Since its commencement almost 10 years ago, the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) (the AML/CTF Act) has created a complex set of obligations for entities (reporting entities) required to implement AML/CTF programs. The AML/CTF Act, and associated Rules, are also heavily regulated by a well-resourced and well-funded regulator (AUSTRAC) so it is not an area to be taken lightly.

However, significant events over the last few months have created a ‘perfect storm’ within the Australian AML/CTF landscape, requiring existing reporting entities to ensure that their AML/CTF Programs are watertight, robust and in line with regulator expectations. Failure to do so will result in lengthy and time-consuming regulator communications, increased likelihood of enforcement action and reputational damage within the market.

1. Poor Scorecard for Australia

The recently released Financial Action Task Force (FATF) report on Australia’s AML/CTF regime provides feedback on the effectiveness of measures put in place within Australia to address global standards.

Let’s be clear from the outset: the report shows a fair bit of room for improvement. After the adoption of the AML/CTF Act in 2006, the creation of an ever-expanding list of additional AML/CTF Rules (71 chapters and counting), annual compliance reporting, internal/external Independent Review requirements and a very active regulator, FATF still found that Australia was ‘compliant’ or ‘largely compliant’ in only 24 of its 40 recommendations.

This is not good news for Australia, and forward-thinking reporting entities should be aware of this constructive feedback.  The findings of the FATF report will ultimately trickle down to existing reporting entities, and be enforced through the AML/CTF regulator, AUSTRAC. So, expect more changes to the AML/CTF Act and Rules over the next few months and years.

2. Sheer Volume of Requirements

After the adoption of the AML/CTF Act in 2006, the AML/CTF Rules have expanded to 71 chapters which include annual compliance reporting and independent review requirements for reporting entities.

Significant AML/CTF Rule changes commenced in June 2014 in relation to Customer Due Diligence (CDD) (see our previous blog). Reporting entities are only just coming to terms with these changes, spanning five or six Chapters of the Rules, even with a relatively long implementation window. However, expect plenty more changes to the AML Act and Rules over the next few months and years after the shortfalls identified by the FATF in the current regime.

3. Tougher Enforcement Action

As the AML/CTF regulator, AUSTRAC has used its enforcement powers to issue a range of enforceable undertakings, infringement notices, remedial directions and fines against several reporting entities.

Perhaps the most widely used enforcement power is the desk or on-site compliance review. Whilst the likelihood of a client using your services to launder money may be low, the risk of an AUSTRAC desk or site review is high. Such assessments can often take several weeks and months to resolve if your AML/CTF Program does not address the key requirements and meet AUSTRAC expectations.

Perhaps the most ominous feedback from the recent FATF report (see our blog) was the finding that Australia should ‘consider opportunities to further utilise its formal enforcement powers to promote further compliance by reporting entities through judicious use of its enforcing authority’.

It is interesting to note that since the FATF visit to Australia last year AUSTRAC has already issued two infringement notices, cancelled six remittance registrations and issued fines across the bookmaking and remittance sectors.

4. New CEO and Increased Funding

Further fuel has been added to the fire with the appointment of new AUSTRAC CEO Paul Jevtovic late in 2014, adding focus, impetus, and drive to the regulation of the AML/CTF legislation in Australia.

The fairly critical FATF assessment of Australia’s AML/CTF regime will provide Mr Jevtovic with enough political leverage to introduce tougher supervision in Australia. Throw in a $20 million funding increase and reporting entities can only expect to see more of the regulator over the coming years.

* The Financial Action Task Force (‘FATF’) is the global body responsible for setting and monitoring international standards on combatting money laundering, terrorist financing and other related threats to the integrity of the international financial system.

How Can CompliSpace Help

CompliSpace provides a range of AML/CTF content and services, including assisting reporting entities to create and then maintain tailored Part A and Part B programs.

Training and testing modules covering key aspects of each AML/CTF Program will be provided to ensure that staff are trained on specific AML/CTF policies and procedures adopted by the business. On an ongoing basis, CompliSpace provides updated policies and procedures in line with changes to the AML/CTF Act, Rules or best practice.

Please contact James Cozens to discuss your AML/CTF Program requirements further.