17 September 2024
5 min read
#Dispute Resolution & Litigation
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On 11 September 2024, the Anti-Money Laundering and Counter-Terrorism Financing Amendment Bill 2024 (the Bill) was introduced into Parliament, a significant development in Australia’s approach to combating financial crime.
The Bill represents the long-awaited ‘second tranche’ of reforms to Australia’s anti-money laundering/counter terrorism financing (AML/CTF) regime, which was initially established under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (the Act).
The Act established Australia's initial AML/CTF framework, targeting key sectors to combat financial crime. It covers financial institutions, gambling operators, bullion dealers and a subset of lawyers and accountants who provide financial services directly comparable to those offered by financial institutions.
At the time the Act came into force, it eluded to a future expansion of the AML/CTF framework – referred to as the ‘second tranche’ – to include real estate agents, jewellers and a broader range of lawyers and accountants (tranche-two entities). Despite a 2015 report from the Asia/Pacific Group on Money Laundering which underscored Australia’s AML/CTF vulnerabilities relating to ‘designated non-financial businesses and professions’ and an ultimately unsuccessful 2022 private member’s Bill from Tasmanian Greens Senator Nick McKim seeking to require the government to introduce legislation by 30 September 2022, the introduction of the second tranche of reforms was delayed until now.
The Bill aims to address these delays and align Australia's regulatory framework with international standards set by the Financial Action Task Force (FATF), an international body tasked with promoting international best practice relating to AML/CTF. As of now, Australia remains one of only five countries globally that do not regulate tranche-two entities, putting Australia at risk of being “grey-listed” by the FATF. AUSTRAC has outlined that such a listing could damage Australia’s international reputation and have significant economic repercussions for the nation.
The Bill has three primary objectives:
The AML/CTF framework applies only to ‘reporting entities’, being those who provide ‘designated services’. A ‘designated service’ is a particular service delivered to a particular customer. The Bill expands the definition of designated service providers to include tranche-two entities as reporting entities where they provide the following services to the relevant customer.
If the Bill passes, lawyers and accountants will face increased compliance requirements when offering services such as trust and company management, including:
Real estate professionals will be subject to new regulations designed to combat money laundering risks within the property market. Additionally, dealers in precious metals and stones will be regulated to prevent these assets from being used to conceal illicit wealth.
The Bill broadens the regulatory framework by replacing the old "digital currency" definition with a more inclusive and comprehensive concept of "virtual assets". While the previous framework focused mainly on digital currencies used for transactions, the new definition appears to cover a wider range of digital assets.
This change emphasises that not only currencies, but also other digital representations of value used for investments, such as a medium of exchange, a store of economic value, or a unit of account, are captured under the AML/CTF framework. For example, governance tokens (which provide holders with voting rights on blockchain projects) and NFTs (Non-Fungible Tokens – which represent ownership of unique digital items or assets) – both of which are traditionally not ‘currencies’ in the sense that they are used as payment in transactions – are likely more easily included under the ‘virtual asset’ definition.
Virtual assets are increasingly relevant in the AML/CTF landscape as they can be used to facilitate illicit financial activities, making effective regulation essential to prevent their misuse in money laundering and terrorism financing.
A key component of the Bill is its emphasis on customer due diligence (CDD). CDD replaces the identification verification requirements in the current legislation, which can be complicated and difficult for designated service providers to apply.
With the proposed amendments to the AML/CTF framework, designated service providers will still be bound by similar identification verification requirements, but the new CDD framework provides steps necessary to achieve the requirements. This includes:
Importantly, service providers will also be required to maintain records of CDD activities for seven years following the end of the ongoing business relationship or, where such a relationship does not exist, the occasional transaction.
The exact timing for the Bill's progression to law is unclear and will depend on the Federal Government’s legislative agenda and any potential opposition. With the next round of Australia’s FATF reviews occurring in 2026-27 and the delay in introducing tranche-two reforms, we presume that the Government will want to move quickly to implement the new framework ahead of the reviews.
For the new designated service providers, the implications of the Bill are substantial. They will need to navigate increased compliance costs and adjust their operational practices to meet the new AML/CTF requirements. Enhanced risk management practices will be crucial to effectively mitigate the risks associated with financial crime.
As Australia continues to strengthen its AML/CTF framework, the Bill represents a crucial step towards ensuring that the country’s regulatory environment meets international standards and effectively combats financial crime.
If your or your organisation falls within the scope of the Bill and you are unsure of its implications or want to take proactive steps to ensure compliance, our team is here to help. We can assist you in navigating the changes, implementing effective compliance measures, and staying ahead of regulatory requirements. Please get in touch with our team below.
Disclaimer
The information in this article is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this article is accurate at the date it is received or that it will continue to be accurate in the future.
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