTRAC CEO must take into account when determining exemptions to requirements of the AML/CTF Act, and providing that the ML/TF risk posed is the prime consideration

•       18.2—removing reporting requirements that currently apply to insurance intermediaries and general insurance providers, except those that apply to motor vehicle dealers

•       19.1(f)—amending the definition of signatory so that it applies more narrowly and

•       19.1(g)—amending the definition of stored value card to provide clearer guidance to industry.

Committee consideration

Senate Legal and Constitutional Affairs Legislation Committee

The Senate Legal and Constitutional Affairs Legislation Committee reported on its inquiry into the Bill on 16 October 2017.[27] The Committee recommended that the Senate pass the Bill but that the Government consider whether the terms ‘article’, ‘stored value card’ and ‘in the course of carrying on a business’ could be better defined in the Bill and the Explanatory Memorandum to address the uncertainty expressed by some submitters to the inquiry.[28] Further information is provided in the relevant parts of the ‘Key issues and provisions’ section of this Digest.

Senate Standing Committee for the Scrutiny of Bills

The Senate Standing Committee for the Scrutiny of Bills (Scrutiny of Bills Committee) sought the Minister’s advice on several of the proposed amendments in the Bill.[29]

Proposed section 76A of the AML/CTF Act will introduce several offences relating to providing digital currency exchange services without being registered on the Digital Currency Exchange Register. Strict liability will apply to some of the physical elements of these offences. The Scrutiny of Bills Committee noted that the Explanatory Memorandum stated that requiring proof of fault of those physical elements would undermine their deterrent effect, but does not explain the legitimate grounds for penalising persons lacking fault. The Committee considered that the Minister’s response also failed to explain the legitimate grounds. It reiterated its opposition to the use of strict liability in offences carrying a penalty of imprisonment and left the question of the appropriateness of those provisions to the Senate as a whole.[30]

Proposed sections 76K and 76L enable matters relating to the suspension and renewal of registration on the Digital Currency Exchange Register to be provided for in the AML/CTF Rules made by the AUSTRAC CEO. The Scrutiny of Bills Committee considers that matters such as the grounds on which decisions relating to suspension and renewal are made should be included in the AML/CTF Act. It sought the Minister’s advice on the justification for setting out those matters in delegated legislation, and if those matters are to be in delegated legislation, why it should be in rules instead of regulations (the latter of which are subject to a higher level of executive scrutiny).[31] The Minister’s response focused on the need for flexibility, the fact that the Rules were well-known to industry and AUSTRAC’s consultation processes for proposed amendments to the Rules. The Committee maintained its view that some of the matters proposed to be included in the Rules would be more appropriately included in the AML/CTF Act and stated that it was particularly concerned about merits review of decisions to suspend or refuse to renew registration.[32]

The Bill would introduce civil penalty provisions for:

•       providing digital currency exchange services without being registered on the Digital Currency Exchange Register or in breach of a registration condition (proposed subsections 76A(1) and (2), at item 20)

•       a person on the register failing to advise the AUSTRAC CEO of changes that could materially affect their registration (proposed subsection 76P(1), at item 20) and

•       failing to declare physical currency or bearer negotiable instruments when leaving or arriving in Australia if required to do so (proposed subsections 199(12) and 200(15) at items 73 and 75).

Under the AML/CTF Act, the same maximum pecuniary penalties apply to all civil penalty provisions—100,000 penalty units (currently $21 million) for a body corporate and otherwise 20,000 penalty units (currently $4.2 million).[33] The Scrutiny of Bills Committee sought the Minister’s advice on the appropriateness of applying the civil penalty framework to the breaches outlined above, given the high maximum penalties that apply.[34] The Committee recommended that the information in the Minister’s response, which included matters that the Federal Court must consider in determining the appropriate penalty in a particular case, be incorporated into the Explanatory Memorandum.[35]

The Scrutiny of Bills Committee recommended that the civil and criminal immunity provided for AUSTRAC and the Commonwealth in relation to publication of the Digital Currency Exchange Register and a list of persons whose registration has been cancelled (proposed section 76R) should be limited to actions taken in good faith.[36]

The AUSTRAC CEO will generally be required to give notice of decisions relating to the Digital Currency Exchange Register to an affected person and provide them an opportunity to respond. Proposed subsection 76S(2) will provide that the requirement to give notice does not apply if the AUSTRAC CEO is satisfied that it is inappropriate because of the urgency of the circumstances. The Scrutiny of Bills Committee sought the Minister’s advice on why removing the notice requirement is necessary and appropriate.[37] The Minister stated that the exception to the notice provisions was required to address circumstances where providing notice might risk suspected criminal activities continuing (this would be due to the requirement to provide the recipient of a notice 28 days to respond to the notice) and/or the loss of evidence.[38]

Part 5 of Schedule 1 would expand the powers of police and Customs officers to search a person entering or leaving Australia and seize physical currency and bearer negotiable instruments.[39] The Scrutiny of Bills Committee sought the Minister’s detailed justification for giving police and Customs officers power to seize those items without a warrant, including why seizure powers are being provided instead of powers to secure items pending a warrant, and how accountability will be provided for both the exercise of powers and dealing with things seized.[40] The Minister stated that the key reason for enabling seizure without a warrant is ‘the time-sensitive nature of operations at the border’, pointing out that currency may be seized from a person shortly before an international flight. The Committee maintained its concerns and noted that the Minister’s response did not address the issue of accountability.[41]

Policy position of non-government parties/independents

The Australian Labor Party supports the Bill.[42] At the time of publication of this Bills Digest, there was no public indication of the policy position of any other non‑government parties and independents on the Bill.

Position of major interest groups

Digital currencies

Digital currency sector

The Regulatory Impact Statement (RIS) states that consultation with industry indicated that the sector ‘generally supports’ full regulation of digital currency exchange providers under the AML/CTF regime ‘because robust AML/CTF Regulation will bolster public and consumer confidence in the sector’.[43] It also indicates that the sector’s initial preference was to codify the Australian Digital Commerce Association’s (ADCA, previously ADCCA) Australian Digital Currency Industry Code of Conduct and for the ADCA and AUSTRAC to co-regulate the sector for AML/CTF purposes:

However, this proposal was not pursued as a viable option as all digital currency exchange providers are not members of ADCCA. In addition, this option was unlikely to instil the same level of public confidence in the sector as regulation under the AML/CTF Act. It was also noted and accepted by many digital currency providers that the use and application of binding AML/CTF Rules in the regulation of this sector will provide the desired level of flexibility to avoid regulatory lag.[44]

The ADCCA, in a 2014 submission to the Senate Economics References Committee, and FinTech Australia and Blockchain Australia, in a 2017 submission to AGD, supported extending AML/CTF regulation to digital currency exchange providers.[45]

Living Room of Satoshi, a digital currency payments company, was the only sector participant to make a submission to the Senate Legal and Constitutional Affairs Legislation Committee’s current inquiry into the Bill. The organisation suggested an exemption be provided to ‘know your customer’ requirements for transactions below $1,000.[46] If such an exemption were to be provided, it would be under the AML/CTF Rules.

Financial institutions and organisations

The Australian Bankers’ Association (ABA) and the Australian Financial Conference raised concerns in their submissions to the statutory review that financial institutions were placed in a vulnerable position when providing services to businesses in the digital currency sector, and suggested that the sector should be subject to AML/CTF Regulation.[47]

Others

The Synod of Victoria and Tasmania, Uniting Church in Australia (Uniting Church) strongly supports the extension of the AML/CTF regime to digital currency exchange providers.[48] Transparency International Australia also supported this measure, but considered that it will not fully address the ML/TF risks associated with digital currencies, including because it will not capture digital currency exchange providers with no physical presence in Australia but providing services to Australian customers.[49] Further information on this gap in coverage is set out in the ‘Key issues and provisions’ section of this Digest.

Other amendments

The ABA was concerned that expanding the objects of the AML/CTF Act to include references to deterrence of ‘money laundering, the financing of terrorism, and other serious crimes’ (Part 1 of Schedule 1) could introduce additional regulatory costs, and suggested referring to ‘other serious financial crimes’ instead of ‘other serious crimes’.[50]

The Law Council of Australia (LCA) opposed the expansion of the infringement notice scheme to include additional breaches of the AML/CTF Act (Part 5 of Schedule 1). It also agreed with the issues raised by the Scrutiny of Bills Committee and raised concerns that amendments relating to services provided ‘in the course of carrying on a business’ and the definition of stored value card might not achieve their intended purposes.[51]

The Uniting Church and King & Wood Mallesons supported the introduction of the concept of a corporate group to enable broader sharing of information about customers between related businesses.[52] However, King & Wood Mallesons suggested that the amendments (in Part 4 of Schedule 1) will not fully achieve their objective. Further detail on this point is set out in the ‘Key issues and provisions’ section of this Digest.

Financial implications

The Explanatory Memorandum states that the Bill will be implemented within existing resources.[53]

The RIS estimates that the Bill will result in savings to industry of just over $36 million annually for the ten years after the measures come into force. This includes annual costs of $662,221 associated with regulating digital currency exchange providers, offset by savings associated with deregulating the cash-in-transit sector (over $32 million), deregulating insurance intermediaries and general insurance providers, and with amendments relating to correspondent banking and sharing information across corporate groups.[54]

Statement of Compatibility with Human Rights

As required under Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed the Bill’s compatibility with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of that Act. The Government considers that the Bill is compatible.[55]

Parliamentary Joint Committee on Human Rights

Like the Scrutiny of Bills Committee, the Parliamentary Joint Committee on Human Rights questioned the appropriateness of the proposed new civil penalty provisions.[56] The Committee noted that if a civil penalty provision is in substance ‘criminal’ for the purposes of international human rights law (regardless of its classification under Australian law), it will engage criminal process rights under the International Covenant on Civil and Political Rights. One of the considerations in that context is the severity of the penalty, and it is on this point that the Committee was concerned:

A penalty is likely to be considered 'criminal' where it carries a penalty of a substantial pecuniary sanction. However, this must be assessed with due regard to regulatory context, including the nature of the industry or sector being regulated and the relative size of the pecuniary penalties being imposed. In this case, an individual could be exposed to a penalty of up to $4.2 million. These are very significant penalties and raise the concern that the provisions … may be 'criminal' for the purposes of international human rights law.[57]

The Committee sought the Minister’s advice on whether the civil penalty provisions in the Bill may be considered criminal in nature, and if they are, whether they could be amended to accord with criminal process rights.[58]

The Minister’s response addressed the issue of why the maximum penalty is so significant and the factors that the Federal Court must consider in determining the appropriate penalty in a particular case, but not whether the provisions may be characterised as criminal, and whether the limitations on criminal process rights are permissible. The Committee stated that the civil penalties may be characterised as criminal and because the Minister’s response did not address criminal process rights, it was ‘unable to conclude that the measure is compatible with these rights’.[59]

Key issues and provisions

Part 1—Objects of the AML/CTF Act

Subsection 3(1) of the AML/CTF Act lists the objects of the Act. It currently sets out three objects, relating to addressing ‘matters of international concern’ (namely money laundering and terrorism financing) and fulfilling Australia’s international obligations.

Item 1 of Schedule 1 will insert four additional objects into subsection 3(1) to specify the domestic objects of the AML/CTF Act and make explicit the aim of providing information to AUSTRAC and other Australian and overseas agencies to support investigations and prosecutions of money laundering, terrorism financing and other serious crimes. The inclusion of ‘other serious crimes’ recognises that in addition to being a crime in its own right, money laundering, by giving illicit money the appearance of legitimacy, is a key enabler of profit-motivated crimes.[60] The financial intelligence that AUSTRAC produces supports investigations and prosecutions into a broad range of offences, including drugs and firearms trafficking, fraud and corruption, and tax evasion.[61]

The amendments will largely implement recommendation 3.1 of the statutory review. The inclusion of supporting action against the proliferation of weapons of mass destruction and its financing (along with money laundering, terrorism financing and other serious crimes) was also recommended, but is not reflected in the Bill.[62]

Part 2—Digital currencies

Currently, the AML/CTF Act does not comprehensively capture businesses providing digital currency services or transactions involving digital currencies. Further, while money is defined to include e-currency, the definition of e-currency does not capture all digital currencies. Part 2 of Schedule 1 will replace the definition of e-currency with a definition of digital currency and extend AML/CTF Regulation to digital currency exchange providers, implementing recommendations 4.9 and 4.10 of the statutory review.

Definition of digital currency

The following definition of digital currency will be inserted into section 5 of the AML/CTF Act, replacing the current definition of e-currency:

digital currency means:

              (a)              a digital representation of value that:

                            (i)              functions as a medium of exchange, a store of economic value, or a unit of account; and

                            (ii)              is not issued by or under the authority of a government body; and

                            (iii)              is interchangeable with money (including through the crediting of an account) and may be used as consideration for the supply of goods or services; and

                            (iv)              is generally available to members of the public without any restriction on its use as consideration; or

              (b)              a means of exchange or digital process or crediting declared to be digital currency by the AML/CTF Rules;

but does not include any right or thing that, under the AML/CTF Rules, is taken not to be digital currency for the purposes of this Act.[63]

The new definition is broader, capturing crypto-currencies such as Bitcoin that are backed by cryptographic algorithms as well as those backed by physical things such as bullion or a precious metal. The definition has been drafted to include only convertible digital currencies, which carry higher ML/TF risks:

As non-convertible digital currencies cannot be freely exchanged for fiat currencies, they rarely intersect with the regulated financial system and are generally not an attractive mechanism for laundering the proceeds of crime. In contrast, convertible digital currencies are able to be exchanged for fiat currencies and can thus transfer value between individuals quickly and easily.[64]

The definition of money in section 5 of the AML/CTF Act currently includes e-currency. Digital currency will be treated separately and not included in the definition of money.[65] The Bill includes several consequential amendments to amend existing references to money to instead refer to money or digital currency.[66]

Regulation of digital currency exchange providers

The RIS outlined three potential options for addressing the ML/TF risks associated with digital currencies:

•       maintaining the status quo (no AML/CTF Regulation of the sector)

•       ‘light touch’ regulation under the AML/CTF regime whereby digital currency exchange providers would be required to enrol with AUSTRAC, undertake customer due diligence, make suspicious matter reports and meet record-keeping requirements or

•       full regulation of digital currency exchange providers under the AML/CTF regime.[67]

Full regulation was the Government’s preferred option. This was because light touch regulation was assessed as not being commensurate to the recognised ML/TF risks of digital currencies and inconsistent with international best practice, and because robust AML/CTF Regulation is expected to build public confidence in the sector.[68] The Bill will implement the full regulation option.

The regulatory requirements under the AML/CTF Act are imposed on the basis of provision of ‘designated services’. If a person provides a designated service listed in section 6 of the AML/CTF Act, that person is a ‘reporting entity’, triggering a range of obligations under the Act as outlined below.

Item 15 of Schedule 1 will insert a new designated service into the table of financial services in subsection 6(2) of the AML/CTF Act of ‘exchanging digital currency for money (whether Australian or not) or exchanging money (whether Australian or not) for digital currency, where the exchange is provided in the course of carrying on a digital currency exchange business’. This will make digital currency exchange providers reporting entities under the AML/CTF Act, thereby requiring them to:

•       enrol with AUSTRAC (Part 3A of the AML/CTF Act)

•       verify the identities of their customers and carry out ongoing customer due diligence (Part 2 of the AML/CTF Act)

•       report suspicious matters and threshold transactions to AUSTRAC (Part 3 of the AML/CTF Act)

•       adopt and maintain an AML/CTF program to identify, mitigate and manage ML/TF risks (Part 7 of the AML/CTF Act), which under the AML/CTF Rules must provide for:

–      a ML/TF risk assessment

–      risk awareness training for employees

–      an employee due diligence program

–      oversight of the program by boards and senior management

–      designation of a person as an AML/CTF compliance officer

–      systems and controls to ensure compliance with reporting obligations and procedures for responding to AUSTRAC feedback

–      ongoing customer due diligence procedures

–      a framework for identifying customers and beneficial owners of customers and

–      collection and verification of customer and beneficial owner information and

•       keep records relating to transactions, customer identification and the provider’s AML/CTF program for seven years (Part 10 of the AML/CTF Act).[69]

Issue: offshore businesses providing exchange services to Australian customers not regulated

Under section 6 of the AML/CTF Act, a person who provides a designated service to an Australian customer is only captured by the AML/CTF regime if:

•       the designated service is provided at or through a permanent establishment of the provider in Australia

•       the provider is a resident of Australia and the designated service is provided at or through a permanent establishment of the provider in a foreign country or

•       the provider is a subsidiary of a company that is a resident of Australia and the service is provided at or through a permanent establishment of the subsidiary in a foreign country.

This limitation applies across all but one of the existing designated services and will also apply to digital currency exchange services, meaning only exchange providers with a presence in Australia will be subject to Australia’s AML/CTF regime.

The requirement for a geographic link was identified as a shortcoming of Australia’s AML/CTF regime by the statutory review. The review recommended that AUSTRAC identify designated services that pose a high ML/TF risk when provided to Australian customers by offshore providers, and that AGD and AUSTRAC should develop an appropriate model for applying AML/CTF obligations to those high risk services when they are provided by offshore providers.[70] AGD’s project plan indicates that legislative proposals to address this gap are expected to be developed by the second half of 2018.[71]

Issue: reporting requirements

Threshold transaction reports will only be required for transactions involving the transfer of physical currency (coins and notes) of A$10,000 or more.[72] The AML/CTF Act provides that the regulations may stipulate threshold amounts for transactions involving money (defined to include money held in an account or on deposit as well as physical currency) and property, but no such amounts have been prescribed.[73] It also currently requires threshold transaction reports to be submitted for transactions involving the transfer of e-currency of $10,000 or more. Items 11 and 12 of Schedule 1 will amend the definition of threshold transaction in section 5 to remove the existing requirement relating to e-currency and instead provide that the regulations may prescribe a threshold amount for digital currency. This amended definition will apply across all reporting entities. The Explanatory Memorandum does not state whether there is any intention to make a regulation in the near future to prescribe a threshold at which transactions involving digital currency must be reported.

The RIS indicates that unlike other reporting entities, digital currency exchange providers will not be required to report to AUSTRAC on international funds transfer instructions (IFTI):

Under the AML/CTF Act, the ‘sender’ of an IFTI transmitted out of Australia, or the ‘recipient’ of an IFTI transmitted into Australia, must report the instruction to AUSTRAC within 10 business days after the day the instruction was sent or received. These reports allow AUSTRAC to track movements of funds in and out of Australia.

It would be impractical to apply IFTI reporting obligations to digital currency exchange providers because they have no visibility of the location to where digital currencies are sent, resulting in an intelligence gap. For example, digital currency exchange providers will not know the location of the bitcoin address to which a customer’s bitcoin is sent because there is no geographical data attached to a bitcoin address (which is an identifier of 26-35 alphanumeric characters). In the instance in which a digital currency exchange provider will be expected to transfer fiat currency to a nominated bank account overseas, this IFTI will be reported by the digital currency exchange provider’s bank.[74]

The consultation paper on digital currencies proposed that a threshold of $0 apply to digital currency exchange providers, meaning they would be required to report all transactions as threshold transaction reports ‘in lieu of an obligation to report international funds transfer instructions’.[75] In contrast, under the Bill, digital currency exchange providers would be required to provide threshold transaction reports on very few transactions. The RIS stated: ‘99% of cash transactions (which would only be 5% of all transactions) would be below the $10,000 threshold. Majority of providers don’t accept cash at all’.[76]

Registration of digital currency exchange providers

Item 20 of Schedule 1 will insert new Part 6A into the AML/CTF Act to establish the Digital Currency Exchange Register (DCE Register). Proposed Part 6A will require the AUSTRAC CEO to maintain the DCE Register, provide a framework for registration and suspension and cancellation of registration, and introduce offences and civil penalties for providing digital currency exchange services without being registered. It is modelled on Part 6 of the AML/CTF Act, under which the Remittance Sector Register operates (as amended by Part 3 of Schedule 1 of the Bill, which will expand the AUSTRAC CEO’s powers to cancel registration).

Proposed sections 76B and 76C will require the AUSTRAC CEO to maintain the DCE Register and outline the information it must contain. The DCE Register will not be a legislative instrument and may be maintained by electronic means. For each person the AUSTRAC CEO decides to register, the DCE Register must include:

•       the person’s name

•       any conditions to which the person’s registration is subject

•       the date on which registration takes effect and

•       the ‘registrable details’ of the person (defined in existing section 5 to mean information relating to a person as specified in the AML/CTF Rules). The information is likely to be similar to that which must be included on remittance network providers in the equivalent register, which includes things such as the business name, street address and other contact details, ABN (where applicable), details of any overseas registration or license, and a description of the business carried on.[77]

Proposed section 76D provides that a person may apply in writing to the AUSTRAC CEO for registration as a digital currency exchange provider. The application must be in the approved form and include the information required under the AML/CTF Rules.

Under proposed section 76E, the AUSTRAC CEO must consider each application and must register a person if satisfied that it is appropriate to do so, having regard to:

•       whether registering the person would involve a significant money laundering, financing of terrorism or other serious crime risk and

•       any other matters specified in the AML/CTF Rules. A non-exhaustive list of matters that may be specified in the AML/CTF Rules is set out in proposed subsection 76E(3): offences for which the applicant or any other person has been charged or convicted, compliance or non-compliance with the AML/CTF Act and with other laws, and the legal and beneficial ownership and control of the applicant or any other person.

Unless the period is extended, the AUSTRAC CEO will be deemed to have refused an application if he or she has not made a decision about an application within 90 days of the application being made or the last day on which further information relating to the application was provided.[78]

Under proposed section 76G, the AUSTRAC CEO may impose conditions to which the registration of a person is subject, including but not limited to the value of digital currency or money exchanged, the volume of digital currency exchanged, the kinds of digital currencies exchanged and requiring notification of certain matters.

Under proposed section 76H, registration will generally cease three years after the day on which it takes effect, unless it is renewed under the AML/CTF Rules as provided for in proposed section 76L. It will also cease if the person’s registration is cancelled, if the entry in the DCE Register relating to the person is removed at the person’s request under proposed subsection 76M(2), when a registered individual dies and when a registered body corporate ceases to exist.

Proposed sections 76J and 76L will provide for cancellation and renewal of registration respectively. Proposed section 76K will provide that the AML/CTF Rules may make provision for and in relation to suspension of registration.

Under proposed section 76Q, the AUSTRAC CEO may request further information from any person for the purpose of making a decision under proposed Part 6A.

Review of decisions

Decisions not to register a person (including deemed refusal), to impose conditions on a person’s registration, and to cancel a person’s registration will be reviewable decisions (dealt with under Part 17A of the AML/CTF Act).[79] Except for a deemed refusal to register a person, this will require the AUSTRAC CEO to give written notice of those decisions as soon as practicable after they are made that includes the terms and reasons for the decision, the person’s right to review under Part 17A and, for a decision to cancel registration, the date of effect.[80] Part 17A provides for applications to be made for reconsideration by the AUSTRAC CEO of decisions made by a delegate and applications for review by the Administrative Appeals Tribunal of decisions made by the AUSTRAC CEO.

Proposed subsection 76S will also require the AUSTRAC CEO, before making a reviewable decision under proposed Part 6A, to give the person to whom the decision relates a written notice outlining the terms and reasons for the proposed decision, and providing the opportunity to make a submission in relation to the proposed decision within 28 days. However, under proposed subsection 76S(2), the AUSTRAC CEO is not required to give such a notice if he or she is satisfied that it is inappropriate to do so because of the urgency of the circumstances. As noted above, the Scrutiny of Bills Committee sought the Minister’s advice on why this exception is necessary and appropriate. The Minister stated that the exception to the notice provisions was required to address circumstances where providing notice might risk suspected criminal activities continuing (this would be due to the requirement to provide the recipient of a notice 28 days to respond to the notice) and/or the loss of evidence.[81]

The AML/CTF Rules may provide for review of decisions relating to suspension of a person’s registration.[82]

Offences and civil penalties

Proposed section 76A will establish civil penalties and offences relating to provision of digital currency exchange services without being registered or in breach of a condition to which a person’s registration is subject.

Under proposed subsection 76A(1), a person must not provide a ‘registrable digital currency exchange service’ (one that is a designated service and that is not of a kind specified in the AML/CTF Rules[83]) to another person if the first person is not a registered digital currency exchange provider. Under proposed subsection 76A(2), a person must not breach a condition to which their registration as a digital currency exchange provider is subject. Proposed subsection 76A(11) provides that those subsections are civil penalty provisions. Under the AML/CTF Act, the same maximum pecuniary penalties apply to all civil penalty provisions—100,000 penalty units (currently $21 million) for a body corporate and otherwise 20,000 penalty units (currently $4.2 million).[84]

Under proposed subsection 76A(3), it will be an offence (the basic offence) if:

•       a person was subject to a requirement under proposed subsection 76A(1) or (2)

•       the person engaged in conduct and

•       the person’s conduct breached the requirement.

Strict liability will apply to the second and third elements above, meaning that the prosecution will not be required to prove fault for those elements, but the defence of honest and reasonable mistake of fact will be available.[85] As noted earlier in this Digest, the Scrutiny of Bills Committee sought further justification for the application of strict liability. The Committee considered that the Minister’s response also failed to explain the legitimate grounds. It reiterated its opposition to the use of strict liability in offences carrying a penalty of imprisonment and left the question of the appropriateness of those provisions to the Senate as a whole.[86]

The maximum penalty for the basic offence will be two years imprisonment and/or a fine of 500 penalty units (currently $105,000). The maximum pecuniary penalty for a corporation will be 2,500 penalty units ($525,000).[87]

Proposed subsections 76A(5), (7) and (9) will create aggravated offences with higher penalties that will apply if:

•       the AUSTRAC CEO had previously given the person a remedial direction (under section 191) or accepted an enforceable undertaking (under section 197) in relation to proposed subsection 76A(1) or (2) on one occasion: maximum penalty of four years imprisonment and/or a fine of 1,000 penalty units (currently $210,000)

•       the AUSTRAC CEO had previously given the person a remedial direction or accepted an enforceable undertaking in relation to proposed subsection 76A(1) or (2) on more than one occasion: maximum penalty of seven years imprisonment and/or a fine of 2,000 penalty units (currently $420,000) or

•       the person had previously been convicted of an offence against proposed subsection 76A(3), (5) or (7), or an order had been made against the person under section 19B of the Crimes Act 1914 for an offence against one of those provisions, and the conviction or order has not been set aside: maximum penalty of seven years imprisonment and/or a fine of 2,000 penalty units (currently $420,000).

Under proposed section 76P, a registered person will be required to advise the AUSTRAC CEO of any change in circumstances that could materially affect the person’s registration and any other matters specified in the AML/CTF Rules. This will also be a civil penalty provision.

As noted earlier in this Digest, the Scrutiny of Bills Committee and the Parliamentary Joint Committee on Human Rights both raised concerns about the civil penalty provisions in the Bill. The Scrutiny of Bills Committee recommended that the information in the Minister’s response to its initial report, which included matters that the Federal Court must consider in determining the appropriate penalty in a particular case, be incorporated into the Explanatory Memorandum.[88] The Parliamentary Joint Committee on Human Rights considered that the civil penalty provisions may be characterised as criminal and because the Minister’s response to its initial report on the Bill did not address criminal process rights, it was ‘unable to conclude that the measure is compatible’ with those rights.[89]

Items 24–33 will amend provisions in Division 3 of Part 15 of the AML/CTF Act to extend the existing infringement notice scheme to include the proposed new civil penalty provisions relating to digital currency exchange services. This will provide the option of dealing with breaches through the issue of a notice and payment of a lower penalty instead of taking a matter to court. The penalty amount for a body corporate will be 60 penalty units, and for other persons will be 12 penalty units, unless the AML/CTF Rules specify higher amounts.[90] The AML/CTF Rules may specify maximum penalties of up to 120 penalty units for a body corporate and 24 penalty units for other persons.[91]

Part 3—Remittance activities

Part 6 of the AML/CTF Act establishes the Remittance Sector Register. Section 75G allows the AUSTRAC CEO to cancel a person's registration in certain circumstances. Recommendation 11.4(a) of the statutory review was that the AUSTRAC CEO should be able to cancel a person’s registration under the Remittance Sector Register if the person is not conducting remittance activities.[92] The report stated:

A power to suspend or cancel a remitter’s registration once the registered remitter ceases to carry on a remittance business would ensure that the registration certificate is not passed to a third party who may wish to avoid scrutiny by AUSTRAC. For instance, a registered remitter subject to AUSTRAC interest may seek to be removed from the RSR but later ‘activate’ a dormant business registered under another company name. AUSTRAC has already detected this sort of activity.[93]

Item 41 of Schedule 1 will implement that recommendation by inserting proposed subsection 75G(1A), under which the AUSTRAC CEO may cancel a person's registration if he or she has reasonable grounds to believe that the person no longer carries on a business that requires registration under Part 6 of the AML/CTF Act. Decisions under section 75G are reviewable decisions under Part 17A of the AML/CTF Act, and notice of proposed cancellation decisions is required under section 75Q.

In decisions relating to registration and cancellation of registration, the AUSTRAC CEO is to take account of whether the person’s registration may involve ‘a significant money laundering, financing of terrorism or people smuggling risk’. Items 38 and 40 will amend sections 75C (registration by AUSTRAC CEO) and 75G (cancellation of registration) so that those decisions may also take account of ‘other serious crime’ risks.

Part 4—Removing sectors from AML/CTF Regulation and reducing obligations for regulated entities

Deregulation of the cash-in-transit sector

The statutory review recommended the deregulation of the cash-in-transit sector on the basis that it poses a low ML/TF risk and that AUSTRAC would retain visibility of large cash deposits and cross-border transfers through separate reporting requirements.[94] The report stated:

Since the commencement of Australia’s AML/CTF regime, the ML/TF risks posed by businesses that transport cash domestically have not been considered to be high at the international level. There are no inherent ML/TF risks associated with the domestic transportation of cash from one place to another by a contractor such as a CIT [cash-in-transit] operator as opposed to the domestic transportation of cash by any other business that transports a person or goods. Moving cash within Australia is not, in itself, a money laundering typology and the FATF standards do not require countries to apply AML/CTF Regulation to CIT operators. The physical movement of cash internationally across borders is however established money laundering typology. The risks associated with the physical movement of cash internationally are addressed through Australia’s cross-border cash reporting regime established in Part 4 of the AML/CTF Act.[95]

Item 44 of Schedule 1 will implement recommendation 4.1 of the statutory review by repealing items associated with the cash-in-transit sector (related to collecting, holding and delivering physical currency) from Table 1 of designated financial services in subsection 6(2) of the AML/CTF Act.[96]

Deregulation of insurance intermediaries and general insurance providers

The statutory review noted that the FATF Recommendations only require life insurance and investment-related insurance products to be regulated, and recommended that insurance intermediaries and general insurance providers other than motor vehicle dealers should be deregulated.[97]

While the Financial Transaction Reports Act 1988 was largely replaced by the AML/CTF Act, it continues to impose some regulatory requirements on 'cash dealers' and solicitors. Insurers and insurance intermediaries are included in the definition of cash dealer in subsection 3(1).

Item 56 will implement recommendation 18.2 of the statutory review by repealing and replacing paragraph (c) of the definition of cash dealer in the Financial Transaction Reports Act so that it only captures 'a motor vehicle dealer who acts as an insurer or insurance intermediary'.

Correspondent banking

The AML/CTF Act defines a correspondent banking relationship as one that involves the provision of financial services by one financial institution to another.[98]

The AML/CTF Act requires financial institutions to conduct due diligence assessments of foreign entities with which they enter into correspondent banking relationships.[99] If the foreign entity is not a financial institution within the meaning of the AML/CTF Act, the Australian financial institution needs to comply with more stringent customer due diligence obligations under Chapter 4 of the AML/CTF Rules. The statutory review found that the narrow definition of financial institution in the AML/CTF Act meant that the definition of correspondent banking relationship was ‘unduly narrow, failing to recognise other correspondent banking arrangements that financial institutions can enter into’ with foreign entities that are not financial institutions under the Act.[100] Recommendation 10.3(a) was for the definition of correspondent banking to be expanded, ‘in line with international approaches that are consistent with the FATF standards’.[101]

Item 43 of Schedule 1 will amend the definition of financial institution in section 5 of the AML/CTF Act to allow the AML/CTF Rules to specify different persons to be financial institutions for the purposes of different provisions of the Act. This will allow additional institutions to be specified as financial institutions only for the purposes of Part 8 of the AML/CTF Act, which deals with correspondent banking. AGD gave the example of Paypal, which is regulated as a financial institution in the US but does not meet the current Australian definition, as an institution that could be listed for the purposes of the proposed provision.[102]

There are two types of accounts associated with correspondent banking:

·          nostro account—an account that a bank holds, usually in a foreign currency, in another bank, and

·          vostro account—an account that other banks have with the bank, usually in the bank's domestic currency.[103]

Some submissions to the statutory review raised concerns that it was unclear whether the due diligence requirements for correspondent banking were intended to apply to both types of accounts. The statutory review recommended that the issue be clarified as part of a broader simplification of correspondent banking obligations.[104] The Explanatory Memorandum states that the due diligence requirements under Part 8 of the AML/CTF Act were intended only to apply to vostro accounts, ‘consistent with the FATF's international standards and international banking practice’.[105]

Items 47–50 will amend sections 97, 98 and 99 of the AML/CTF Act in line with that intention, making it clear that the due diligence requirements apply only to vostro accounts.

Corporate sharing of information

The AML/CTF Act allows for the formation of ‘designated business groups’ (DBGs), under which two or more associated businesses or persons who are reporting entities may share certain obligations under the Act.[106] For example, a designated business group may have a joint AML/CTF program and its members may share information about suspicious matter reports without breaching the ‘tipping off’ provisions of the AML/CTF Act.[107] DBGs are intended to allow reporting entities to manage ML/TF risks and comply with their obligations under the AML/CTF regime while minimising regulatory burden.[108]

The statutory review found that the DBG framework had several shortcomings, both in terms of minimising regulatory burden and enabling effective supervision by AUSTRAC:

The DBG framework does not align with how businesses currently structure themselves into ‘corporate groups’, particularly businesses that are part of multi-national corporate groups. For example, one large financial institution in Australia has two DBGs within its corporate group. This restricts the ability of the institution to achieve regulatory efficiencies, share SMR [suspicious matter report]-related information across the corporate group, and manage and mitigate its ML/TF risk at the corporate group level. The splitting of a corporate group across two DBGs also makes it difficult for AUSTRAC to effectively regulate and supervise reporting entities at the group level and monitor all aspects of the business conducted by a group worldwide. This is contrary to the Basel Committee on Banking Supervision’s Core Principles for Effective Supervision, which the FATF standards require member countries to apply.[109]

Recommendation 7.5 of the statutory review was that the AML/CTF Act and the rules should be amended to replace DBGs and joint programs with ‘a framework that allows an AML/CTF program to incorporate all reporting entities within a corporate group’.[110]

The Bill will introduce the concept of a ‘corporate group’, but it will sit alongside that of a DBG, instead of replacing it. The Explanatory Memorandum states that this approach has been taken to ensure that businesses that fall within the DBG concept but not that of a corporate group can continue to share information without breaching the tipping off provisions.[111]

Items 51–54 will amend section 123 of the AML/CTF Act to allow reporting entities to share information about suspicious matters with other reporting entities in the same DBG or corporate group for the purpose of informing them of the risks involved in dealing with a customer without breaching the tipping off provisions. Item 55 will insert proposed subsection 123(12) to provide that for the purposes of the AML/CTF Act, a ‘corporate group’ means ‘a group of 2 or more bodies corporate that are related to each other under section 50 of the Corporations Act 2001’.

While the amendments will facilitate broader sharing of information between reporting entities, as recommended by the statutory review, King & Wood Mallesons suggested that the proposed changes will not fully overcome barriers to information sharing across multinational corporate groups.[112] This is because the relevant exemption to the tipping off offence, as amended by the Bill, would still only permit disclosure to other reporting entities within a corporate group. King & Wood Mallesons argue that this restriction will mean that reporting entities will continue to be prevented from escalating potential ML/TF issues to senior management and legal and compliance personnel, who may be in a part of a corporate group that is not a reporting entity.

Services provided in the course of carrying on a business

The phrase ‘in the course of carrying on a business’ is used in many of the descriptions of designated services in the tables in section 6 of the AML/CTF Act. In most instances, the type of business in which the service is being provided is specified. However, in some cases it is not. Consultations undertaken for the statutory review revealed concerns that the phrase's use without further specification in the tables of designated bullion and gambling services potentially captured businesses that provided particular services incidentally or very occasionally, rather than as part of their core business. Recommendation 4.5 was that use of the term should be qualified so that AML/CTF Regulation only applies where a service is provided routinely or regularly.[113]

Items 45 and 46 will amend several descriptions of designated services in tables 2 (bullion) and 3 (gambling) in section 6 so that the services are only captured if they are provided in the course of carrying on a bullion-dealing business and gambling business respectively.

The Senate Legal and Constitutional Affairs Legislation Committee recommended that the Government consider whether the term ‘in the course of carrying on a business’ could be better defined in the Bill and the Explanatory Memorandum. The recommendation was made on the basis of concerns raised by the LCA that the Bill would not fully implement the review recommendation.[114] The LCA suggested that the AML/CTF Act be amended to make clear ‘that a reference in section 6 to a particular kind of business is intended to limit the broad scope of the defined term ‘business’ so that it applies only when the specified business is a core function or a substantive part of the operations of the relevant entity’.[115]

Part 5—Investigation and enforcement

Expanding the infringement notice scheme

Division 3 of Part 15 of the AML/CTF Act sets out an infringement notice scheme (INS) under which an authorised officer, Customs officer or police officer may issue a notice requiring a person to pay a fine within 28 days in order to avoid court proceedings for a breach of the AML/CTF Act.[116] The INS can currently only be employed for a small number of civil penalty provisions.[117]

The statutory review recommended that the INS be expanded to apply to a broader range of regulatory breaches on the basis that ‘would give the AUSTRAC CEO additional, more expedient means for promoting and encouraging compliance, as an alternative to applying for a civil penalty order through the Federal Court’.[118] It outlined the impacts of a lack of options for securing compliance with section 49 notices (requiring a reporting entity to provide further information in relation to a suspicious matter, threshold transaction or international funds transfer instruction report it made to AUSTRAC) as an example:

Non-compliance with these notices can delay or frustrate investigations into serious crimes and ideally such non-compliance should be dealt with swiftly and summarily. However, to take action against a reporting entity that contravenes a section 49 notice, AUSTRAC must conduct civil proceedings through the courts. This process is costly and time consuming and does not always allow AUSTRAC to respond in a timely and proportionate manner to secure reporting entity compliance.[119]

The consultation paper on Phase 1 reforms proposed that the INS be expanded to include breaches of an additional 13 provisions.[120] Items 59 and 61 would amend section 184 of the AML/CTF Act to expand the INS to include breaches of nine of those 13 additional provisions, relating to customer identification procedures; reporting of suspicious matters, threshold transactions and international funds transfer instructions, and compliance with the AML/CTF regime; providing further information in relation to a reported matter; and making and retaining certain records. These will be ‘designated infringement notice provisions’, a subset of ‘infringement notice provisions’ for which only the AUSTRAC CEO will be able issue notices.[121] Authorised officers, Customs officers and police officers will retain the power to issue notices for other infringement notice provisions.[122]

Item 62 will insert proposed section 186B to provide that the penalty to be specified in an infringement notice for a designated infringement notice provision is 60 penalty units for a body corporate and 12 penalty units for other persons.

Remedial directions

Section 191 of the AML/CTF Act gives the AUSTRAC CEO the power to issue a remedial direction to a reporting entity, requiring it to take certain action to avoid breaching its AML/CTF obligations. The statutory review found that the inability to issue a remedial direction requiring a reporting entity to take action to rectify a previous breach was a shortcoming of the existing regime, particularly in relation to obligations to submit reports: ‘to retrospectively enforce compliance with these obligations—and require the entity to submit the required reports—currently AUSTRAC must resort to enforceable undertakings or a court-issued injunction’.[123]

Item 63 will implement recommendation 15.3 of the statutory review by amending section 191 so that the AUSTRAC CEO may issue a remedial direction requiring a reporting entity to remedy a contravention of a reporting requirement by providing the relevant report within a specified time. This option will only be available in relation to obligations to report threshold transactions and international fund transfer instructions and provide AML/CTF compliance reports.

The AUSTRAC CEO will only be able to issue a remedial direction relating to a past contravention up to two years from the date of that contravention, and must first assess the risks that have arisen from the contravention and determine that a remedial direction is an appropriate and proportionate response.

Search and seizure powers and civil penalties relating to physical currency and bearer negotiable instruments

Division 8 of Part 15 of the AML/CTF Act sets out the powers of police and Customs officers to question and search people entering or leaving Australia for the purpose of enforcing restrictions on the cross-border movement of physical currency and bearer negotiable instruments such as travellers’ cheques. It also includes offences for failing to declare matters or produce physical currency or bearer negotiable instruments when required by a police or Customs officer to do so.

The Bill will:

•       expand the circumstances in which search and seizure powers can be exercised in relation to physical currency

•       expand the circumstances in which bearer negotiable instruments may be seized and

•       introduce new civil penalties for non-compliance as an alternative to the existing offences.

These amendments implement and go beyond what was suggested in recommendations 12.4 and 12.6 of the statutory review.

Currently, a police officer or Customs officer may search a person and examine articles in a person’s possession only for the purpose of finding out if the person has physical currency in relation to which a report is required under section 53 of the AML/CTF Act ($10,000 or more), and seize physical currency only where it may afford evidence of an offence against section 53.[124] The statutory review recommended an officer also be able to search for and seize physical currency where there is a suspicion of money laundering, terrorism financing or other serious criminal offence.[125]

Items 67–73 of Schedule 1 will amend section 199 of the AML/CTF Act so that in addition to the current powers, a police officer or Customs officer may search a person and examine articles in a person’s possession if he or she has reasonable grounds to suspect that the person has physical currency that ‘may be of interest’ under proposed subsection 199(14), which will be where it:

•       may be relevant to the investigation or prosecution of an offence

•       may be of assistance in the enforcement of the Proceeds of Crime Act 2002 or regulations under it or

•       may be of assistance in the enforcement of a state or territory proceeds of crime law.

Seizure of physical currency will be permitted if the police officer or Customs officer has reasonable grounds to suspect it ‘may be of interest’ (on the same grounds).

The search and examination powers in relation to bearer negotiable instruments will remain unchanged, but a police officer or Customs officer will be permitted to seize a bearer negotiable instrument produced or found if he or she has reasonable grounds to believe it may be relevant to the investigation or prosecution of an offence, or of assistance in the enforcement of a proceeds of crime law.[126] It is not clear why different thresholds are proposed for seizing physical currency (reasonable grounds to suspect) and bearer negotiable instruments (reasonable grounds to believe).

These amendments are broadly consistent with recommendation 12.4 of the statutory review, but go further in that they will be exercisable in relation to any offence rather than only a serious offence.

As noted earlier in this Digest, the Scrutiny of Bills Committee sought the Minister’s detailed justification for giving police and Customs officers power to seize items without a warrant. The Minister stated that the key reason for enabling seizure without a warrant is ‘the time-sensitive nature of operations at the border’, pointing out that currency may be seized from a person shortly before an international flight. The Committee maintained its concerns and noted that the Minister’s response did not address the issue of accountability.[127]

The Senate Legal and Constitutional Affairs Legislation Committee recommended that the Government consider whether the term ‘article’ could be more clearly defined. It made the recommendation on the basis of concerns raised by law firm Nyman Gibson Miralis that the term, which is not defined in the AML/CTF Act, could be interpreted broadly and relied on to search and seize items such as laptops and smart phones.[128] However, given the search powers may only be used for the purpose of finding out if a person is in possession of physical currency or bearer negotiable instruments, and only permit seizure of physical currency and bearer negotiable instruments, those concerns appear to be misplaced.

The existing offences for failing to comply with requirements made by police or Customs officers under sections 199 (physical currency) and 200 (bearer negotiable instruments) carry maximum penalties of one year’s imprisonment and/or 60 penalty units. Items 73 and 75 will implement recommendation 12.6 of the statutory review by inserting civil penalty provisions for breaching those requirements.

As noted earlier in this Digest, under the AML/CTF Act, the same maximum pecuniary penalties apply to all civil penalty provisions—100,000 penalty units (currently $21 million) for a body corporate and otherwise 20,000 penalty units (currently $4.2 million). Accordingly, there is a significant discrepancy between the maximum penalties that will apply to offences and civil penalty provisions relating to the same breaches of the AML/CTF Act.

As detailed earlier in this Digest, the Scrutiny of Bills Committee and the Parliamentary Joint Committee on Human Rights both raised concerns about the civil penalty provisions in the Bill. The Scrutiny of Bills Committee recommended that the information in the Minister’s response to its initial report, which included matters that the Federal Court must consider in determining the appropriate penalty in a particular case, be incorporated into the Explanatory Memorandum.[129] The Parliamentary Joint Committee on Human Rights considered that the civil penalty provisions may be characterised as criminal and because the Minister’s response to its initial report on the Bill did not address criminal process rights, it was ‘unable to conclude that the measure is compatible’ with those rights.[130]

Part 6—Amendments to definitions

Items 76–79 of Schedule 1 will amend the definitions of eligible place, investigating officer, signatory and stored value card in section 5 of the AML/CTF Act. The amendments to the definitions of signatory and stored value card will implement recommendations 19.1(f) and 19.1(g) of the statutory review respectively.[131]

The Senate Legal and Constitutional Affairs Legislation Committee recommended that the Government consider whether stored value card could be better defined. It made the recommendation on the basis of the LCA’s suggestion that both the existing and proposed definitions relied on what it considered to be an unhelpful distinction between debit cards issued by financial institutions and other types of stored value cards.[132]

Part 7—Other regulatory matters

Functions of the AUSTRAC CEO

Section 212 of the AML/CTF Act sets out the functions of the AUSTRAC CEO. Items 80–82 of Schedule 1 will amend section 212 to expand the AUSTRAC CEO’s functions relating to obtaining and sharing information and intelligence, implementing recommendation 16.1(b) of the statutory review. Item 83 will insert a general function of doing anything that is incidental or conducive to a listed function, implementing recommendation 16.1(a).[133]

Granting of exemptions

Section 248 of the AML/CTF Act gives the AUSTRAC CEO the power to exempt specified persons from certain provisions of the Act, or modify the way certain provisions apply to specified persons, by written instrument. FATF’s latest evaluation of Australia concluded that exemptions granted under Australia’s AML/CTF regime were not in line with the FATF Recommendations, because they were not granted solely on the basis of low ML/TF risk, and in fact some ‘appear to be granted solely on the basis of excessive regulatory burden’.[134] Recommendation 17.1 of the statutory review was that the AML/CTF Act be amended to ‘set out specific matters that the AUSTRAC CEO must take into account when determining exemptions, with the level of ML/TF risk posed being the prime consideration’.[135]

Item 84 would insert proposed subsection 212(3A) to require the AUSTRAC CEO to be satisfied that the ML/TF risk associated with an exemption or modification is low. While this amendment will go some way to addressing the shortcomings identified in the FATF evaluation and recognised in the statutory review, it falls short of the recommended changes.

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[1].              Financial Action Task Force (FATF), ‘Who we are’, ‘What we do’ and ‘History of the FATF’, FATF website.

[2].              FATF, International standards on combating money laundering and the financing of terrorism and proliferation, (FATF Recommendations), FATF, Paris, February 2012; C Barker, ‘New international standards on countering money laundering and terrorist financing released’, FlagPost, Parliamentary Library blog, 29 February 2012.

[3].              FATF, ‘About: members and observers’, FATF website.

[4].              FATF, ‘Topic: mutual evaluations’ and ‘Topic: high-risk and non-cooperative jurisdictions’, FATF website.

[5].              FATF, FATF Recommendations, op. cit.

[6].              Ibid., recommendation 1.

[7].              Australian Transaction Reports and Analysis Centre (AUSTRAC), Terrorism financing in Australia 2014, AUSTRAC, Sydney, 2014, p. 10.

[8].              AUSTRAC, ‘About AUSTRAC’ and ‘AUSTRAC: Australia’s financial intelligence unit’, AUSTRAC website.

[9].              FATF, Virtual currencies: key definitions and potential AML/CFT risks, FATF report, Paris, June 2014, p. 4. Footnote references have been omitted from this quotation and can be viewed in the source document.

[10].              Ibid.; A Wagner, ‘Digital vs. virtual currencies’, Bitcoin Magazine, 22 August 2014.

[11].              FATF, Virtual currencies: key definitions and potential AML/CFT risks, op. cit., pp. 4–5; D He et al, Virtual currencies and beyond: initial considerations, IMF staff discussion note, SDN/16/03, International Monetary Fund, January 2016, pp. 8–9 (quote taken from p. 9).

[12].              For an overview of how the system works, see: D Miller, ‘Bitcoin explained: the digital currency making millionaires’, ABC News, (online edition), updated 9 December 2015.

[13].              CoinMarketCap, ‘Cryptocurrency market capitalizations: all coins’, CoinMarketCap website, accessed 25 October 2017.

[14].              See for example J Eyers,‘IMF urges central banks to study digital currencies’, The Australian Financial Review, 20 June 2017, p. 17; E Curran, P Skolimowski and C Torres, ‘Central banks can’t ignore the cryptocurrency boom’, Bloomberg Markets, 30 August 2017; Senate Economics References Committee, Digital currency–game changer or bit player, The Senate, Canberra, August 2015.

[15].              Attorney-General’s Department (AGD), Regulating digital currencies under Australia’s AML/CTF regime: consultation paper, AGD, December 2016, p. 3. See further: AGD, Report on the statutory review of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 and associated rules and regulations, (AML/CTF Review), AGD, Canberra, April 2016, pp. 47–48; FATF, Virtual currencies: key definitions and potential AML/CFT risks, op. cit., pp. 9–12.

[16].              FATF, Guidance for a risk-based approach to virtual currencies, FATF, Paris, June 2015, pp. 6–7.

[17].              Senate Economics References Committee, Digital currency: game changer or bit player, op. cit., pp. 58–62, recommendation 4.

[18].              Productivity Commission (PC), Business set-up, transfer and closure, Inquiry report, 75, PC, Canberra, 30 September 2015, pp. 240–244, recommendation 9.3.

[19].              Ibid., pp. 229, 243–244.

[20].              AML/CTF Review, op. cit.

[21].              FATF, Anti-money laundering and counter-terrorist financing measures : Australia : mutual evaluation report, FATF, Paris, April 2015. The evaluation found Australia to be fully compliant with 12 standards, largely compliant with 12, partially compliant with ten and non-compliant with six. Of the 16 standards of which Australia was rated as partially compliant or non-compliant, 12 relate to the legislative framework.

[22].              Senate Legal and Constitutional Affairs Legislation Committee, Anti-Money Laundering and Counter-Terrorism Financing Amendment Bill 2017, Committee Hansard, (proof), 20 September 2017, pp. 11–12.

[23].              For information on other measures being progressed to implement statutory review recommendations, see: AGD, ‘AML/CTF statutory review implementation’, AGD website and AGD, Project plan: implementation of the recommendations from the statutory review of the anti-money laundering and counter-terrorism financing regime, AGD, Canberra, February 2017. AUSTRAC has started work on amendments to the AML/CTF Rules: AUSTRAC, ‘Draft AML/CTF Rules’, AUSTRAC website, 24 July 2017.

[24].              AGD, Regulating digital currencies under Australia’s AML/CTF regime: consultation paper, op. cit.

[25].              AGD, Enhancing Australia’s AML/CTF regime: Phase 1 amendments to the Anti-Money Laundering and Counter-Terrorism Financing Act 2006: industry consultation paper, AGD, December 2016. Submissions are available online at: AGD, ‘AML/CTF statutory review implementation’, op. cit. The review recommendations included in that consultation paper but not implemented in the Bill are: 3.2 (inserting principles), 5.9 (prohibiting the provision of a service if customer due diligence cannot be completed), 5.12 (relating to reliance on third parties for customer due diligence), 11.2 (amending the definition of designated remittance arrangement), 14.1 and 14.2 (amendments to secrecy and information access provisions to facilitate information sharing) and 15.5 (allowing additional agencies to issue infringement notices and apply for civil penalty orders).

[26].              Andrew Walter, Acting First Assistant Secretary, Criminal Justice Policy and Programs Division, told the Committee: ‘One of the first things we have already started work on—we had hoped to get it into this Bill but we didn't—is around the secrecy and access provisions in the act [sic], which relates to tipping off and other things’: Senate Legal and Constitutional Affairs Legislation Committee, Anti-Money Laundering and Counter-Terrorism Financing Amendment Bill 2017, Committee Hansard, (proof), op. cit., p. 9.

[27].              Senate Legal and Constitutional Affairs Legislation Committee, Anti-Money Laundering and Counter-Terrorism Financing Amendment Bill 2017 [Provisions], The Senate, 16 October 2017.

[28].              Ibid., p. 21. 

[29].              Senate Standing Committee for the Scrutiny of Bills (Scrutiny of Bills Committee), Scrutiny digest, 10, 2017, The Senate, 6 September 2017, pp. 1–9.

[30].              Scrutiny of Bills Committee, Scrutiny digest, 12, 2017, The Senate, 18 October 2017, pp. 72–75.

[31].              Scrutiny of Bills Committee, Scrutiny digest, 10, op. cit., pp. 4–5.

[32].              Scrutiny of Bills Committee, Scrutiny digest, 12, op. cit., pp. 77–79.

[33].              AML/CTF Act, Division 2 of Part 15, specifically subsections 175(4) and (5). The value of a penalty unit is set under the Crimes Act 1914, section 4AA(1) and is currently $210.

[34].              Scrutiny of Bills Committee, Scrutiny digest, 10, 2017, op. cit., pp. 5–6.

[35].              Scrutiny of Bills Committee, Scrutiny digest, 12, op. cit., pp. 80–82.

[36].              Ibid., pp. 82–83.

[37].              Scrutiny of Bills Committee, Scrutiny digest, 10, 2017, op. cit., p. 7.

[38].              Scrutiny of Bills Committee, Scrutiny digest, 12, op. cit., pp. 84–85.

[39].              Items 67–75.

[40].              Scrutiny of Bills Committee, Scrutiny digest, 10, 2017, op. cit., pp. 7–9.

[41].              Scrutiny of Bills Committee, Scrutiny digest, 12, op. cit., pp. 86–88.

[42].              C O’Neil, ‘Second reading speech: Anti-Money Laundering and Counter-Terrorism Financing Amendment Bill 2017’, House of Representatives, Debates, (proof), 24 October 2017, pp. 52–53.

[43].              AGD, Final assessment regulation impact statement: Anti-Money Laundering and Counter-Terrorism Financing Amendment Bill 2017, May 2017 (Annex A to the Explanatory Memorandum), p. 13.

[44].              Ibid., p. 18. The Code is available at ADCA, ‘Australian Digital Currency Industry Code of Conduct’, ADCA website.

[45].              Australian Digital Currency Commerce Association, Submission to Senate Economics References Committee, Inquiry into digital currency, November 2014, pp. 3–4, 8–9 (see also S Pandey, ‘Government to strengthen money laundering rules, regulate bitcoin’, Australian Financial Review, (online edition), 17 August 2017); Fintech Australia and Blockchain Australia, Submission to AGD, Regulating digital currencies under Australia’s AML/CTF, January 2017 (this submission opposed extending regulation to digital currency wallet providers, which was recommended by the statutory review and proposed in the discussion paper, but not included in the Bill). FinTech Australia published its submission on its website. AGD has not made submissions received in response to its consultation paper on regulating digital currencies publicly available.

[46].              Living Room of Satoshi, Submission to Senate Legal and Constitutional Affairs Legislation Committee, Inquiry into the Anti-Money Laundering and Counter-Terrorism Financing Amendment Bill 2017 [Provisions], 8 September 2017.

[47].              Australian Bankers’ Association (ABA), Submission to AGD, AML/CTF statutory review, 28 March 2014, p. 32; Australian Financial Conference, Submission to AGD, AML/CTF statutory review, 8 April 2014, p. 8.

[48].              Synod of Victoria and Tasmania, Uniting Church in Australia (Uniting Church), Submission to Senate Legal and Constitutional Affairs Legislation Committee, Inquiry into the Anti-Money Laundering and Counter-Terrorism Financing Amendment Bill 2017 [Provisions], 8 September 2017, pp. 1–3.

[49].              Transparency International Australia, Submission to Senate Legal and Constitutional Affairs Legislation Committee, Inquiry into the Anti-Money Laundering and Counter-Terrorism Financing Amendment Bill 2017 [Provisions], 4 October 2017, pp. 1–3.

[50].              ABA, Submission to Senate Legal and Constitutional Affairs Legislation Committee, Inquiry into the Anti-Money Laundering and Counter-Terrorism Financing Amendment Bill 2017 [Provisions], 8 September 2017, pp. 1–2.

[51].              Law Council of Australia (LCA), Submission to Senate Legal and Constitutional Affairs Legislation Committee, Inquiry into the Anti-Money Laundering and Counter-Terrorism Financing Amendment Bill 2017 [Provisions], 15 September 2017.

[52].              Uniting Church, Submission, op. cit., pp. 3–4; King & Wood Mallesons, Submission to Senate Legal and Constitutional Affairs Legislation Committee, Inquiry into the Anti-Money Laundering and Counter-Terrorism Financing Amendment Bill 2017 [Provisions], 7 September 2017.

[53].              Explanatory Memorandum, Anti-Money Laundering and Counter-Terrorism Financing Amendment Bill 2017, p. 4.

[54].              Ibid., p. 4 and Annex A.

[55].              The Statement of Compatibility with Human Rights can be found at page 5 of the Explanatory Memorandum to the Bill.

[56].              Parliamentary Joint Committee on Human Rights (PJCHR), Report, 10, 2017, 12 September 2017, pp. 2–4.

[57].              Ibid., p. 4.

[58].              Ibid.

[59].              PJCHR, Report, 11, 2017, 17 October 2017, pp. 69–71.

[60].              The Australian Criminal Intelligence Commission’s (ACIC) latest assessment of organised crime in Australia stated that money laundering ‘remains a fundamental enabler of profit-motivated crime’ and ‘is the common element in almost all serious and organised crime’ affecting Australia: ACIC, Organised crime in Australia 2017, ACIC, n.p., 2017, pp. 8–9.

[61].              See further: AUSTRAC, ‘Case studies’ and ‘AUSTRAC typologies and case studies reports’, AUSTRAC website, 1 July 2015.

[62].              AML/CTF Review, op. cit., pp. 19–21 (FATF’s mandate was expanded in 2012 to include developing measures to combat proliferation financing). The review also recommended that providing for supervision and monitoring of reporting entities’ compliance with Australian sanction laws be included, but that was contingent on the implementation of recommendation 15.8, which, in response to the findings of FATF’s evaluation of Australia, suggested that the Government consider making AUSTRAC responsible for that function: pp. 132–134.

[63].              Item 3 and 4 of Schedule 1.

[64].              AGD, Regulating digital currencies under Australia’s AML/CTF regime: consultation paper, op. cit., p. 4. See also FATF, Virtual currencies: key definitions and potential AML/CFT risks, op. cit., pp. 9–10.

[65].              Items 5–7 of Schedule 1 will amend the definition of money in section 5 of the AML/CTF Act, and repeal the definition of precious metal, which was only included for the purposes of the definition of e-currency.

[66].              Item 8 will amend the definition of property in section 5 of the AML/CTF Act; items 16 and 17 will amend the descriptions of designated services relating to the exchange of gaming tokens or chips in subsection 6(4); items 21–23 will amend the offence for conducting transactions so as to avoid reporting requirements relating to threshold transactions in section 142.

[67].              AGD, Final assessment regulation impact statement, op. cit., pp. 10–14.

[68].              Ibid.

[69].              A beneficial owner of a customer means ‘a person who ultimately owns or controls (directly or indirectly) the customer’: Anti-Money Laundering and Counter-Terrorism Financing Rules Instrument 2007 (No. 1), (AML/CTF Rules), Rule 1.2.1.

[70].              AML/CTF Review, op. cit., pp. 51–54, recommendations 4.11 and 4.12.

[71].              AGD, Project plan, op. cit., p. 9.

[72].              Definitions of threshold transaction (as amended by the Bill) and physical currency in section 5 of the AML/CTF Act.

[73].              Definitions of threshold transaction and money in section 5 of the AML/CTF Act.

[74].              AGD, Final assessment regulation impact statement, op. cit., p. 11.

[75].              AGD, Regulating digital currencies under Australia’s AML/CTF regime: consultation paper, op. cit., p. 14.

[76].              AGD, Final assessment regulation impact statement, op. cit., p. 26.

[77].              AML/CTF Rules, chapter 27.

[78].              Proposed subsections 76D(4) and (5).

[79].              Item 34 of Schedule 1 will amend the table of reviewable decisions in section 233B of the AML/CTF Act.

[80].              AML/CTF Act, section 233C as amended by items 36 and 37 of Schedule 1.

[81].              Scrutiny of Bills Committee, Scrutiny digest, 12, op. cit., pp. 84–85.

[82].              Proposed paragraph 76K(2)(f).

[83].              Item 9 of Schedule 1 will insert a definition of registrable digital currency exchange service into section 5 of the AML/CTF Act. It will mean a designated service that is covered by item 50A of table 1 in section 6 and that is not of a kind specified in the AML/CTF Rules.

[84].              AML/CTF Act, Division 2 of Part 15, specifically subsections 175(4) and (5).

[85].              Proposed subsection 76A(4). Strict liability is provided for under section 6.1 of the Criminal Code Act 1995, and the defence of mistake of fact under section 9.2 of the same Act.

[86].              Scrutiny of Bills Committee, Scrutiny digest, 12, op. cit., pp. 72–75.

[87].              Subsection 4B(3) of the Crimes Act 1914 allows a court to impose a maximum pecuniary penalty that is five times the amount of the maximum pecuniary penalty that could be imposed on an individual for the same offence.

[88].              Scrutiny of Bills Committee, Scrutiny digest, 12, op. cit., pp. 80–82.

[89].              PJCHR, Report, 11, op. cit., pp. 69–71.

[90].              AML/CTF Act, section 186A as amended by items 25–31 of Schedule 1.

[91].              AML/CTF Act, subsection 186A(5).

[92].              AML/CTF Review, op. cit., p. 105.

[93].              Ibid., p. 103. Footnote references have been omitted from this quotation and can be viewed in the source document.

[94].              Ibid., p. 24.

[95].              Ibid. Footnote references have been omitted from this quotation and can be viewed in the source document. The report also noted: ‘Where CIT operators deposit large amounts of cash into accounts on behalf of a customer, the authorised deposit-taking institution accepting the deposit will still have [customer due diligence] and reporting obligations in relation to the customer and the transaction’.

[96].              Item 57 of Schedule 1 will make a consequential amendment to the definition of cash dealer in subsection 3(1) of the Financial Transaction Reports Act 1988 so that cash-in-transit operators will not become subject to reporting obligations under that Act following the repeals effected by item 44.

[97].              AML/CTF Review, op. cit., pp. 140–141.

[98].              AML/CTF Act, section 5.

[99].              Ibid., sections 97 and 98.

[100].              AML/CTF Review, op. cit., pp. 95–96.

[101].              Ibid., p. 97.

[102].              Senate Legal and Constitutional Affairs Legislation Committee, Official committee Hansard, op. cit., p. 3.

[103].              Explanatory Memorandum, op. cit., p. 31.

[104].              AML/CTF Review, op. cit., pp. 94–97 (covered by broader recommendation 10.1).

[105].              Explanatory Memorandum, p. 31. See FATF Recommendations, op. cit., recommendation 13.

[106].              AML/CTF Act, section 5.

[107].              The ‘tipping off’ provisions in section 123 of the AML/CTF Act are designed to prevent information about a suspicious matter report reaching the person to whom the report related.

[108].              AML/CTF Review, op. cit., p. 87.

[109].              Ibid. Footnote references have been omitted from this quotation and can be viewed in the source document.

[110].              Ibid., p. 89.

[111].              Explanatory Memorandum, p. 32.

[112].              King & Wood Mallesons, Submission, op. cit.

[113].              AML/CTF Review, op. cit., pp. 25–27.

[114].              Senate Legal and Constitutional Affairs Legislation Committee, Anti-Money Laundering and Counter-Terrorism Financing Amendment Bill 2017 [Provisions], op. cit., pp. 9–10.

[115].              LCA, Submission, op. cit., pp. 1–2.

[116].              Under section 5 of the AML/CTF Act, and authorised officer is the AUSTRAC CEO or a person for whom an appointment as an authorised officer is in force under section 145 (which allows the AUSTRAC CEO to appoint, in writing, members of AUSTRAC staff and certain other persons whose services are made available to the AUSTRAC CEO).

[117].              AML/CTF Act, subsection 184(1A).

[118].              AML/CTF Review, op. cit., pp. 129–131, 133 (quote taken from p. 131) (recommendation 15.4).

[119].              Ibid., p. 130.

[120].              AGD, Enhancing Australia’s AML/CTF regime: Phase 1 amendments to the Anti-Money Laundering and Counter-Terrorism Financing Act 2006: industry consultation paper, op. cit., p. 8.

[121].              Subsection 184(1A) as amended by item 59 of Schedule 1; proposed subsection 184(1B) inserted by item 60; proposed subsection 184(4) inserted by item 61.

[122].              AML/CTF Act, subsection 184(1).

[123].              AML/CTF Review, op. cit., p. 129.

[124].              AML/CTF Act, sections 53 (reports about physical currency) and 199 (powers).

[125].              AML/CTF Review, op. cit., pp. 110–112.

[126].              Item 74, inserting proposed subsection 200(13A).

[127].              Scrutiny of Bills Committee, Scrutiny digest, 12, op. cit., pp. 86–88.

[128].              Senate Legal and Constitutional Affairs Legislation Committee, Anti-Money Laundering and Counter-Terrorism Financing Amendment Bill 2017 [Provisions], op. cit., pp. 10–11. See further Nyman Gibson Miralis, Submission to Senate Legal and Constitutional Affairs Legislation Committee, Inquiry into the Anti-Money Laundering and Counter-Terrorism Financing Amendment Bill 2017 [Provisions], n.d., pp. 4–7.

[129].              Scrutiny of Bills Committee, Scrutiny digest, 12, op. cit., pp. 80–82.

[130].              PJCHR, Report, 11, op. cit., pp. 69–71.

[131].              AML/CTF Review, op. cit., pp. 144–145, 148.

[132].              Senate Legal and Constitutional Affairs Legislation Committee, Anti-Money Laundering and Counter-Terrorism Financing Amendment Bill 2017 [Provisions], op. cit., pp. 8–9. See further LCA, Submission, op. cit., pp. 2–3.

[133].              AML/CTF Review, op. cit., pp. 135–136.

[134].              FATF, Anti-money laundering and counter-terrorist financing measures: Australia : mutual evaluation report, op. cit., pp. 18, 43–45, 85, 125–127, 149 (quote taken from page 125).

[135].              AML/CTF Review, op. cit., pp. 137–139 (quote taken from page 139).