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Obligations For Financial Institutions Under The Anti-Money Laundering And Counter-Terrorism Financing Act 2006 (Cth)

Introduction

In December 2006 the Federal Government introduced the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) (the “Act”). The purpose of the Act is to “deter money laundering and terrorism financing”. To achieve this, the act places various obligations on service providers across several business sectors, including financial institutions, in terms of detecting and reporting certain customer behavior and activity.

The Act applies to various statutorily defined ‘reporting entities’. Under the Act a reporting entity includes a financial institution, or other person, who provides a ‘designated service’. A financial institution for the purposes of the Act includes banks, building societies, credit unions, authorised deposit taking institutions, as well as any other person which may be specified in the rules. The range of ‘designated services’ is very broad and includes most types of financial products and transactions.

What obligations does the Act impose?

The obligations imposed upon reporting entities can broadly be grouped into 4 categories; ‘Identification and verification, reporting, developing and maintaining an Anti-Money Laundering and Counter-Terrorism Finance (“AML/CTF”) program, and record keeping’.

1.   Identification and verification obligations

Under Part 2 of the Act a reporting entity must carry out a procedure before providing the customer with a designated service. The type of procedure required varies depending on the risks of the services and the type of customers involved.

2.   Reporting Obligations

Part 3 of the Act deals with reporting obligations placed upon reporting entities. Under this part certain information must be reported to the Australian Transaction Reports and Analysis Centre (“AUSTRAC”).  Matters to be reported include transactions the Act defines as ‘suspicious’, transactions over a threshold amount and certain information about international funds transfers.

3.   The obligation to develop and maintain an AML/CTF program.

Part 7 of the Act provides that reporting entities must put into place an AML/CTF program. Each program is to be divided into two parts. Part A is to deal with identifying, mitigating and managing the risk that a reporting entity is likely to face in terms of being used for money laundering and/or the financing of terrorism. Part B sets out the reporting entities customer identification procedures.

4.   Record Keeping Obligations

Part 10 of the Act sets out obligations in terms of record keeping. Under this part, reporting entities must keep a variety of records for a period of 7 years. The types of records include records of designated services, documents given by customers to the reporting entity in relation to a designated service, and customer identification procedures. Reporting entities must also keep and maintain a copy of its AML/CTF program.

Investigative and detection of breaches

The Act gives AUSTRAC various investigation and detection powers in terms of identifying breaches of the obligations. These powers include the ability of authorised offices (which include the AUSTRAC CEO or a person appointed by the AUSTRAC CEO) to obtain information and documents from reporting entities, and to audit reporting entities under Part 13.

Consequences for breaching obligation under the Act

Reporting entities that breach their obligations under the Act may be subject to a civil penalty order which would require payment of a pecuniary penalty. The maximum pecuniary penalty for a body corporate is $11,000,000.00 and for an individual the maximum is $2,200,000.00. Other consequences includes the power of the Federal Court of Australia to issue injunctions in relation to the civil penalty provisions of the Act, and the power of police and customs officials in terms questioning, search, arrest and the issue of infringement notices for the cross-border movement of physical currency or bearer negotiable instruments.

Apart from civil penalties, it is also a criminal offence to produce false or misleading documents or information, forge a document for use in an applicable customer identification procedure, provide a designated service using a false customer name or customer anonymity, or structuring a transaction to avoid reporting under the Act.

Conclusion

An important aspect of the Act is that although it provides a general outline of the obligations, it leaves the actual implementation of AML/CTF programs and procedures up to the individual business covered by the Act.

If you are a financial institution, bullion dealer, or a gambling service provider and you need to know more about your obligations under the Act and how to effectively implement a AML/CTF program, please contact Berrigan Doube Lawyers.