Money laundering is the process of transferring illegitimate funds through a legitimate business or activity to conceal their origin. This makes it difficult for authorities to track down the source of the money and identify the criminals involved. People who finance terrorist organisations can use similar methods – by funnelling money through legal activities, they attempt to conceal where it is going and who is supplying it.
The Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) Act was introduced in 2006 to prevent this type of financial crime. The Act requires businesses in certain sectors – including banking and gambling – to collect and verify specific information about their customers.
Let’s take a look at what the Act requires, in order to get prepped for the upcoming Tranche 2 decisions.
Why does the Anti-Money Laundering and Counter-Terrorism Financing Act exist?
- To provide for measures to detect, deter and disrupt money laundering (ML), the financing of terrorism (TF), and other serious financial crimes
- To provide relevant Australian government bodies and international counterparts with information they need to investigate and prosecute ML offences, offences constituted by the TF, and other serious crimes
- To support cooperation and collaboration among reporting entities, AUSTRAC and other government agencies, particularly law enforcement agencies, to detect, deter and disrupt money laundering, the financing of terrorism, and other serious crimes.
Affected sectors and businesses
The Act currently targets the financial sector and other businesses that involve large transfers of cash – the gambling sector, remittance or money-transfer services, bullion dealers and more. A list of designated services – including taking deposits, payroll services and currency exchange – is included in the Act, and any business that provides one or more of these services must comply with the regulations. Some financial institutions are also required to report transactions over a certain threshold, along with any suspicious activity.
It’s looking increasingly likely that Tranche 2 of the Act will be implemented soon – so those who operate in the real estate, law, and accounting sectors need to start looking at how this will affect them too, and get their processes in place, ready to go.
What does AML compliance look like?
Businesses in the financial sector and those providing any of the services listed in the Act must register with AUSTRAC (Australian Transaction Records and Analysis Centre), the government agency responsible for deterring financial crime. Once your business is registered, you are a ‘reporting entity’ and need to keep up with your obligations under the Act.
- Developing a written AML/CTF program to manage compliance
- Collecting and verifying key client details before providing services – often referred to as ‘know your customer’ (KYC) information. This can mean taking verified copies of documents or using a credit-reporting body (CRB) to find and verify details.
- Reporting certain types of transaction – those over a certain monetary threshold, international transfers, information about carrying or shipping physical currency and any suspicious transactions or interactions
- Keeping and securely storing records showing your AML/CTF activity
- Submitting compliance reports if requested
- Paying an industry levy if your business earns over a certain threshold
What is ongoing customer due diligence (OCDD)?
- A reporting entity is obliged to monitor their customers in relation to the provision of their designated services, with a view to identify, mitigate and manage the risk the reporting entity may reasonably face.
- This is due to the fact that the reporting entity may (whether inadvertently or otherwise) involve or facilitate money laundering or financing of terrorism
- However, this does not apply to a designated service arranged by a holder of an AFS licence.
Tranche 2 Entities
Now that AML/CFT obligations are likely to apply to a broader range of organisations, more business owners will need to adjust their processes and put systems in place to ensure compliance. Adhering to the rules isn’t just a legal requirement, it’s also an important way to prevent criminal activity – and protect your business reputation.
Working with First AML will ensure you’re meeting your requirements, without pouring additional time and resources into this specialised area of compliance.
AML/CTF and the Privacy Act
Because AML/CTF legislation involves the handling of clients’ personal information, businesses also need to comply with the Privacy Act while collecting and storing KYC data. This applies to any business registered with AUSTRAC as a reporting entity – even small businesses that are usually exempt from meeting the Privacy Act in other business areas.
About First AML
First AML is an AML technology provider, and the maker of Source, an all-in-one AML platform. Source powers thousands of compliance experts around the globe to reduce the time and cost burden of complex and international entity KYC. Its enterprise-wide, long term approach to the KYC / CDD data lifecycle addresses time and cost challenges while minimising compliance, reputational and security risks.