ANTI-MONEY LAUNDERING LAW

 

Anti-money laundering implementation

The Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act) and the Anti-Money Laundering and Counter-Terrorism Financing (Transitional Provisions and Consequential Amendments) Act 2006 commenced on 12 December 2006 when it received Royal Assent.

 

The AML/CTF Act will be implemented in stages as set out in section 2.

 

The AML/CTF Act applies to businesses providing designated financial services and gambling services and bullion dealers ("designated services" is defined in Part 1, section 6).

 

Austrac will remain the key AML/CTF regulator: it will monitor reporting entities’ obligations and be responsible for undertaking intelligence assessments for Australian government and law enforcement agencies.

 

The first stage of implementation took effect on 12 December 2006. These provisions include the:

• cross border movements of physical currency and bearer negotiable instruments (Part 4)
• electronic funds transfer instructions (Part 5)
• register of providers of designated remittance services (Part 6)
• regulations which may prohibit or regulate the entering into of transactions with residents of prescribed foreign countries (Part 9).
• record keeping requirements (Part 10 Divisions 1, 2, 4 and 7): a reporting entity must make a record of a designated service. The reporting entity must retain the record for 7 years.
• Parts 11 to 18 including offencessuch as the tipping off offences and other general offences in relation to false or misleading information or documents, and general administrative provisions including audit, information gathering and enforcement powers of Austrac.

 

The Australian Transaction Reports and Analysis Centre (AUSTRAC) has finalised a series of AML/CTF Rules(pdf).

 

The Rules which commenced on 12 June 2007 relate to AML/CTF compliance reports (Part 3, Division 5), correspondent banking (Part 8) and records about  correspondent banking (Part 10, Division 6) of the AML/CTF Act.

 

The Rules which commenced on 12 December 2007 relate to identification procedures generally including for pre-commencement customers and certain low-risk customers (Part 2 except for Division 6 which will commence on 13 December 2008),AML/CTF programs (Part 7), records of identification procedures (Part 10, Division 3) and records of AML/CTF programs (Part 10, Division 5).

 

 

Remittance services

The first AML/CTF Rules related to reportable details of movements of bearer negotiable instruments and movements of physical currency, and the AML/CTF Rules regarding the registrable details in respect of the register of providers of designated remittance services.

 

 

The new international anti-money laundering standards will extend existing anti-money laundering obligations to non-financial businesses and professions such as real estate agents, dealers in precious metals and stones, accountants, trust and company service providers, legal professionals and notaries. Financial institutions will need to expand customer due diligence requirements. Existing account identification requirements will be strengthened and better record keeping will be required.

 

Penalty Policy Principles

 

Austrac has also published the  Policy (Civil Penalty Orders) Principles 2006 .

 

The principles indicate that there will be a 15 month moratorium on enforcement of the Act provided the offender has taken reasonable steps to comply with the provision.

 

In determining whether a reporting entity has failed to take reasonable steps to comply with a civil penalty provision, the AUSTRAC CEO must have regard to all relevant matters, including:

(a) whether the entity has previously failed to take such steps; and

(b) any steps that the entity has taken to comply with its obligations under the Act; and

(c) whether the entity complied with any obligations it may have had under the Financial Transaction Reports Act 1988; and

(d) any discussions and agreements that the reporting entity has had with staff of AUSTRAC; and

(e) any explanation given by the reporting entity to AUSTRAC.

 

 

What is money laundering?

 

The offence is described in Section 400.9 of the Criminal Code Act 1995 (Cth) as “possession of property reasonably suspected of being proceeds of crime”.

 

“A person is guilty of an offence if:

 

(a) the person:

 

(i) receives, possesses, conceals or disposes of money or other property; or

(ii) imports money or other property into, or exports money or other property from, Australia; and

 

(b) it is reasonable to suspect …the money or property is proceeds of crime in relation to a Commonwealth indictable offence or a foreign indictable offence.”

 

Bankers and other persons receiving money must be aware of the source of funds, especially from new customers.

 

Additional information on anti-money laundering reform, including the FATF 40 Recommendations and the Government’s consultation process, can be found at www.ag.gov.au/aml and at AUSTRAC’s website

 

What does anti-money laundering compliance involve?

 

1. Measure your corporate risk: there is a greater risk if you have international clients and offshore accounts

2. Develop procedures to monitor accounts for unusual transactions pointing to possible illegal activity

3. Know your customer: ongoing customer due diligence, not just when the account is opened. Take note of “politically exposed persons”.

4. Training

5. Record keeping

 

Recent examples

 

$80 million fine against ABN Amro by U.S. bank regulators in December 2005 in connection with anti-money laundering violations including unauthorized financial dealings with Iran and Libya.

 

Money laundering is not limited to drugs or terrorism . Unravelling money transfers involves complex banking and international laws as this example shows:

 

In November 1997, Kenneth Taves purchased a database of nearly one million credit card numbers. Mr Taves and his associated companies proceeded to use credit card numbers from this database to process unauthorised charges to those accounts for alleged access to pornographic web sites by way of a small monthly access fee.

 

During 1998, Mr Taves and his companies debited around 912,125 credit card accounts amounts totalling US$47,512,530, supposedly for access to web sites. Most of this activity was fraudulent.

 

The proceeds of the fraud were deposited in US bank accounts held by various Taves companies. The majority of the proceeds were then transferred to an account held in the Cayman Islands.

 

By late 1998, the fraud was detected and the US Federal Trade Commission took action.

 

In the meantime Mr Taves attempted to launder some of the money by transferring some of the proceeds of the fraud from his Cayman Islands account to accounts with European Bank in Vanuatu.

 

European Bank opened an account with Citibank in Sydney.

 

In November 2000, a seizure warrant was served on Citibank NA in New York by the FBI seeking seizure of the deposit with interest (US$8,110,073). On 29 November 2000, after verifying with Citibank Ltd that these funds could be traced to the original deposit by the European Bank in October 1999, Citibank NA paid the amount of the deposit plus interest to the US Marshal's Service. These funds were not returned to Citibank NA or Citibank Limited.

 

The receiver of the account owner in Vanuatu sued European Bank for the funds held by Citibank. He failed as he could not show how he was legally entitled to possession of the defrauded funds.

 

At the same time the European Bank sued Citibank Australia for the funds. It succeeded notwithstanding Citibank’s defence that Ctibank NA had paid the funds in the US.

 

Robb Evans Of Robb Evans & Associates V European Bank Limited

[2004] NSWCA 82

 

European Bank Ltd v Citibank Ltd [2004] NSWCA 76