Chapter 3 - Key concerns for Industry
3.1
Submissions and evidence presented for the purposes of this inquiry
indicate that business and industry bodies are generally comfortable with the Bill
however some general and several specific issues remain unresolved. These
issues will be discussed in this chapter. Chapter 4 will discuss privacy and
discrimination issues in relation to the Bill.
Consultations with stakeholders
3.2
The committee was particularly interested in the extent and nature of
consultations undertaken by the Department and AUSTRAC since its inquiry into
the Exposure Bill. Most submissions and evidence indicated that the consultations
have been extremely productive. Smaller businesses and industry groups felt
that they became involved late in the process however the criticisms of the
consultation process were not confined to these groups.
3.3
The minor criticisms generally consisted of a slow response or
non-incorporation of suggestions. In relation to the latter criticism, the
stakeholders acknowledged that consultations were continuing and they expected
to resolve outstanding matters directly with the Department and AUSTRAC. The
committee notes that many such matters involve technical drafting issues rather
than issues of content.
3.4
The major criticism of the consultation process was that the AML/CTF Rules
which were released on 13 July 2006 comprise an incomplete draft document.[1]
For example, the Insurance Australia Group (IAG) said:
There should be an adequate period in which industry can
consider all aspects of the legislative package i.e. including the Bill, Rules
and Regulations. This would enable training, intra group relationships and
compliance arrangements to be simultaneously assessed and gaps identified
against the requirements of the package.[2]
Department response
3.5
The Department stated that the draft indicative set of Rules provides
prospective reporting entities with an understanding of how to comply with
AML/CTF obligations. The committee was also told that the Rules are being
finalised in a staggered fashion to coincide with implementation dates, with
some stages already substantially complete, and that all Rules will be finalised
by late 2007.[3]
Evidence from the Department and AUSTRAC suggested that some of the concern in
relation to the availability of Rules arose from a misconception that the
government intended to issue rules in relation to all provisions of the Bill
when there was no intention to do so:
The inclusion in many of the provisions of the ability to
designate further things by rules is a very deliberate insertion of an ability
in the future to respond to...unintended consequences or deliberate structuring
and creation by industry of products which technically fall outside the
definitions of the legislation...All of our conversations to date on rules have
focused on those rules which we all know need to be available either on
commencement or with sufficient lead time for the commencement of the operative
provisions.[4]
3.6
To address this confusion, AUSTRAC provided a table setting out provisions
in the Bill which provide for the making of Rules, whether Rules are required
or contemplated under each provision, and the status of draft rules.[5]
AUSTRAC released further draft rules in relation to movements of physical
currency into or out of Australia and movements of bearable negotiable
instruments on 22 November 2006.
Implementation of obligations
3.7
Business and industry bodies have universally welcomed the 24 month
implementation period, as well as the 12 month prosecution free period.[6]
However, the staggered approach has caused concern.[7]
The cause of the concern was essentially related to the status of the Rules and
business and industry bodies' ability to implement their obligations on time.
3.8
ING Bank (ING) proposed:
Commencement dates should begin from the date that Rules
applicable to the relevant Part have been released and finalised.
Alternatively, Royal Assent should not occur until the Rules have been
finalised. This is because, whilst in theory, implementation can begin from the
date of Royal Assent, the detailed obligations are contained within the Rules
and implementation can not realistically commence until Reporting Entities are
aware of the requirements outlined in the Rules.[8]
3.9
The Australian Bankers' Association Inc. (ABA) highlighted that:
The prosecution free period does not allow for Rules
development. It is not workable for industry to implement a Rule after Royal
Assent either concurrently with or shortly preceding the commencement
date...Compliance, enforcement and prosecution activity should then not
commence until 12 months after commencement of the Part, including publication
and finalisation of all necessary Rules to give effect to the Part.[9]
3.10
The majority of submissions and evidence given to the committee by
business and industry groups indicated that a substantial amount of lead time
would be required to implement AML/CTF obligations. Smaller businesses, which
are not currently regulated under the Financial Transaction Reports Act 1988,
particularly felt disadvantaged in this regard.
3.11
The Australian Finance Conference (AFC) said:
A number of our members are stand-alone finance businesses and
do not benefit from the sharing of resources which may be available within
large corporate groups. For smaller businesses, the cost of preparing for the
new regime will be considerable in the context of their overall size.[10]
3.12
The Finance Sector Union of Australia (FSU) also told the committee:
We believe the Government is effectively requiring finance
sector staff to help with law enforcement activity but is not implementing
mechanisms to ensure that these staff are given enough resources to carry out
these activities...[our] main concern is ensuring that financial sector staff
receive adequate training to comply with the new requirements and that finance
sector staff are not unfairly burdened.[11]
3.13
Small and medium-sized enterprises have indicated that they will require
some formal assistance for effective implementation of the AML/CTF regime.[12]
Department response
3.14
The Department informed the committee that the implementation timetable
incorporated in the Bill provides time for reporting entities to implement
AML/CTF obligations:
We have a staged implementation timetable which has a 12-month
period from royal assent to the commencement of the first substantive new obligations
under this bill. At this stage, we have committed to those rules being
available by 31 March.[13]
3.15
In relation to formal assistance, the Office of the Privacy Commissioner
(OPC) will be providing guidance and assistance to small business operators to
meet their obligations under the Privacy Act 1988. In addition, AUSTRAC
will receive funding to conduct a public awareness campaign.[14]
Formation of the Rules
3.16
A second common concern in relation to consultation was that there is no
agreed formal consultation process with respect to the Rules.
3.17
Allens Arthur Robinson (Allens) pointed out that:
[Although the AUSTRAC CEO is required] to consult with reporting
entities or their representatives in performing his functions (such as making
Rules) section 212(5) provides that any failure to do so does not invalidate any
action he might take in performing his function. In practice this means that
the AUSTRAC CEO can issue Rules under section 212 without effective industry
consultation.[15]
3.18
Liberty Victoria stated:
Arguably, the central feature of the Bill is the wide power and
discretion it confers upon the AUSTRAC CEO...most significantly, the AUSTRAC CEO
will be responsible for making AML/CTF Rules...these rules are legislative
instruments...this process of law-making is largely based on primary
accountability to the responsible Minister and confines the consultation
process principally to industry sectors...other persons and groups likely to be
affected by the Bill...are not formally recognised in these procedures.[16]
3.19
Many submissions indicated a willingness to be involved in further
consultations both generally and in relation to specific provisions of the Bill. [17]
Department response
3.20
AUSTRAC advised the committee that it intends to maintain consultation
with stakeholders:
[T]he consultation process will continue down to the level of
the guidelines with industry. Consultation into the future, again, is something
that we have worked on quite extensively in the past 17 years that the
organisation has been in operation and more extensively over the last couple of
years, and that process will continue on into the future.[18]
3.21
Additionally, AUSTRAC will maintain and consult its Privacy Consultative
Committee.[19]
Lack of parliamentary review
3.22
Several submissions argued that review of the Bill and its associated
instruments was vital and should be timely and transparent, particularly in
light of AUSTRAC's extensive Rule and Regulation making powers.
3.23
In response to concerns regarding subclause 6(7) which allows the broadening
or narrowing of the definition of 'designated service', the Department provided
the following response:
It is reasonable to expect that while every attempt has been
made in the AML/CTF Bill to cover all of the services which could be used for
the purposes of money laundering or terrorism financing, those determined to
avoid the operation of the provisions may find new and unforseen ways to
structure activities so that they achieve the same outcomes as designated
services but fall outside the definitions in clause 6. Sub-clause 6(7) will
enable the Government to respond quickly to the emergence of such activities.
Regulations will be disallowable instruments and subject to the normal
procedures under the Legislative Instruments Act 2003.[20]
3.24
Minter Ellison, Lawyers (Minter Ellison) told the committee:
[AUSTRAC] should be subject to the scrutiny of and accountable
to a Parliamentary Committee. We also believe that it should be required to
consult with other regulators of the financial services industry (such as ASIC
and the Australian Prudential Regulation Authority), in addition to the
industry itself, when making Rules or modifications to ensure that the impact
of its proposals are fully considered and understood and to limit any
regulatory overlap.[21]
3.25
More generally, Privacy Victoria stated:
[G]reater transparency and public accountability should be
guaranteed. The Bill should specify the matters that will be examined,
establish an independent review committee, compel public consultation, and
provide for timely tabling of the review report.[22]
Suspicious matter reporting obligation
3.26
The committee received several submissions raising concerns about the
breadth of the suspicious matter reporting obligation. In addition to the
privacy and discrimination implications, it was said that this reporting
obligation would result in AUSTRAC being inundated with suspicious matter
reports.[23]
3.27
CPA Australia (CPA) and the Institute of Chartered Accountants (ICA) commented
that:
This piece of legislation is aimed at money laundering and terrorism
[financing] and there really does not seem to be any justification for
including breaches or having to report anything that is relevant to the
prosecution or investigation of an offence against the Commonwealth, state and
territory law.[24]
3.28
A suspicion that provision of a service relates to 'financing of
terrorism' is a ground giving rise to suspicion matter reporting obligations
under paragraphs 41(1)(g) and (h). Liberty Victoria argued more specifically
that the definition of 'financing of terrorism' is extremely broad and
improperly captures funding organisations where there may be no intention or
knowledge that the funds will be used to carry out terrorism.[25]
3.29
Privacy Victoria added:
The proposed measures effectively require financial agencies and
others to police their customers for possible breaches of the taxation and
criminal laws of every Australian jurisdiction. The Bill also requires these
agencies to recognise situations where reporting a matter may assist government
in enforcing the complex provision of the various confiscations laws across Australia...this
appears to be an impossible task for financial institutions and other reporting
entities.[26]
3.30
The FSU as well as the CPA and ICA expressed similar concerns that small
business customer relationships might be adversely affected by the reporting
obligation.[27]
Register of Providers of Designated Remittance Services
3.31
The committee examined Part 6 clauses 75 to 79 which relate to the
requirement of the AUSTRAC CEO to maintain a Register of Providers of Designated
Remittance Services. In particular the Department was questioned about
whether these provisions should include the ability to refuse registration to
or to de-register providers. The Department responded:
This bill is not about the terms and conditions on which you can
conduct the business; it merely says that, if you conduct the business, it must
be done in accordance with these rules. Because there is no current system that
even identifies remittance providers, we have taken the approach in this bill.[28]
Penalties and sanctions
3.32
The expansion of the civil penalties and criminal sanctions provisions drew
a wide range of comments. For example the submission from the CPA and ICA
stated:
The majority of the breaches...would be breaches of process and not
specific intent to commit a crime...in our view [the maximum penalties] are
probably a bit disproportionate.[29]
3.33
IAG similarly submitted that:
We consider that there needs to be further consultation and
discussion around, or at least consideration given to, the standard of proof
that is required in respect of the civil penalty provisions...the penalties are
potentially so significant for a reporting entity that we consider that a
higher standard of proof should apply and that consideration should be given to
whether an element of fault should also apply.[30]
3.34
The submission from Minter Ellison went further, arguing that:
Most if not all the obligations imposed on Reporting Entities
should not directly give rise to civil penalties or criminal offences. We
submit that they should be legal obligations which can be enforced by AUSTRAC
directing the Reporting Entity to comply with the obligation. A Reporting
Entity should only be liable to prosecution if it fails to comply with such a
direction.[31]
3.35
Infosys Technologies Australia Pty Ltd (Infosys) argued that the
'tipping off' provisions should not encompass the suspicion that triggered the
reporting obligation or the business records and source information on which
the suspicion is based. Infosys submitted that by providing otherwise the Bill
goes beyond FATF Recommendation 14, does not accord with comparable
jurisdictions and has the practical effect of prejudicing the rights of
innocent third parties.[32]
3.36
In relation to a specific form of banking entity, Bendigo Bank argued:
If owner-managed branches are to be put on the same footing as
other branches (thereby ensuring a level playing field), the exemption in
section 123(8) should extend to sections 123(1), (2) and (3)...The sharing of
information between banking groups (including between the bank branches) is
critical to ensure that suspicious activity is properly tracked and dealt with
throughout the group.[33]
Customer identification obligations
3.37
Some submissions raised concerns in relation to the customer
identification obligation. Abacus Australian Mutuals (Abacus) was concerned that
its members will no longer be able to rely on the Acceptable Referee
identification method. This method will expire 12 months after the Bill
receives royal assent. Abacus argued that smaller approved deposit taking
institutions (ADIs) will then have to either engage an agent or a reciprocal
reporting entity to verify and validate identification documentation. The
latter option would 'in effect [involve] sending a potential customer, where
there is no established relationship, to a competitor'.[34]
It was argued that the identification obligation would pose a risk to competitive
neutrality and choice in retail banking.
3.38
This argument was based on the lack of a viable alternative to the
Acceptable Referee identification method. The alternative, electronic verification
(e-verification) found universal support as a necessary component of modern
banking.[35]
However, business and industry groups debated whether electronic data is
sufficiently available and reliable for use in e-verification.
3.39
Abacus told the committee:
The capacity for [reporting entities] to verify the authenticity
of core government-issued documents – such as Passports, Driver's Licences and
Birth Certificates – is severely limited...unfortunately, the AML/CTF Bill does
not expand access to available databases for identification purposes. The
proposed Medicare and welfare services Access card will not be an identity
panacea and access to the planned government document verification system (DVS)
remains a distant possibility.[36]
3.40
ING submitted that:
In order to facilitate the 'safe harbour' contained in the draft
Rule, a provision must be inserted [into the Amending Bill] authorising Reporting
Entities to have access to information held within credit reports for the
limited purposes of verification of identity in accordance with the Reporting
Entities' AML/CTF programs, and authorising credit reporting agencies to
disclose such information to Reporting Entities.[37]
3.41
Baycorp Advantage Limited (Baycorp) argued that one hurdle to the
establishment of effective electronic verification systems was that the
provisions supporting electronic verification were included in the Rules and
not the Bill itself:
All references to electronic verification as a component of an appropriate
customer identification procedure identification system are only within the
Rules...[which] may be easily amended as AUSTRAC
sees fit. It is unreasonable to expect an organisation such as Baycorp to
invest in the significant development of its business infrastructure to cater
for a method of customer identification that is so easily subject to
change...[electronic verification] should be included in the body of the
legislation...or the safe harbour provisions should be included in Regulations,
as these are subject to direct ministerial oversight.[38]
3.42
Westpac Banking Corporation (Westpac) expressed concerns about whether the
safe harbour provisions would maintain reliable customer verification. Westpac acknowledged
that a suitable document verification system could facilitate e-verification,
however, in the interim:
The safe harbour provisions present a weaker form of
identification compared to the current Financial Transaction Reports Act
(FTRA) standards and are inadequate in establishing that the person is who they
are purporting to be...this would represent a 'wind-back' of the FTRA, weakening
the financial system and increasing rather than decreasing the risk of ML/TF as
well as fraud and identity theft for Australia.[39]
3.43
With reference to securities issued by trusts, Computershare Limited
(Computershare) argued in favour of an exemption from the identification
obligation. Computershare told the committee that in practice an identification
process will already have been undertaken by either or both the bank on which a
cheque for the application money has been drawn or the CHESS participant, who
processes the application.
To add in a requirement that the issuer of the security (in this
case the issuer of the units in the trust) also to carry out an identification,
is an unnecessary and costly duplication...It has the potential to require the
establishment of two differing processing requirements...[and] where there is an
issue of a stapled security that involves a share and a unit, a longer
application period may need to be implemented to cater for the additional
identification requirements.[40]
3.44
Superannuation funds are treated slightly differently in relation to the
customer identification obligation. Superannuation funds are only required to
identify their members when money is leaving the superannuation system. The Bill
recognises that complying regulated superannuation funds present a low-risk of
money laundering and financing of terrorism. However, the Association of
Superannuation Funds of Australia Limited (ASFA) has drawn attention to the
fact that:
Cashing is not exempted from the up-front identification
requirements...[but] there are cashing transactions that are prescribed by law
and not initiated by the member...The regime should ensure such transactions
[are] not captured by inappropriate customer identification requirements.[41]
Recognition of corporate groups
3.45
The broadening of the definition of 'designated business group' in
clause 5 was generally welcomed.[42]
There were two suggestions in relation to such groups. IAG submitted:
There should be a general provision to the effect that any
obligations of a reporting entity under the Bill can be discharged by another
member of a designated business group.[43]
3.46
Telstra Corporation Limited (Telstra) added that:
The Bill still provides no qualification or exception where a
designated service is provided to another member of a designated business
group.[44]
Limited use of agents
3.47
Some submissions raised concerns regarding the limited use of agents for
applicable customer identification procedures. For example Baycorp was critical
of the deemed agency provision in clause 38 which applies only when a 'reporting
entity' has carried out the original applicable customer identity procedure.[45]
Allens and IFSA expressed a broader concern that there is no provision for the
general use of agents in the Bill.[46]
Overseas permanent
establishments
3.48
The Bill requires reporting entities to implement AML/CTF Programs in
respect of any overseas permanent establishments (OPEs) through which a
reporting entity provides designated services to the extent it is reasonable
and practicable to do so having regard to local laws and circumstances.
3.49
Westpac sought an exemption for OPEs in New Zealand noting that New
Zealand is in the process of developing AML/CTF legislation:
It is therefore possible, depending on the transition timeline, that
many Australian reporting entities will have to 'roll-out' AML/CTF procedures
twice in NZ as a result of Australia's regime having extra-territorial
application. NZ has existing suspicious transaction reporting obligations, and
this will operate to mitigate NZ being a target for money laundering in the
interim.[47]
Department Response
3.50
The Department noted that reporting entities do not generally have to
comply with AML/CTF obligations in relation to OPEs, except in relation to
inclusion of these OPEs in their AML/CTF program. In addition, Part 7 which
imposes these obligations does not commence for 12 months after Royal Assent.[48]
International electronic funds transfers
3.51
Under the Bill international electronic funds transfer instructions must
include certain information about the origin of transferred money. Debit and
credit card transactions are exempted from the operation of this Part except
when the transaction involves a cash advance other than via an ATM.
3.52
Visa International (Visa) told the inquiry that the protocols of
providing the required customer information cannot be met in a debit or credit
card transaction involving a cash advance and that:
We are not aware of the rationale for the requirements for
complete payer information for cash advances involving debit and credit cards
at bank branch or merchant terminals, while ATM transactions are exempted
...since the electronic routing and information exchanged in both types of transactions
is identical, this is somewhat anomalous.[49]
3.53
In relation to electronic funds transfer reporting obligation, the
Securities & Derivatives Industry Association (SDIA) noted that:
There should be a carve out / exemption to comply with this
obligation for those reporting entities who are not ADIs, Credit Unions or
similar ...every reporting entity is obliged to make the relevant reports and one
would assume the relevant ADIs that these reporting entities use, will be
required to make the same report. ...this part of the legislation should be
re-worded in such a way that reporting entities who are not ADIs or similar,
can rely on their relevant ADI to do the reporting for them.[50]
Minimum value thresholds
Travellers' cheques and foreign currency
transactions
3.54
The committee received several submissions regarding the absence of
minimum value thresholds with respect to travellers' cheques and foreign currency
transactions. Travelex Limited (Travelex) argued that in not applying minimum
value thresholds to these services the Bill is at odds with internationally
accepted recommendations, best practice and has additional impacts, including
unnecessary collection of personal information.[51]
Similarly American Express gave evidence that:
[There is a] de minimis exception for certain stored value
products, namely stored value cards, postal orders and money orders. These are
only designated services...for transactions of $1,000 or more. For travellers'
cheques, on the other hand—they are also stored value products with largely similar
characteristics and risk profile to these other products—there is no $1,000
threshold. In our view, this anomaly unfairly discriminates against travellers'
cheques, which, in our submission, should be similarly treated under the bill.[52]
3.55
The Australian Financial Markets Association (AFMA) added:
The Bill should apply a realistic and practical threshold to the
requirement on currency exchange providers to check the identity of customers
...in our view the threshold should not be specified in the AML/CTF Bill but set
by regulation or by Rule that can be varied more easily from time to time to
take into account changes in AML/CTF risk factors, customer usage and
transaction values.[53]
Gift, store and phone cards
3.56
In addition, it was argued that while stored valued cards, such as phone
cards or gift cards, are intended to be subject to minimum thresholds the current
drafting of items 21 to 24 in table 1 of clause 6 actually excludes most stored
value cards because the value is not stored on the card itself. Mallesons Stephen
Jaques (Mallesons) argued that:
Issuing SVCs is intended to be a designated service. The
relevant designated services are drafted to exclude low risk, low value SVCs
from regulation. Unfortunately, the definition used for "stored value card"
(SVC) does not apply to [gift cards or many similar, low-risk products] for
technical reasons.[54]
3.57
Mallesons argued that if gift cards fell outside the stored value card
provisions in table 1 then they would risk being captured as debit cards under
items 18 to 20 which are not subject to a minimum threshold amount.[55]
3.58
It was similarly argued that phone cards and pre-paid mobile phone
credit were captured by the debit card provisions of the Bill. For example, the
Australian Mobile Telecommunications Association (AMTA) gave evidence that:
Perhaps we can help the committee by giving some examples...where
we do not think the intention of the legislation is to capture these types of
products but where we think we are caught—for example, where providers of
mobile phones issue a debit card when they sell a prepaid mobile phone and
calling card. Because that may be an article that allows the customer to debit
their account for the cost of phone calls, is that caught as a debit card under
the bill? We think in the current drafting it would be.[56]
Department response
3.59
The Department responded that if industry puts forward a case
demonstrating, on the basis of risk of money laundering and terrorism
financing, that thresholds are appropriate for walk-in customers in relation to
services such as foreign currency exchange and bank cheques, this will be
considered. Furthermore, arguments for a threshold for travellers’ cheques are
currently under consideration.[57]
3.60
The Department also advised the committee that:
A pre-paid phone card or a card which allows people to charge
calls made on one phone to an account for another phone does not fall within
the definition of a debit card.[58]
3.61
The Department's view is that if such cards are captured by the Bill
they will be subject to the stored value card provisions in items 21 to 24
which are subject to minimum threshold amounts.[59]
3.62
In response to a question from the committee the Department also
indicated that it is intended to establish thresholds of $10,000 in relation to
customer identification obligations for some designated services provided by
casinos.[60]
Reporting of Threshold Transactions
3.63
Some concerns were raised in relation to the requirements to report
threshold transactions which apply to transactions over $10,000 (clauses 43 and
44). OPC pointed out that the $10,000 threshold has not been increased in the
18 years since the Financial Transaction Reports Act 1988 was
introduced:
The Office notes that the number of significant cash transaction
reports has increased approximately 200% since 1991. In 2005-06, the number of
reported significant cash transactions was 2,416,427. The prescribed
significant cash transaction threshold has remained constant at $10,000 since
the scheme was introduced and, as a consequence of price inflation, the reporting
scheme will increasingly capture personal information regarding transactions
that may not have been anticipated when the legislation was first drafted.[61]
3.64
The submission from ASFA raised specific concerns about the impact of
the provisions on superannuation funds:
Uncertainty remains as to exactly which transactions are
captured under the reporting requirement as the term threshold transaction
is broadly defined and contains linked definitions...Without proper exemptions,
the threshold transaction reporting requirement would significantly impact on
superannuation funds. Funds would be required to report every transaction of
$10 000 or more to the Regulator within 10 business days of performing the
transaction. Contributions, rollovers and transfers should be exempted from
threshold transaction reporting.[62]
Industry Specific Concerns
3.65
A number of submissions were received by the committee which concerned
the application of the Bill to particular businesses or industry groups. Many
of these submitters stated that they were working directly with the Department
in order to resolve outstanding issues.[63]
Telecommunication industry
3.66
In addition to the concerns about phone cards and pre-paid mobile phone
credit, it was argued that other telecommunications products and services such
as post paid third party content and trade promotions were inadvertently
captured by the Bill. These products were said to be 'in no way in competition
with the financial sector' and to have a low or negligible risk of money
laundering or terrorist financing activity.[64]
3.67
Telstra stated that:
The Bill would impose onerous and impractical legislative
obligations on the telecommunications sector without any clear anti-money
laundering or counter-terrorism financing benefit. Such an outcome appears to
be inconsistent with the Government's purported intention, and an unintended
consequence of the first tranche of reforms.[65]
Department response
3.68
The Department's view is that the provision of post paid third party
content by the telecommunications industry is not captured as a loan by item 6
of table 1 in clause 6 because the loan is not made 'in the course of carrying
on a loans business'.[66]
3.69
The Department advised that it is reviewing the provisions in table 3 of
clause 6 to ensure they do not capture as 'gambling services' competitions and
promotions run by businesses, which include an element of skill, with low value
prizes of goods or services.[67]
Legal profession
3.70
The Law Council of Australia (Law Council) acknowledged that the Bill
has limited application to the legal profession but argued that the particular
role of legal practitioners means that they ought to be dealt with separately
to other businesses:
The Law Council is fundamentally opposed to the imposition of
reporting obligations on legal practitioners which undermine the independence
of the profession and which are at odds with legal practitioners' well
established duties to their clients, the court and the public...The Law Council
believes that any AML/CTF reforms affecting the legal profession should be
dealt with separately from the regulation of other business relationships. This
is appropriate both because of the special nature of the lawyer-client
relationship and because the Australian legal profession is already subject to
extensive specialist regulation.[68]
Department response
3.71
The Department noted that clause 242 of the Bill ensures that the Bill
does not affect the law relating to legal professional privilege. The
Department stated that:
Legal practitioners will be obliged by the Bill to lodge
suspicious matter reports in relation to the provision of designated services
under the Bill. As providers of designated services they are appropriately
subject to the same reporting obligation as any other provider of designated
services. The tipping off provision will not prevent a client of a legal
practitioner making a claim for legal professional privilege in any legal
proceedings. The question of what action a legal practitioner must take under
their professional rules as a result of making a suspicious matter report is a
matter for determination by the profession.[69]
Community banks
3.72
Bendigo Bank Limited (Bendigo Bank) expressed concern that the Bill does
not properly classify its Community Bank and Tasmanian Banking Services
branches as 'owner-managed branches'. In particular, Bendigo Bank considered
that clause 12 which defines 'owner-managed branches' was too narrow to
encompass the Community Bank and Tasmanian Banking Services branches because it
requires the arrangements with the bank to be 'exclusive' and for services to
be offered 'under a single brand, trademark or business name'.[70]
3.73
Accordingly Bendigo Bank argued, that these branches will be treated as
reporting entities:
As reporting entities these branches will be under a range of
obligations that an ordinary branch of a bank is not, including the requirement
to have their own AML/CTF Program...in addition, there is no provision in section
123 which allows [Bendigo Bank] to disclose information regarding suspicious
activity reporting except via the Designated Business Group exception.[71]
3.74
Bendigo Bank noted that it was working cooperatively with the Department
to address this issue.[72]
General insurers
3.75
IAG argued that its Consumer Credit Insurance products (CCIP) have
unintentionally been captured by the Bill on account of their life insurance
component. IAG believes that CCIP are fundamentally low-risk and should be
excluded from the operation of the Bill by consequential amendments.[73]
Financial planners
3.76
The AFSL holders' designated services provision (item 54 of table 1 in clause
6) was described in submissions as vague with the potential to capture almost
any service provided by a reporting entity.[74]
3.77
The Financial Planning Association of Australia Limited (FPA) submitted
that:
The wide drafting of this item has led to a situation where, as
license holder, a financial planner may potentially have greater
responsibilities in providing designated services (other than those financial
services covered by an AFS Licence) than an intermediary who provides similar
services but is not licensed...this raises issues in terms of competitive
neutrality and does not appear justified in terms of a policy outcome...Item 54
should explicitly state that it relates only to the financial services that the
Licensee carries out under its licence.[75]
3.78
In addition the FPA told the committee that AFSL holders were concerned
that the Bill does not afford them sufficient protection from prosecution in
the event of their agents' disregard or wilful neglect of AML/CTF obligations.[76]
It remains unclear whether a well constructed and effectively
implemented training and supervisory program would enable a Licensee to avail
itself of s236.[77]
3.79
IFSA noted that item 54 arrangers are excluded from the requirement of
having to provide a suspicious matter report and argued that this exclusion exposes
the item 54 arranger to a number of adverse consequences.[78]
Department response
3.80
The Department has advised that:
It is proposed that the Bill will be amended to delete subclause
42(6) so that AFSL holders will have suspicious matter reporting obligations
for the period during which they provide designated services.[79]
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