The year to come for Australia's Anti-Money Laundering and Counter-Terrorism Financing regime

In brief

Having recently acquired a new CEO and a significant funding boost, AUSTRAC is being closely watched by reporting entities for an indication of its future direction and priorities, both at the policy and the enforcement level. In light of this, and with major review reports pending, 2015 promises to be a significant year for Australia's Anti-Money Laundering and Counter-Terrorism Financing regime. Partner Peter Haig, Senior Associate Edward Martin and Associate Andrew Shetliffe consider the year ahead.

Background – domestic and international developments in late 2014

At the global level, late 2014 saw the release of the G20 High Level Principles on Beneficial Ownership Transparency (G20 Principles)1, by which Australia joined a high-level pledge to take steps to prevent the misuse, and ensure transparency, of legal persons and legal arrangements.

Domestically, the end of 2014 saw the appointment of a new AUSTRAC CEO, Paul Jevtovic, who brings more than 33 years of policing and intelligence operations experience to the role. Mr Jevtovic's stated vision for the agency includes working collaboratively with law enforcement, regulators and the private sector, not only in Australia but globally.² It is yet to be seen whether Mr Jevtovic's appointment, which came hot on the heels of a $20 million funding increase and the introduction of new CDD rules, will lead to AUSTRAC taking a more active approach to enforcement.

Developments at the global and domestic level, including the heightened awareness of the need to stifle funding of terrorist activities, have brought AUSTRAC's role sharply into focus. It is a focus that is unlikely to dim in 2015, particularly in light of the imminent release of two significant reports.

What next? AML/CTF statutory review and FATF mutual evaluation

The first of two reports that are expected to be catalysts for further reform of Australia's AML/CTF regime will be from FATF, the body responsible for setting the international AML/CTF standards. As part of its regular 'mutual evaluation' process, FATF has been assessing the extent to which Australia's AML/CTF regime complies with international standards and its overall effectiveness. Its long-awaited report (the FATF Report) was presented at FATF's plenary meeting in Paris this week and is expected to be released next week.

The FATF Report will itself be a key input into the statutory review of the AML/CTF regime currently being conducted by the Attorney-General's Department, with assistance from AUSTRAC. This review, which included an extensive consultation process, will culminate in a report (the AG's Review Report) being tabled in Parliament at some point this year.

The path between G20 pronouncements, FATF recommendations and reform of Australia's AML/CTF regime is well worn. Indeed, the new CCD rules reflected the revised 2012 FATF Standards, which were themselves a response to an earlier call from the G20 to reform CDD standards and increase transparency around beneficial ownership. AUSTRAC is very much a part of the global AML/CTF architecture, with developments at the international level being reliable pointers to its future priorities and the future direction of the AML/CTF regime it administers.

It would therefore not surprise if the FATF report, and hence the AG's Review Report, reflect commitments contained in the G20 Principles. These commitments included to:

• share appropriate information on the results of the countries' assessment of risks associated with different types of legal persons and arrangements with competent authorities, reporting entities and other jurisdictions;
• consider establishment of central registries of beneficial ownership of legal persons; and
• consider facilitating access to beneficial ownership information by reporting entities.

To the extent they reduce the increased compliance burden imposed upon reporting entities in relation to beneficial ownership information, such measures would be welcome.

The G20 Principles also included a commitment to require designated non-financial businesses and professions (DNFBPs, which include lawyers, accountants, real estate agents, trust and company service providers and high-value dealers) 'to identify and take reasonable measures … to verify the beneficial ownership of their customers'. This is consistent with FATF's long-held position that DNFBPs should be subject to Australia's AML/CTF regime.

Extending Australia's AML/CTF regime beyond the financial services, gambling and bullion sectors would lead to a material increase in the number of reporting entities, imposing considerable compliance burdens on sectors that have so far been spared such obligations. The issue has been the subject of many submissions to the statutory review and will certainly be addressed in the AG's Review Report. DNFBPs will watch this space with interest.

Other concerns to be addressed by the AG's Review Report include:

• that the costs of a reporting entity developing a compliant AML/CTF program can detract from funds available to ensure adherence to the program;
• that a prescriptive minimum standards approach, coupled with imprecise statutory definitions, can result in uncertainty and unnecessarily high compliance costs;
• that the existing AML/CTF regime may not adequately address the risks surrounding virtual currencies; and
• that the 'tipping-off' provisions may require amendment to allow sharing of information relating to suspicious matters between reporting entities and with foreign regulators.

New CDD rules

For the majority of reporting entities, a focus of 2015 will be ensuring full compliance with the new CDD rules, which must be achieved by 1 January 2016. The fact remains, however, that the new CDD rules are currently in force, with AUSTRAC's commitment not to take enforcement action in respect of non-compliance before 1 January 2016 being subject to certain conditions being met by reporting entities. Key among those conditions is the establishment of a 'transition plan' setting out the actions and timeframes to achieve full compliance.

We anticipate that AUSTRAC will actively engage with reporting entities as to both the content of their transition plans and their progress as measured against those plans. Inevitably, this will involve dialogue as to the various areas of uncertainty concerning the new CDD rules.

This dialogue is also likely to be a feature of the independent review process to which reporting entities' AML/CTF programs are subject. Independent reviewers are expected to focus on the new CDD rules and whether transition plans have been sufficiently resourced to enable the 1 January 2016 deadline to be met.

As a result, AML/CTF compliance officers are likely to be required to grapple this year with such contentious new requirements as those in respect of 'politically exposed persons' and beneficial ownership, along with the uncertainty surrounding concepts of ownership and control of a trust. While AUSTRAC's substantially revised Compliance Guide, issued in September 2014, is an extremely useful resource, questions remain in relation to these and other aspects of the new CDD rules.

Consideration of the new CDD rules will be conspicuously absent from the AG's Review Report, with the public consultation period having closed before the new CDD rules were released.