Compliance: Theory and Practice in the Financial Services Industry

7. Combating Crime

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IMPORTANT NOTE: These slides have been provided primarily for the use and benefit of students taking the "Compliance: Theory and Practice in the Financial Services Industry" course at Sydney University Law School. They are a summary only of the subject matter covered and are not intended to be, nor should they be relied upon as, a substitute for legal or other professional advice. In particular, it should be noted that the slides are not always verbatim quotes from the underlying source material and that material may have been abridged or paraphrased for presentational purposes. There also may have been legislative, regulatory or other developments since these slides were last updated that are not incorporated.

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Outline

   Anti-Money Laundering and Counter-Terrorism Financing
     ML-TF Crimes
     The AML-CTF Framework
     Core Definitions
     Enrolment and Registration Requirements
     Compliance Programs
     KYC Obligations
     Reporting Obligations
     Correspondent Banking Obligations
     Record Keeping Obligations
     Enforcement
   Proceeds of Crime Act
   Bribery and Corruption
   Compliance Ramifications

For some general background reading with real-life examples of money laundering and other criminal behaviour, see Austrac's Typologies and Case Studies Reports.


Anti-Money Laundering and Counter-Terrorism Financing
ML-TF Crimes

CCC s400.3(1)-400.8(1) - Intentional Money Laundering
A person commits an offence if:
(a)   they deal with money or other property; and
(b)   either:
  (i)   the money or property is, and the person believes it to be, proceeds of crime; or
  (ii)   the person intends that the money or property will become an instrument of crime.

Click here for a copy of the Commonwealth Criminal Code.

The size of the penalty for breaching these requirements depends on the value of the money or property involved. For individuals, where the amount involved is $1,000,000 or more, the maximum penalty is 25 years imprisonment and/or a fine of 1,500 penalty units; $100,000 or more, 20 years imprisonment and/or a fine of 1,200 penalty units; $50,000 or more, 15 years imprisonment and/or a fine of 900 penalty units; $10,000 or more, 10 years imprisonment and/or a fine of 600 penalty units; $1,000 or more, 5 years imprisonment and/or a fine of 300 penalty units; less than $1,000, 12 months imprisonment and/or a fine of 60 penalty units. For bodies corporate, the maximum penalty is 5 times the amount of the fine applicable to an individual.

CCC s11.2 provides that a person who aids, abets, counsels or procures the commission of an offence by another person is taken to have committed that offence and is punishable accordingly. This could apply to employees or executives of a corporation who knowingly cause the corporation to breach money laundering offences.

Note that money laundering is also an offence under State and Territory law - see ss114B and 114C of the Crimes Act 1900 (ACT), ss193B-193D of the Crimes Act 1900 (NSW), ss231B and 231C of the Criminal Code (NT), s250 and 252 of the Criminal Proceeds Confiscation Act 2002 (Qld), ss138 and 138A of the Criminal Law Consolidation Act 1935 (SA), s66A-66C of the Crime (Confiscation Of Profits) Act 1993 (Tas), ss194-195A of the Crimes Act 1958 (VIC) and s563A and 563B of the Criminal Code (WA).

CCC s400.3(2)-400.8(2) - Reckless Money Laundering
A person commits an offence if:
(a)   they deal with money or other property;
(b)   either:
  (i)   the money or property is proceeds of crime; or
  (ii)   there is a risk that the money or property will become an instrument of crime; and
(c)   the person is reckless as to the fact that the money or property is proceeds of crime or the fact that there is a risk that it will become an instrument of crime (as the case requires).

Again, the size of the penalty depends on the value of the money or property involved. For individuals, where the amount involved is $1,000,000 or more, the maximum penalty is 12 years imprisonment and/or a fine of 720 penalty units; $100,000 or more, 10 years imprisonment and/or a fine of 600 penalty units; $50,000 or more, 7 years imprisonment and/or a fine of 420 penalty units; $10,000 or more, 5 years imprisonment and/or a fine of 300 penalty units; $1,000 or more, 2 years imprisonment and/or a fine of 120 penalty units; less than $1,000, 6 months imprisonment and/or a fine of 30 penalty units. For bodies corporate, the maximum penalty is 5 times the amount of the fine applicable to an individual.

CCC s400.3(3)-400.8(3) - Negligent Money Laundering
A person commits an offence if:
(a)   they deal with money or other property;
(b)   either:
  (i)   the money or property is proceeds of crime; or
  (ii)   there is a risk that the money or property will become an instrument of crime; and
(c)   the person is negligent as to the fact that the money or property is proceeds of crime or the fact that there is a risk that it will become an instrument of crime (as the case requires).

Again, the size of the penalty depends on the value of the money or property involved. For individuals, where the amount involved is $1,000,000 or more, the maximum penalty is 5 years imprisonment and/or a fine of 300 penalty units; $100,000 or more, 4 years imprisonment and/or a fine of 240 penalty units; $50,000 or more, 3 years imprisonment and/or a fine of 180 penalty units; $10,000 or more, 2 years imprisonment and/or a fine of 120 penalty units; $1,000 or more, 12 months imprisonment and/or a fine of 60 penalty units; less than $1,000,  a fine of 10 penalty units. For bodies corporate, the maximum penalty is 5 times the amount of the fine applicable to an individual.

CCC s400.9(1) and (1A) - Dealing with Property Reasonably Suspected of Being Proceeds of Crime
A person commits an offence if:
(a)   the person deals with money or other property; and
(b)   it is reasonable to suspect the money or property is proceeds of crime.

Again, the size of the penalty depends on the value of the money or property involved. For individuals, where the amount involved is $100,000 or more, the maximum penalty is 3 years imprisonment and/or a fine of 180 penalty units and where the amount involved is less than $100,000, the maximum penalty is 2 years imprisonment and/or a fine of 120 penalty units. For bodies corporate, the maximum penalty is 5 times the amount of the fine applicable to an individual.

CCC s400.9(2) provides that (b) above is taken to be satisfied if:
(a)   the conduct referred to in (a) above involves a number of transactions that are structured or arranged to avoid FTRA reporting requirements that would otherwise apply to the transactions;
(aa)   the conduct involves a number of transactions that are structured or arranged to avoid the reporting requirements of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 that would otherwise apply to the transactions;
(b)   the conduct involves using one or more accounts held with ADIs in false names;
(ba)   the conduct amounts to an offence against section 139, 140 or 141 of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006;
(c)   the value of the money and property involved in the conduct is, in the opinion of the trier of fact, grossly out of proportion to the defendant's income and expenditure over a reasonable period within which the conduct occurs;
(d)   the conduct involves a significant cash transaction within the meaning of the FTRA, and the defendant has contravened his or her obligations under that Act relating to reporting the transaction or given false or misleading information in purported compliance with those obligations;
(da)   the conduct involves a threshold transaction (within the meaning of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006), and the defendant has contravened the defendant’s obligations under that Act relating to reporting the transaction or has given false or misleading information in purported compliance with those obligations; or
(e)  

the defendant has stated that the conduct was engaged in on behalf of or at the request of another person and has not provided information enabling the other person to be identified and located.

CCC S400.9(5) provides that s400.9 does not apply if the defendant proves that he or she had no reasonable grounds for suspecting that the money or property was derived or realised, directly or indirectly, from some form of unlawful activity.

As to how ss400.9(1), (1A) and (5) interact, see DPP (Commonwealth) v Sharon Lee Brown (1994) 72 A Crim R 527. That case concerned s82(1) of the Proceeds of Crime Act 1987, the precursor to CCC s400.9, which provided that a person who receives, possesses, conceals, disposes of or brings into Australia any money, or other property, that may reasonably be suspected of being proceeds of crime was guilty of an offence. The respondent was a 20 year old NAB employee living at home with her mother, a woman in a de facto relationship with a drug dealer and convicted murderer. The drug dealer deposited $17,000 into the respondent's bank account, which she used to make a deposit on a house and towards the purchase of a car. She had been told, and the magistrate accepted that she genuinely believed, that the money was the proceeds of legal casino gambling. She was charged under s82(1) of the Proceeds of Crime Act 1987 because, it was alleged, she had received or possessed money or property that could reasonably be suspected of being proceeds of crime. The trial judge acquitted her pursuant to s82(2), which provided that it was a defence to a charge brought under s82(1) if the person satisfied the court that he or she had no reasonable grounds for suspecting that the money or property referred to in the charge was derived or realised, directly or indirectly, from some form of unlawful activity. The DPP challenged that finding, arguing that the proper test to be applied under s82(2) was whether a reasonable person, knowing what the accused knew, would not have been suspicious that the money or property in question was proceeds of crime and that the respondent had not satisfied that onus.

The SA Court of Appeal dismissed the appeal, expressing the usual reluctance to overturn acquittals and to interfere with finding of facts turning on an assessment of the state of mind of the accused and their credibility as a witness. It held that the proper test to be applied under s82(2) was whether the accused in fact had no suspicion that the money or property in question was proceeds of crime and whether that state of mind was reasonably based and that, in this case, there were sufficient facts for the magistrate to find that the defence had been made out. The court found that the scheme of s82 was initially to impose the onus on the prosecution under s82(1) to establish, beyond reasonable doubt, that there were objectively reasonable grounds for a hypothetical person to suspect that the money or property in question was proceeds of crime. If it did, the onus then shifted to the accused under s82(2) to establish, on balance of probabilities, that they subjectively did not have that suspicion and that their state of mind was reasonably based. The court reached this conclusion in part because s82(2) used the phrase "he or she had no reasonable grounds for suspecting" rather than "there were no reasonable grounds for suspecting" and in part because if it was to adopt the interpretation urged by the DPP, s82(2) would effectively have no operation.

 

CCC ss400.1 and 400.2 - Money Laundering Definitions
Proceeds of crime means any money or other property that is wholly or partly derived or realised, directly or indirectly, by any person from the commission of an offence against a law of the Commonwealth, a State, a Territory or a foreign country that may be dealt with as an indictable offence (even if it may, in some circumstances, be dealt with as a summary offence).
Instrument of crime means money or other property used in the commission of, or used to facilitate the commission of, an offence against a law of the Commonwealth, a State, a Territory or a foreign country that may be dealt with as an indictable offence (even if it may, in some circumstances, be dealt with as a summary offence).
A person deals with money or other property if they:
(a)   receive, possess, conceal or dispose of money or other property;
(b)   import money or other property into Australia;
(c)   export money or other property from Australia; or
(d)   engage in a banking transaction relating to money or other property.
Money or other property includes financial instruments, cards and other objects that represent money or can be exchanged for money, whether or not they have intrinsic value.

 

CCC s102.6 - Getting Funds To, From or For a Terrorist Organisation
A person commits an offence if:
(a)   the person intentionally:
  (i)   receives funds from, or makes funds available to, an organisation (whether directly or indirectly); or
  (ii)   collects funds for, or on behalf of, an organisation (whether directly or indirectly);
(b)   the organisation is a terrorist organisation; and
(c)   the person:
  (i)   knows the organisation is a terrorist organisation (penalty: imprisonment for 25 years); or
  (ii)   the person is reckless as to whether the organisation is a terrorist organisation (penalty: imprisonment for 15 years).

 

CCC s103.1 - Financing Terrorism
A person commits an offence if:
(a)   the person provides or collects funds; and
(b)   the person is reckless as to whether the funds will be used to facilitate or engage in a terrorist act.
Penalty: imprisonment for life.

A person commits an offence under s103.1 even if (a) a terrorist act does not occur; (b) the funds will not be used to facilitate or engage in a specific terrorist act; or (c) the funds will be used to facilitate or engage in more than one terrorist act (CCC s103.1(2)).

CCC s103.2 - Financing a Terrorist
A person commits an offence if:
(a)   the person intentionally:
  (i)   makes funds available to another person (whether directly or indirectly); or
  (ii)   collects funds for, or on behalf of, another person (whether directly or indirectly); and
(b)   the first-mentioned person is reckless as to whether the other person will use the funds to facilitate or engage in a terrorist act.
Penalty: imprisonment for life.

Again, a person commits an offence under s103.2 even if (a) a terrorist act does not occur; (b) the funds will not be used to facilitate or engage in a specific terrorist act; or (c) the funds will be used to facilitate or engage in more than one terrorist act (CCC s103.2(2)).

CCC ss100.1 and 102.1 - Terrorism Definitions
Terrorist act means an action or threat of action where:
(a)   the action falls within s100.1(2) and does not fall within s100.1(3);
(b)   the action is done or the threat is made with the intention of advancing a political, religious or ideological cause; and
(c)   the action is done or the threat is made with the intention of:
  (i)   coercing, or influencing by intimidation, the government of the Commonwealth or a State, Territory or foreign country, or of part of a State, Territory or foreign country; or
  (ii)   intimidating the public or a section of the public.
Terrorist organisation means:
(a)   an organisation that is directly or indirectly engaged in, preparing, planning, assisting in or fostering the doing of a terrorist act (whether or not a terrorist act occurs); or
(b)   an organisation that is specified by regulations for these purposes.

Action falls within s100.1(2) if it:

(a)   causes serious harm that is physical harm to a person;
(b)   causes serious damage to property;
(c)   causes a person’s death;
(d)   endangers a person’s life, other than the life of the person taking the action;
(e)   creates a serious risk to the health or safety of the public or a section of the public; or
(f)   seriously interferes with, seriously disrupts, or destroys, an electronic system including, but not limited to:
       •    an information system;
       •    a telecommunications system;
       •    a financial system;
       •    a system used for the delivery of essential government services;
       •    a system used for, or by, an essential public utility; or

       •    a system used for, or by, a transport system.

Action falls within s100.1(3) if it is advocacy, protest, dissent or industrial action and it is not intended: (i) to cause serious harm that is physical harm to a person; (ii) to cause a person’s death; (iii) to endanger the life of a person, other than the person taking the action; or (iv) to create a serious risk to the health or safety of the public or a section of the public.

References to persons or property include persons or property situated outside Australia and references to the public include the public of a country other than Australia (s100.1(4)).

 

Charter of the United Nations Act 1945 s20(1) - Dealing With Freezable Assets
An individual commits an offence if:
(a)  the individual holds an asset;
(b)  the individual:
      (i)    uses or deals with the asset;
      (ii)   allows the asset to be used or dealt with; or
      (iii)  facilitates the use of the asset or dealing with the asset;
(c)  the asset is a freezable asset; and
(d)  the use or dealing is not in accordance with a notice under s22.
Penalty: imprisonment for 10 years or a fine of 2,500 penalty units or 3 times the value of the transaction or transactions in question.

Click here for a copy of the Charter of the United Nations Act 1945 (Cth).

There is an equivalent offence for bodies corporate in s20(3C), which is punishable by a fine of up to 10,000 penalty units or 3 times the value of the transaction or transactions in question. It is a defence for both an individual and a body corporate if they can prove that the use or dealing was solely for the purpose of preserving the value of the asset (ss20(3) and (3E)(a)). It is also a defence for a body corporate if it can prove that it took reasonable precautions, and exercised due diligence, to avoid contravening s20(3C) (s20(3E)(b)).

These provisions appear in Part 4 of the Act Security Council decisions that relate to terrorism and dealings with assets and have been enacted pursuant to UN Resolution 1373, which requires UN Member States to:

     

"Freeze without delay funds and other financial assets or economic resources of persons who commit, or attempt to commit, terrorist acts or participate in or facilitate the commission of terrorist acts; of entities owned or controlled directly or indirectly by such persons; and of persons and entities acting on behalf of, or at the direction of such persons and entities, including funds derived or generated from property owned or controlled directly or indirectly by such persons and associated persons and entities".

S2 defines "asset" to mean: (a) an asset of any kind or property of any kind, whether tangible or intangible, movable or immovable, however acquired; and (b) a legal document or instrument in any form, including electronic or digital, evidencing title to, or interest in, such an asset or such property, including, but not limited to, bank credits, travellers cheques, bank cheques, money orders, shares, securities, bonds, debt instruments, drafts and letters of credit.

S22 permits the Minister to give a written notice authorising a person to do an act that would otherwise contravene s20.

 

UN Charter Act s21(1) - Persons Must Not Give Assets to Proscribed Persons or Entities
An individual commits an offence if:
(a)   the individual, directly or indirectly, makes an asset available to a person or entity;
(b)   the person or entity to whom the asset is made available is a proscribed person or entity; and
(c)   the making available of the asset is not in accordance with a notice under s22.
Penalty: imprisonment for 10 years or a fine of 2,500 penalty units or 3 times the value of the transaction or transactions in question.

There is an equivalent offence for bodies corporate in s21(2C), which is punishable by a fine of up to 10,000 penalty units or 3 times the value of the transaction or transactions in question. Again, it is a defence for a body corporate if it can prove that it took reasonable precautions, and exercised due diligence, to avoid contravening s21(2C) (s20(2E)).

Again, s22 permits the Minister to give a written notice authorising a person to do an act that would otherwise contravene s21.

Under r42 of the Charter of the United Nations (Dealing with Assets) Regulations 2008, as soon as practicable after a person forms an opinion that: (i) an asset they hold is a "controlled" asset; or (ii) an asset, having been a controlled asset, or having been previously treated by the person as a controlled asset, is not, or is no longer, a controlled asset, they must inform the Australian Federal Police of: (a) the asset about which the opinion was formed; (b) as much information about the asset (including information about the owner or controller of the asset) as is known to the person; and (c) the reasons for the opinion. The term "controlled asset" is defined in r4 as meaning either a "freezable asset" (as defined in the UN Charter Act and set out in the slide below) or a "controlled asset", as defined in any of the various Australian government regulations imposing sanctions against different regimes and bodies.

UN Charter Act s14 - Definitions
Freezable asset means an asset that:
(a)  is owned or controlled by a proscribed person or entity;
(b)  is a listed asset under s15; or
(c)  is derived or generated from assets mentioned in para (a) or (b).
Proscribed person or entity means a person or entity listed by the Minister under s15 or proscribed by regulation under s18.

S15(1)  requires the Minister to list a person or entity for these purposes if the Minister is satisfied of the prescribed matters. S15(3) empowers the Minister to list an asset or class of asset for these purposes if the Minister is satisfied of the prescribed matters. Listing takes place by notice in the Government Gazette (ss15(6) and (7)).

Under r40 of the Charter of the United Nations (Dealing with Assets) Regulations 2008, the Department of Foreign Affairs and Trade maintains a consolidated list of all persons and entities to which the Act currently applies (the list is available at: http://dfat.gov.au/international-relations/security/sanctions/Pages/consolidated-list.aspx). It also makes available "LinkMatchLite" software that is designed to assist asset holders in finding possible matches between their clients and names on the consolidated list.

UN Charter Act s24 - Protection from Liability for Holders of Freezable Assets
A person is not liable to an action, suit or proceeding for anything done or omitted to be done in good faith and without negligence in compliance or purported compliance with this Part.

Section 25 provides that if: (a) the owner or controller of an asset instructs a person holding the asset to use or deal with it; (b) the holder refuses to comply with the instruction; (c) the refusal was in good faith, and without negligence, in purported compliance with this Part; (d) the asset was not a freezable asset; and (e) the owner of the asset suffered loss as a result of the refusal; the owner of the asset is entitled to be compensated by the Commonwealth for that loss.

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Anti-Money Laundering and Counter-Terrorism Financing
The AML-CTF Framework

•     Two Acts operate concurrently - the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) and the Financial Transaction Reports Act 1988 (Cth). The AMLCTFA is supplemented (and in some cases modified) by the AML/CTF Rules.
•     Most financial services organisations will be reporting entities under the AMLCTFA and many of the services they provide will be designated services under that Act. They will therefore be subject to KYC, reporting, record keeping and other obligations under that Act in respect of those services.
•     Many financial services organisations will also be cash dealers under the FTRA and therefore potentially have customer identification, reporting and record keeping obligations under that Act.
•     Where there is overlap, the AMLCTFA KYC, reporting and record keeping obligations "trump" those under the FTRA.
•     Most of the things that give rise to customer identification, reporting or record keeping obligations under the FTRA (opening or maintaining an account, significant cash transactions and international funds transfer instructions) will also be designated services under the AMLCTFA and so a financial services organisation generally need only concern itself with its AMLCTFA obligations.
•     However, the obligation to report suspect transactions under the FTRA (see below) is, in some respects, broader than that under the AMLCTFA and there are circumstances where a financial services organisation will be obliged to file a suspect transaction report under the FTRA even though it has no such obligation under the AMLCTFA.

Click here for a copy of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006, the AML/CTF Rules and the Financial Transaction Reports Act 1988.

For a general guide designed to assist cash dealers, industry associations, members of the public and other interested stakeholders in understanding their obligations under the AMLCTFA and FTRA, see Austrac's Compliance Guide and eLearning courses.

By way of introduction, AML/CTF obligations are becoming increasingly important globally. As an example, in May 2016, the Monetary Authority of Singapore (MAS) announced that it was requiring BSI Bank (a Swiss bank providing "private banking" services to clients) to shut its operations in Singapore because of serious breaches of anti-money laundering requirements, poor management oversight of its operations, and gross misconduct by some of its staff. In addition, MAS referred to the Public Prosecutor the names of 6 members of BSI Bank’s senior management and staff to evaluate whether they had committed criminal offences (see http://www.mas.gov.sg/News-and-Publications/Media-Releases/2016/MAS-directs-BSI-Bank-to-shut-down-in-Singapore.aspx).

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Anti-Money Laundering and Counter-Terrorism Financing
Core Definitions

AMLCTFA s5 - Key Definitions
Reporting entity means a person who provides a designated service.
Designated service has the meaning given by s6.
Financing of terrorism means conduct that amounts to an offence against CCC ss102.6, 103.1 or 103.2, UN Charter Act ss20 or 21 or a corresponding law of a State or Territory or of a foreign country or part of a foreign country.
Money laundering means conduct that amounts to an offence against CCC Division 400 or a corresponding law of a State or Territory or of a foreign country or part of a foreign country.

Table 1 in AMLCTFA s6 lists the financial services that are "designated services". The list is long and captures most of the services provided by a typical financial services organisation. It includes:

a financial institution opening, allowing a person to become a signatory to, or allowing a transaction to be conducted in relation to, an account;
a financial institution accepting, or allowing a transaction to be conducted in relation to, a deposit;
a financial institution issuing a bill of exchange, promissory note or letter of credit to a person;
a financial institution providing a cheque book or cheque facility to a person;
a financial institution issuing a debit card to a person;
a trustee or manager of a trust issuing a cheque book or cheque facility to a beneficiary that enables the beneficiary to draw a cheque on an account held by the trustee or manager;
a trustee or manager of a trust issuing a debit card to a beneficiary that allows the holder or an authorised signatory to debit funds to an account held by the trustee or manager with a financial institution;
a person who carries on a lending business making a loan or such a person or their assignee allowing the borrower to conduct a transaction in relation to the loan;
a person factoring a receivable in the course of carrying on a factoring business;
a person forfaiting a bill of exchange or a promissory note in the course of carrying on a forfaiting business;
a person supplying goods by way of lease under a finance lease to a person who is not a consumer (within the meaning of section 4B of the Trade Practices Act 1974) in the course of carrying on a finance leasing business or allowing the lessee to conduct a transaction in relation to the lease;
a person supplying goods to another person by way of hire-purchase where the goods are not acquired by a consumer (within the meaning of section 4B of the Trade Practices Act 1974) in the course of carrying on a business of supplying goods or allowing that other person to conduct a transaction in relation to the hire­purchase agreement;
an issuer of travellers' cheques issuing, cashing or redeeming travellers' cheques;
issuing or increasing the monetary value of certain stored value cards above certain thresholds;
an issuer of money, postal or similar orders issuing, cashing or redeeming such orders above certain thresholds;
accepting or making funds available pursuant to EFT instructions;
accepting or making money or property available under designated remittance arrangements or making a platform available to a network providing such arrangements;
an agent acquiring or disposing of a security, derivative, carbon unit, Australian carbon credit unit, eligible international emissions unit or foreign exchange contract for a person pursuant to a business of doing that as agent;
an agent acquiring or disposing of a bill of exchange, promissory note or letter of credit for a person pursuant to a business of doing that as agent;
issuing or selling a security or derivative to a person pursuant to a business of doing that (subject to certain exceptions for companies, government issuers and financial market operators);
an issuer of a bearer bond redeeming the bond;
issuing, or undertaking liability as the insurer under, a life policy or sinking fund policy;
an insurer accepting a premium or making a payment to a person under a life policy or sinking fund policy;
someone other than a SMSF selling a pension or annuity pursuant to a business of doing that;
the provider of a pension or annuity (other than a SMSF) making a payment under it;
the trustee of a superannuation fund (other than a SMSF) or approved deposit fund accepting a contribution, roll­over or transfer in respect of a new or existing member of the fund;
the trustee of a superannuation fund (other than a SMSF) or approved deposit fund cashing all or part of the interest of a member;
an FHSA provider accepting a contribution, roll­over or transfer to an FHSA in respect of a new or existing FHSA holder;
an FHSA provider cashing all or part of an interest held by an FHSA holder;
an RSA provider accepting a contribution, roll­over or transfer to an RSA in respect of a new or existing RSA holder;
an RSA provider cashing all or part of an interest held by an RSA holder;
providing a custodial or depository service in the course of a business of doing that;
providing a safety deposit box or similar facility in the course of a business of doing that;
a guarantor guaranteeing a loan in the course of a business of doing that or making a payment to a lender in respect of such a guarantee;
exchanging currencies in the course of a business of doing that;
collecting or delivering currency in the course of a business of doing that (subject to certain exceptions);
preparing a payroll from physical currency collected in the course of a business of doing that; and

the holder of an Australian financial services licence making arrangements for a person to receive a designated service (other than a service covered by this item).

There are also separate tables of designated services for bullion dealers and providers of gambling services in AMLCTFA s6.

For the purposes of the first few items in the list above, "financial institution" is a shorthand reference to capture the references in table 1 of s6 to an ADI, bank, building society, credit union or other person specified in the AML/CTF Rules and "account" is defined to include a credit card account, loan account and an account of money held in the form of units in a cash management trust or a trust of a kind prescribed by the AML/CTF Rules (AMLCTFA s5). For these purposes, it is immaterial whether the account has a nil balance or any transactions have been allowed in relation to the account.

For further guidance, see Austrac Public Legal Interpretation No. 4 of 2008 What constitutes a reporting entity and Public Legal Interpretation No. 2 of 2008 Item 54 of table 1 in section 6 of the AML/CTF Act.

 

FTRA s3 - Definition of Cash Dealer
•     Financial institutions (ADIs and co-operative housing societies);
•     Financial corporations (within the meaning of s51(xx) of the Constitution);
•     Insurers and insurance intermediaries;
•     Financial services licensees whose licence covers dealing in securities and/or derivatives;
•     Registrars or deputy registrars of a registry established under s14 of the Commonwealth Inscribed Stock Act 1911;
•     Managers and trustees of CMTs, property trusts or other prescribed unit trusts;
•     Firms that deal in travellers cheques, money orders and the like;
•     Bullion sellers
•     Persons (other than financial institutions or real estate agents acting in the ordinary course of a real estate business) who:
  •     collect currency, and hold currency collected, on behalf of other persons;
  •     exchange one currency for another, or convert currency into prescribed commercial instruments, on behalf of other persons;
  •     remit or transfer currency or prescribed commercial instruments, or make electronic funds transfers, into or out of Australia on behalf of other persons or arrange for such remittance or transfer;
  •     prepare pay-rolls on behalf of other persons in whole or in part from currency collected; or
  •     deliver currency (including payrolls);
•     Persons (other than financial institutions or real estate agents acting in the ordinary course of a real estate business) who carry on a business in Australia of:
  •     on behalf of other persons, arranging for funds to be made available outside Australia to those persons or others; or
  •     on behalf of persons outside Australia, making funds available, or arranging for funds to be made available, in Australia to those persons or others;
•     Casinos and gambling houses;
•     Bookmakers, including a totalisator agency board and any other person who operates a totalisator betting service.

For these purposes, "ADI" means a body corporate that is an ADI for the purposes of the Banking Act 1959, the Reserve Bank of Australia and a person who carries on State banking within the meaning of paragraph 51(xiii) of the Constitution and a "prescribed commercial instrument" means: (a) a cheque, bill of exchange, promissory note or other like instrument creating an entitlement to currency; or (b) any instrument (including an electronic instrument) that is declared to be a prescribed commercial instrument for the purposes of this definition.

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Anti-Money Laundering and Counter-Terrorism Financing
Enrolment and Registration Requirements

Enrolment and Registration Requirements
•     A reporting entity must enrol with AUSTRAC within 28 days after it first commences providing a designated service (s51B).
•     A person must notify Austrac with 14 days of any changes to its enrolment details (s51F).
•     A person providing remittance services under items 31, 32 and 32A of table 1 of AMLCTFA s6 must register with AUSTRAC or else they commit an offence when they provide the remittance service (s74).
•     Registered remittance service providers must advise Austrac of material changes in circumstances (s75M).

Persons who enrol with Austrac are entered onto the "Reporting Entities Roll". Remittance service providers who register with Austrac are entered onto the Remittance Sector Register.

Item 31 of table 1 of AMLCTFA s6 captures non‑financiers carrying on a business of giving effect to remittance arrangements, accepting an instruction from a transferor entity for the transfer of money or property under a designated remittance arrangement. Item 32 captures non‑financiers carrying on a business of giving effect to remittance arrangements, making money or property available, or arranging for it to be made available, to an ultimate transferee entity as a result of a transfer under a designated remittance arrangement. Item 32A captures operating a network of persons by providing a platform or operating system (however described), where: (a) the persons in the network provide a designated service referred to in item 31 or 32 by means of the platform or operating system; and (b) the operator is a non‑financier.

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Anti-Money Laundering and Counter-Terrorism Financing
Compliance Programs

AMLCTFA s81 - Requirement to Have AML/CTF Program
A reporting entity must not commence to provide a designated service to a customer if the reporting entity:
(a)  has not adopted; and
(b)  does not maintain;
an anti-money laundering and counter-terrorism financing program that applies to the reporting entity.

AMLCTFA s81 is a civil penalty provision.

For an overseas example of what can go wrong if you do not have an adequate AML/CTF program, see the announcement by the US Attorney's office in January 2014 that it had filed charges against JPMorgan Chase Bank for violating the Bank Secrecy Act (the US equivalent of the AMLCTFA) by failing to have an adequate AML program and failing to file the US equivalent of suspicious activity reports in connection with Bernie Madoff's multi-billion dollar ponzi scheme. By way of settlement, the charges were deferred for 2 years under an agreement requiring JPMorgan to admit to its conduct, pay US$1.7 billion to victims of Madoff's fraud, and to reform Its anti-money laundering policies. Separate settlements were reached with the US Department of the Treasury, Office of the Comptroller of the Currency and Financial Crimes Enforcement Network on the matter, bringing the total settlement to US$2.6 billion.

Types of AML/CTF Programs
•     Three types:
  •     standard - applies to an individual reporting entity (s84);
  •     joint - applies to each reporting entity that is a member of a "designated business group" which has elected to have a joint program (s85);
  •     special - applies to an AFSL holder whose only designated service is to arrange for a person to receive a designated service (ie item 54 of table 1) (s86).
•     Standard and joint programs have two parts: Part A (general) and Part B (customer identification procedures). Special programs only have customer identification procedures.

The responsible entity of a registered managed investment scheme can include its standard AML/CTF program as part of its compliance plan under the Corporations Act (AMLCTFA s84(7)).

Part A General Requirements
•     Primary purpose is to identify, mitigate and manage the risk a reporting entity may reasonably face that the provision by it of designated services at or through a permanent establishment in Australia might (inadvertently or otherwise) involve or facilitate money laundering or terrorism financing (ss84(2)(a) and 85(2)(a)).
•     If a reporting entity provides designated services via a permanent establishment in a foreign country, secondary purpose is to ensure that the reporting entity takes such action as is specified in the AML/CTF Rules in relation to the provision of those designated services (ss84(2)(b) and 85(2)(b)).
•     Must comply with the requirements specified in the AML/CTF Rules (ss84(2)(c) and 85(2)(c)).
•     Unless otherwise provided in the Act or Rules, must be applied to all areas of a reporting entity's business that are involved in the provision of a designated service, including in relation to any function carried out by a third party (AML/CTF Rules 8.1.7 and 9.1.7).

A reporting entity must comply with Part A of its AML/CTF program. Failure to comply is a civil penalty provision (s82).

Part A Specific Requirements
Chapter 8 of the AML/CTF Rules sets out the requirements for Part A of a standard AML/CTF program and Chapter 9 the requirements for Part A of a joint AML/CTF program. In each case, they must:
•     include an AML/CTF risk awareness training program for employees (rr8.2 and 9.2);
•     include appropriate risk-based systems and controls to screen prospective employees (rr8.3 and 9.3);
•     be approved by, and subject to, the ongoing oversight of the reporting entity’s board and senior management (rr8.4 and 9.4);
•     provide for a designated ‘AML/CTF Compliance Officer’ at the management level (rr8.5 and 9.5);
•     require regular independent review by an internal or external party (rr8.6 and 9.6);
•     include appropriate procedures for the reporting entity to have regard to any feedback provided by Austrac in respect of the reporting entity’s performance on the management of ML/TF risk (rr8.7 and 9.7);
•     include systems and controls that meet the obligations under the AMLCTFA that apply to the provision by the reporting entity of designated services at or through a permanent establishment of the reporting entity in a foreign country (rr8.8 and 9.8); and
•    

include a summary of the types of reports which the reporting entity is required to provide under ss41, 43, 45 and 47 of the AML/CTF Act and a description of the systems and controls which it has to ensure compliance with its reporting obligations (rr8.9 and 9.9).

Where Part A requires a reporting entity or group to determine and put in place appropriate risk-based systems or controls, it must have regard to the ML/TF risk relevant to the provision of the designated services it provides (rr8.1.6 and 9.1.6) and the nature, size and complexity of its business and the type of ML/TF risk that it might reasonably face (rr 8.1.3  and 9.1.3). In doing so, it must consider:

•   

its customer types, including any politically exposed persons;

•   

the types of designated services it provides;

•   

the methods by which it delivers designated services; and

•    

the foreign jurisdictions with which it deals (rr8.1.4 and 9.1.4).

Part A must be designed to enable the reporting entity to:

(1)  

understand the nature and purpose of the business relationship with its customer types, including, as appropriate, the collection of information relevant to that understanding

(2)  

understand the control structure of non-individual customers;

(3)  

identify significant changes in ML/TF risk for the purposes of the entity's Part A and Part B programs, including:

 

(a)  

risks identified by consideration of the factors in r8.1.4/9.1.4; and

 

(b)  

risks arising from changes in the nature of the business relationship, control structure or beneficial ownership of its customers;

(4)  

recognise such changes in ML/TF risk for the purposes of the requirements of the entity's Part A and Part B programs; and

(5)  

assess the ML/TF risk posed by:

 

(a)  

all new designated services prior to introducing them to the market;

 

(b)  

all new methods of designated service delivery prior to adopting them;

 

(c)  

all new or developing technologies used for the provision of a designated service prior to adopting them; and

 

(d)  

changes arising in the nature of the business relationship, control structure or beneficial ownership of its customers (rr8.1.5 and 9.1.5).

Rules 8.8 and 9.8 set out the requirements for foreign permanent establishments. Under rr8.8.3 and 9.8.3, where a reporting entity’s permanent establishment in a foreign jurisdiction is regulated by anti-money laundering and counter-terrorism financing laws comparable to Australia, only minimal additional systems and controls need to be considered. Rr8.8.4 and 9.8.4 provide that the Part A requirements mentioned above for oversight by boards and senior management, an AML/CTF Compliance Officer, independent review and Austrac feedback also apply in relation to foreign permanent establishments at or through which a reporting entity provides designated services but that the Part A requirements for an AML/CTF risk awareness training program and employee screening do not apply.

Under rr8.9.1 and 9.9.1, Part A must also include information about the obligations that apply to the reporting entity under s51F of the AMLCTFA and Chapter 64 of the AML/CTF Rules to notify AUSTRAC of changes in its enrolment details and, where the reporting entity is a remittance dealer, the obligations that apply to it under s75M to advise certain changes to certain parties.

For further guidance on screening procedures for employees, see the ASIC/Standards Australia guide book Reference Checking in the Financial Services Industry.

 

Part B
•     Purpose is to set out the reporting entity’s applicable customer identification procedures (ss84(3)(a) and 85(3)(a)).
•     Must comply with the requirements specified in the AML/CTF Rules (ss84(3)(b) and 85(3)(b)).
•     Must include appropriate risk-based systems and controls for the reporting entity:
  •     to be reasonably satisfied:
    •     in the case of an individual customer, that the customer is the person they claim to be (rr4.2.2); and
    •     in the case of a customer that is an entity, that the entity exists and as to the identity of certain key participants (rr4.3.2, 4.4.2, 4.5.2, 4.6.2, 4.7.2, 4.8.2);*
  •     to determine whether, in addition to the minimum KYC information required to be obtained, any other KYC information will be collected from a customer (rr4.2.5, 4.3.4, 4.4.4, 4.5.4, 4.6.4, 4.7.4, 4.8.4);
  •     to determine whether, in addition to the minimum KYC information required to be verified, any other KYC information collected from the customer should be verified (rr4.2.8, 4.3.6, 4.4.6, 4.5.6, 4.6.6, 4.7.6, 4.8.6); and
  •     to respond to any discrepancy that arises in the course of verifying KYC information collected from a customer so that the reporting entity can determine whether it is reasonably satisfied that the customer is the person or entity that they claim to be (rr4.2.9, 4.3.14, 4.4.17, 4.5.9, 4.6.9, 4.7.9, 4.8.9).

* The key participants whose identity must be established are: for a domestic or foreign company, the beneficial owners; for a trust, the trustees and beneficiaries; for a partnership, the partners; for an association, the members of the governing committee; for a registered co-operative, the chairman, secretary or equivalent officer; and for a government body, the beneficial owners.

Chapter 4 of the AML/CTF Rules sets out the requirements for Part B of a standard or joint AML/CTF program and the KYC information that a reporting entity must collect and verify in respect of customers who are individuals (r4.2), companies (r4.3), trustees (r4.4), partnerships (r4.5), associations (r4.6), registered co-operatives (r4.7) and government bodies (r4.8). It also has requirements for the collection and verification of information about agents acting for customers (r4.11), the beneficial owners of customers (r4.12) and politically exposed persons (r4.13).

Chapter 5 of the AML/CTF Rules applies the Part B requirements to special AML/CTF programs.

In identifying its ML/TF risk, a reporting entity must consider the risk posed by: (1) its customer types, including beneficial owners of customers and any politically exposed persons; (2) its customers' sources of funds and wealth; (3) the nature and purpose of the business relationship with its customers, including, as appropriate, the collection of information relevant to that consideration; (4) the control structure of its non-individual customers; (5) the types of designated services it provides; (6) the methods by which it delivers designated services; and (7) the foreign jurisdictions with which it deals (r4.1.3).

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Anti-Money Laundering and Counter-Terrorism Financing
KYC Obligations

Obligation to Verify Customer Identity
•     A reporting entity must carry out a procedure to verify a customer’s identity before providing a designated service to the customer (s32), unless:
  (a)   there are special circumstances prescribed in the AML/CTF Rules justifying the identification procedure being carried out afterwards - in which case the customer must be identified within the period specified in the Rules or, if no period is specified, with 5 business days of the reporting entity commencing to provide the designated service (ss33 and 34).*
  (b)   the designated service is specified as a low-risk service under the AML/CTF Rules - in which case, the customer does not need to be identified unless and until a suspicious matter reporting obligation arises in relation to the customer (ss30 and 31).**
  (c)   the customer was already a customer as at 12 December 2007 - in which case, the customer does not need to be identified unless and until a suspicious matter reporting obligation arises in relation to the customer (ss28 and 29).
•     In the case of (b) and (c), where a suspicious matter reporting obligation arises, the reporting entity must within 14 days :
  •     if it hasn't already done so or been deemed to have done so, carry out the applicable customer identification procedure;
  •     collect any KYC information in respect of the customer; and/or
  •     verify, from a reliable and independent source, certain KYC information that has been obtained about the customer (rr6.3 and 6.4),
  for the purpose of enabling it to be reasonably satisfied that the customer is the person they claim to be.

*  Currently certain online gambling services are prescribed "special circumstances" for these purposes (see r10.4.1), as is a reporting entity acquiring or disposing of a security, derivative or foreign exchange contract on a prescribed financial market as agent on behalf of a customer where the reporting entity cannot reasonably undertake the applicable customer identification procedure before the commencement of the provision of the designated service and the transaction must be performed rapidly due to financial market conditions relevant to the transaction (see r46.2). In the latter case, the customer identification procedure must be carried out no later than 5 business days after the day on which the reporting entity commenced to provide the designated service to the customer. This concession is only available if the reporting entity does not accept physical currency to fund the designated service; it does not permit the customer to transfer, or otherwise part with, proceeds from a disposal of a security or derivative or a foreign exchange contract; it does not re-sell, transfer, or otherwise part with (including to another reporting entity for the purpose of providing the designated service to that customer), a security or derivative or a foreign exchange contract on behalf of the customer which has been acquired on behalf of the customer; and it does not allow the customer to be re-credited with or obtain a refund of the purchase price. The reporting entity must also put in place appropriate risk-based systems and controls to determine whether and in what circumstances to provide the designated service to a customer before the applicable customer identification procedure is carried out, including in relation to the number, types and/or amount of transactions.

** Currently there are no designated services that are specified as "low-risk".

These provisions are all civil penalty provisions - see ss29(3), 31(3) and 34(3).

These obligations replaced the much narrower KYC obligations under the FTRA. The FTRA KYC requirements only applied to cash dealers when they opened an "account", as defined in s3 (basically, an account that accepted deposits of cash or cheques or allowed withdrawals of cash or by way or cheque, or a safety deposit box facility). The FTRA required a cash dealer to obtain the "account information" for the account and to identify each signatory to the account, either by conducting a "100 point check" or obtaining an identification reference from an "acceptable referee".

As mentioned previously, chapter 4 of the AML/CTF Rules now sets out the minimum KYC information that a reporting entity must collect and verify in relation to various types of customers (individuals, companies, trustees, partnerships, associations, registered co-operatives and government bodies). For the sake of brevity, I will just mention the rules applicable to individuals, companies, trustees and politically exposed persons.

For individuals, an AML/CTF program must include appropriate risk‑based systems and controls that are designed to enable the reporting entity to be reasonably satisfied that the customer is the individual that he or she claims to be (r4.2.2).

"KYC information" is defined in relation to a customer who is an individual to include information in relation to the customer’s name; the customer’s residential address; the customer’s date of birth; any other name that the customer is known by; the customer’s country(ies) of citizenship; the customer’s country(ies) of residence; the customer’s occupation or business activities; the nature of the customer’s business with the reporting entity, including the purpose of specific transactions or the expected nature and level of transaction behaviour; the income or assets available to the customer; the customer’s source of funds including the origin of funds; the customer’s financial position; the beneficial ownership of the funds used by the customer with respect to the designated services; and the beneficiaries of the transactions being facilitated by the reporting entity on behalf of the customer including the destination of funds (r1.2.1).

For individuals who are not sole traders, the minimum KYC information that must be collected by a reporting entity is their full name, date of birth and residential address (r4.2.3). For individuals who are sole traders, the minimum KYC information that must be collected by a reporting entity is their full name, date of birth, the business name (if any) under which they carry on business, the address of their principal place of business (if any) or their residential address and any ABN issued to the customer (r4.2.4).

The minimum information that must be verified for individuals is their full name and either their date of birth or their residential address (r4.2.6). This must be done using reliable and independent documentation, reliable and independent electronic data or a combination of the two (r4.2.7).

Where a customer is an individual, the reporting entity may assume that the customer and the beneficial owner are one and the same, unless the reporting entity has reasonable grounds to consider otherwise (r4.12.2(1)). Where the reporting entity can rely on this assumption, this means that it is not required to do anything further under Part 4.12 to identify any beneficial owner standing behind the customer.

For medium or lower ML/TF risk individuals, the AML/CTF Rules provide documentation-based and electronic-based safe harbour procedures that a reporting entity may choose to follow.

The documentation-based safe harbour procedure for medium or lower risk individuals (r4.2.11) involves verifying the customer's full name and either their residential address or date of birth (or both) from: (1) an original or certified copy of a primary photographic identification document (ie a driver's licence, passport, State issued photo ID card or national identity card); or (2) both: (a) an original or certified copy of a primary non-photographic identification document (ie a birth certificate or extract, citizenship certificate or Centrelink pension card); and (b) an original or certified copy of a secondary identification document (ie a Government benefits statement, tax assessment, rates notice or, for someone under 18, a certificate not more than 3 months old signed by their school principal). It also requires verifying that any document produced by the customer has not expired or, in the case of a passport issued by the Commonwealth, has not expired more than 2 years ago.

The electronic-based safe harbour procedure for medium or lower risk individuals (r4.2.13) involves verifying the customer's name and residential address using reliable and independent electronic data from at least two separate data sources and either: (1) the customer's date of birth using reliable and independent electronic data from at least one data source; or (2) that the customer has a transaction history for at least the past 3 years.

For companies, an AML/CTF program must include appropriate risk‑based systems and controls that are designed to enable the reporting entity to be reasonably satisfied that the company exists and the reporting entity has complied with the requirements specified in Part 4.12 in respect of its "beneficial owners" (r4.3.2).

"KYC information" is defined in relation to a company to include information in relation to the full name of the company as registered by ASIC; the full address of the company’s registered office; the full address of the company’s principal place of business (if any); the ACN issued to the company; whether the company is registered by ASIC as a proprietary company or a public company; the name of each director of the company; the full business name (if any) of the company as registered under any State or Territory business names legislation; the date upon which the company was registered by ASIC; the name of any company secretary; the nature of the business activities conducted by the company; and the name and address of any beneficial owner of the company. In the case of a registered foreign company, it also includes the full address of the company’s registered office in Australia; the full address of the company’s principal place of business in Australia (if any) or the full name and address of the company’s local agent in Australia; the ARBN issued to the company; the country in which the company was formed, incorporated or registered; whether the company is registered by the relevant foreign registration body and if so whether it is registered as a proprietary or private company; the name of the relevant foreign registration body; any identification number issued to the company by the relevant foreign registration body upon the company’s formation, incorporation or registration; the date upon which the company was formed, incorporated or registered in its country of formation, incorporation or registration; and the full address of the company in its country of formation, incorporation or registration as registered by the relevant foreign registration body. In the case of an unregistered foreign company, it also includes the full name of the company; the country in which the company was formed, incorporated or registered; whether the company is registered by the relevant foreign registration body and, if so, any identification number issued to the company by the relevant foreign registration body upon the company’s formation, incorporation or registration, the full address of the company in its country of formation, incorporation or registration as registered by the relevant foreign registration body, and whether it is registered as a proprietary or private company; the full address of the company’s principal place of business in that country; the name of the relevant foreign registration body; the date upon which the company was formed, incorporated or registered in its country of formation, incorporation or registration; and the full address of the company’s principal place of business in that country (r1.2.1).

For domestic companies, the minimum KYC information that must be collected by a reporting entity is the full name of the company as registered by ASIC; the full address of the company’s registered office; the full address of the company’s principal place of business, if any; the ACN issued to the company; whether the company is registered by ASIC as a proprietary or public company; and if the company is registered as a proprietary company, the name of each director of the company. For registered foreign companies, it is the full name of the company as registered by ASIC; the full address of the company’s registered office in Australia; the full address of the company’s principal place of business in Australia (if any) or the full name and address of the company’s local agent in Australia (if any); the ARBN issued to the company; the country in which the company was formed, incorporated or registered; whether the company is registered by the relevant foreign registration body and if so whether it is registered as a private or public company or some other type of company; and if the company is registered as a private company by the relevant foreign registration body, the name of each director of the company. For unregistered foreign companies, it is the full name of the company; the country in which the company was formed, incorporated or registered; whether the company is registered by the relevant foreign registration body and, if so, any identification number issued to the company by the relevant foreign registration body upon the company’s formation, incorporation or registration, the full address of the company in its country of formation, incorporation or registration as registered by the relevant foreign registration body and whether it is registered as a private or public company or some other type of company by the relevant foreign registration body; if the company is registered as a private company by the relevant foreign registration body, the name of each director of the company; and if the company is not registered by the relevant foreign registration body, the full address of the principal place of business of the company in its country of formation or incorporation (r4.3.3).

For domestic companies, the minimum KYC information that must be verified by a reporting entity is the full name of the company as registered by ASIC, whether the company is registered by ASIC as a proprietary or public company and the ACN issued to the company. For registered foreign companies, it is the full name of the company as registered by ASIC; whether the company is registered by the relevant foreign registration body and if so whether it is registered as a private or public company and the ARBN issued to the company. For unregistered foreign companies, it is the full name of the company, whether the company is registered by the relevant foreign registration body and if so any identification number issued to the company by the relevant foreign registration body upon the company’s formation, incorporation or registration and whether the company is registered as a private or public company (r4.3.5).

As mentioned above, there are also identification requirements that have to be met for the "beneficial owners" of a company. This term is defined in r1.2.1 to mean, in the case of a customer of a reporting entity, an individual who ultimately owns or controls (directly or indirectly) the customer. "Control" is defined to include control as a result of, or by means of, trusts, agreements, arrangements, understandings and practices, whether or not having legal or equitable force and whether or not based on legal or equitable rights, and includes exercising control through the capacity to determine decisions about financial and operating policies. "Own" is defined to mean ownership (either directly or indirectly) of 25% or more of a customer.

The reporting entity must generally determine the beneficial owner of each customer and to collect from the customer and take reasonable measures to verify each beneficial owner’s full name, and either the beneficial owner’s date of birth or full residential address, either before the provision of a designated service to the customer or as soon as practicable after the designated service has been provided (r4.12.1).

The beneficial owner provisions also have documentation-based and electronic-based safe harbours for verifying the identity of beneficial owners that apply where a reporting entity determines that the relationship between the relevant customer and the beneficial owner is of medium or lower risk (r4.12.7). These safe harbours do not apply to a foreign politically exposed person (r4.12.6). Under the documentation-based safe harbour procedure, the reporting entity must verify each beneficial owner’s full name and either the beneficial owner’s full residential address or date of birth, or both, from: (1) an original or certified copy of a primary photographic identification document; or (2) both an original or certified copy of a primary non‑photographic identification document and an original or certified copy of a secondary identification document. They must also verify the document produced by the customer in regard to each beneficial owner has not expired (other than in the case of a passport issued by the Commonwealth that expired within the preceding two years). Under the electronic-based safe harbour procedure, the reporting entity must verify each beneficial owner’s full name and either the beneficial owner’s full residential address or date of birth, or both, using reliable and independent electronic data from at least two separate data sources.

The AML/CTF Rules provide a simplified company verification procedure that a reporting entity may choose to follow in relation to: (a) a domestic listed public company; (b) a majority owned subsidiary of a domestic listed public company; and (c) a company that is licensed and subject to the regulatory oversight of a Commonwealth, State or Territory statutory regulator in relation to its activities as a company. In that case, the reporting entity may verify its identity by obtaining one or more of: (i) a search of the relevant domestic stock exchange; (ii) a public document issued by the relevant company; (iii) a search of the relevant ASIC database; or (iv) a search of the licence or other records of the relevant regulator (r4.3.8). Where this simplified procedure is used, the reporting entity does not have to verify the identity of the customer's beneficial owners under Part 4.12 (r4.12.2(a)).

The reporting entity does not have to verify the identity of the customer's beneficial owners under Part 4.12 if the customer is a foreign listed public company subject to disclosure requirements (whether by stock exchange rules or by law or enforceable means) to ensure transparency of beneficial ownership which are, or are comparable to, the requirements in Australia (r4.12.2(d)).

For trusts, an AML/CTF program must include appropriate risk‑based systems and controls that are designed to enable the reporting entity to be reasonably satisfied that the trust exists and the name of each trustee and beneficiary, or a description of each class of beneficiary, of the trust has been provided (r4.4.2).

"KYC information" is defined in relation to a trustee of a trust to include information in relation to the full name of the trust; the full business name (if any) of the trustee in respect of the trust; the type of the trust; the country in which the trust was established; if any of the trustees is an individual, in respect of any of those individuals, the information required to be collected from an individual under the reporting entity’s customer identification program in respect of individuals; if any of the trustees is a company, in respect of any those companies, the information required to be collected from a company under the reporting entity’s customer identification program in respect of companies; the full name and address of any trustee in respect of the trust; the full name of any beneficiary in respect of the trust; if the terms of the trust identify the beneficiaries by reference to membership of a class, details of the class; the State or Territory in which the trust was established; the date upon which the trust was established; a certified copy or certified extract of the trust deed; and the full name of the trust manager (if any) or settlor (if any) in respect of the trust (r1.2.1).

The minimum KYC information that must be collected by a reporting entity in relation to a trust includes the full name of the trust, the full business name (if any) of the trustee in respect of the trust, the type of the trust, the country in which the trust was established and the applicable individual or company KYC information for each of the trustees (r4.4.3(1)-(4) and (6)-(8)). The minimum KYC information that must be verified by a reporting entity includes the full name of the trust, which must be verified from a trust deed, certified copy or certified extract of the trust deed, reliable and independent documents relating to the trust or reliable and independent electronic data, and, for each trustee, the minimum individual or company KYC information that would ordinarily be verified for individuals or companies under the reporting entity's customer identification procedures (r4.4.5(1)-(4)). Except in cases where the material asset contribution to the trust by the settlor at the time the trust was established was less than $10,000, the settlor is deceased or the trust is verified using the simplified trustee verification procedure under r4.4.8, the minimum KYC information that must be collected and verified also includes the full name of the settlor of the trust (4.4.3(5) and 4.4.5(5)).

The AML/CTF Rules provide a simplified trustee verification procedure that a reporting entity may choose to follow in relation to: (a) a managed investment scheme that is registered by ASIC; (b) a managed investment scheme that is not registered by ASIC but that only has wholesale clients and does not make small scale offerings to which CA s1012E applies; (c) a trust registered and subject to the regulatory oversight of a Commonwealth statutory regulator in relation to its activities as a trust; or (d) a government superannuation fund established by legislation. In these cases, the reporting entity must verify that the trust falls within one of these classes (the method of verification is not specified (r4.4.8)).  Where this simplified procedure is used, the reporting entity does not have to verify the identity of the customer's beneficial owners under Part 4.12 (r4.12.2(b)).

For any other type of trust, Part B must also include a procedure for the reporting entity to collect the full name and address of each trustee in respect of the trust and either the full name of each beneficiary in respect of the trust or, if the terms of the trust identify the beneficiaries by reference to membership of a class, details of the class (r4.4.9). It must also include appropriate risk-based systems and controls for the reporting entity to determine whether additional KYC information should be obtained (r4.4.10) and whether and to what extent any of that information should be verified (r4.4.11).

For politically exposed persons, an AML/CTF program must include appropriate risk-management systems to determine whether a customer or beneficial owner is a politically exposed person (r4.13.1). The determination must occur either before the provision of a designated service to the customer or as soon as practicable after the designated service has been provided.

The term "politically exposed person" is defined to mean an individual: (1) who holds a prominent public position or function in a government body or an international organisation, including Head of State or head of a country or government; government minister or equivalent senior politician; senior government official; Judge of the High Court of Australia, the Federal Court of Australia or a Supreme Court of a State or Territory, or a Judge of a court of equivalent seniority in a foreign country or international organisation; governor of a central bank or any other position that has comparable influence to the Governor of the Reserve Bank of Australia; senior foreign representative, ambassador, or high commissioner; high-ranking member of the armed forces; or board chair, chief executive, or chief financial officer of, or any other position that has comparable influence in, any State enterprise or international organisation; (2) who is an immediate family member of a person referred to in (1), including a spouse; a de facto partner; a child and a child's spouse or de facto partner; or a parent; or (3) who is a close associate of a person referred to in paragraph (1), which means any individual who is known (having regard to information that is public or readily available) to have joint beneficial ownership of a legal entity or legal arrangement with a person referred to in paragraph (1) or sole beneficial ownership of a legal entity or legal arrangement that is known to exist for the benefit of a person described in paragraph (1). "Domestic politically exposed person" means a politically exposed person of an Australian government body. "Foreign politically exposed person" means a politically exposed person of a government body of a foreign country. "International organisation politically exposed person" means a politically exposed person of an international organisation (ie an organisation established by formal political agreement by two or more countries and that agreement has the status of an international treaty and recognised in the law of the countries which are members of the organisation) (r1.2.1).

If it is determined that a customer is a politically exposed person, the reporting entity must, in the case of a beneficial owner, comply with the identification requirements specified for individuals in rr4.2.3 to 4.2.9 as if the politically exposed person was the customer (rr4.13.2(1) and 4.13.3(1)).

For domestic politically exposed persons or international organisation politically exposed persons, the reporting entity must make a determination whether the person is of high ML/TF risk and, if they are, it must carry out the same actions in r4.13.3 that it is required to carry out for foreign politically exposed persons, as explained in the next paragraph (rr4.13.2(2) and (3)).

For foreign politically exposed persons and for high ML/TF risk domestic or international organisation politically exposed persons, the reporting entity must obtain senior management approval before establishing or continuing a business relationship with the individual and before the provision, or continued provision, of a designated service to the customer; take reasonable measures to establish the politically exposed person’s source of wealth and source of funds; and comply with the ongoing customer due diligence obligations in Chapter 15 (r4.13.3).

An AML/CTF program must also include appropriate risk-based systems and controls for the reporting entity to respond to any discrepancy that arises in the course of verifying information collected about a politically exposed person, so that the reporting entity can be reasonably satisfied that the politically exposed person is the person that he or she claims to be (r4.13.4).

Note AMLCTFA s35A, which permits reporting entities to disclose certain personal information to credit reporting bodies for identity verification purposes and to request the credit reporting body to provide an assessment of whether the personal information so disclosed matches (in whole or part) personal information held by the credit reporting body. To rely on this provision, before making the request, the individual must be given information about: (i) the reasons for making the request; (ii) the personal information about the individual that may be disclosed to the credit reporting body; (iii) the fact that the reporting entity may request the credit reporting body to provide an assessment of whether the personal information matches (in whole or part) personal information held by the credit reporting body; (iv) the fact that the credit reporting body may prepare and provide to the reporting entity such an assessment; and (v) the fact that the credit reporting body may use the personal information about the individual, and personal information held by the body that is the names, residential addresses and dates of birth of other individuals, for the purpose of preparing such an assessment. The individual must also have expressly agreed to the making of the request and the disclosure of the personal information and an alternative means of verifying the identity of the individual must have been made available to the individual.

For general guidance on customer identification requirements, see Austrac Guidance Note 11/02 Verification of Identity (e-Verification).

See also the Basel Committee on Banking Supervision's publications: Customer Due Diligence for Banks (October 2001), General Guide to Account Opening and Customer Identification (February 2003) and Consolidated KYC Risk Management (October 2004).

Obligation to Re-Verify Customer Identity
If circumstances arise where a reporting entity suspects on reasonable grounds that the customer is not the person that he or she claims to be, the reporting entity must:
•     collect any KYC information in respect of the customer; and/or
•     verify, from a reliable and independent source, certain KYC information that has been obtained in respect of the customer,
for the purpose of enabling the reporting entity to be reasonably satisfied that the customer is the person that he or she claims to be (s35 and r6.2).

This is a civil penalty provision - see s35(3).

Reliance on Identification Checks Performed by Others
•     A reporting entity can rely on an applicable customer identification procedure carried out by another reporting entity if it was carried out in circumstances specified in the AML/CTF Rules and any other conditions set in the AML/CTF Rules are satisfied (s38).
•     The Rules specify 2 circumstances:
  •     the customer identification procedure was conducted by a licensed financial advisor in the process of arranging for a customer to receive a designated service from the other reporting entity (r7.2); or
  •     the two reporting entities are both members of the same designated business group (r7.3).
•     The reporting entity must:
  •     obtain a copy of the record made by the other entity; or
  •     have access to the record under an agreement in place for the management of identification or other records;
  and have determined that it is appropriate for it to rely upon the applicable customer identification procedure.

Where these Rules apply, the reporting entity is deemed to have carried out the identification check itself.

Ongoing Customer Due Diligence Requirements
•     A reporting entity must also carry out "ongoing customer due diligence"* in accordance with the AML/CTF Rules (s36).
•     Part A must include a transaction monitoring program (r15.4) which:
  •     includes appropriate risk-based systems and controls to monitor the transactions of customers (r15.5);
  •     has the purpose of identifying, having regard to ML/TF risk, any transaction that appears to be suspicious within the terms of AMLCTFA s41 (r15.6); and
  •     has regard to complex, unusual large transactions and unusual patterns of transactions, which have no apparent economic or visible lawful purpose (r15.7).
•     Part A must also include an enhanced customer due diligence program (r15.8) which is applied whenever the entity determines under its risk-based systems and controls that:
  •     the ML/TF risk is high;
  •     a designated service is being provided to a customer who is, or who has a beneficial owner who is, a foreign politically exposed person;
  •     a suspicion has arisen for the purposes of s41; or
  •     the entity is entering into or proposing to enter into a transaction and a party to the transaction is physically present in, or is a corporation incorporated in, a prescribed foreign country (r15.9).

* The specific requirement in the Act is "to monitor the reporting entity’s customers in relation to the provision by the reporting entity of designated services at or through a permanent establishment of the reporting entity in Australia, with a view to identifying, mitigating and managing the risk the reporting entity may reasonably face that the provision by the reporting entity of a designated service at or through such a permanent establishment might (inadvertently or otherwise) involve or facilitate money laundering or financing of terrorism" (s36(1)(a)).

This is a civil penalty provision - see s36(2).

A reporting entity must include in Part A of its AML/CTF program appropriate risk-based systems and controls to enable a reporting entity to determine in what circumstances further KYC information or beneficial owner information should be collected or verified in respect of customers or beneficial owners of customers to enable the review and update of KYC information and beneficial owner information for ongoing customer due diligence purposes (r15.2). It must also undertake reasonable measures to keep, update and review the documents, data or information collected under the applicable customer identification procedure (particularly in relation to high risk customers) and the beneficial owner identification requirements specified in Chapter 4 of the Rules (r15.3).

An enhanced customer due diligence program must include appropriate risk-based systems and controls so that, in cases where one or more of the circumstances in r15.9 arises, a reporting entity must undertake measures appropriate to those circumstances, including a range of the following measures:

(1)  

seek information from the customer or from third party sources in order to undertake one or more of the following:

 

(a)  

clarify or update KYC information already collected from the customer;

 

(b)  

clarify or update beneficial owner information already collected from the customer;

 

(c)  

obtain any further KYC information or beneficial owner information, including, where appropriate, taking reasonable measures to identify the source of the customer’s and each beneficial owner’s wealth and the source of the customer’s and each beneficial owner’s funds;

 

(d)  

clarify the nature of the customer’s ongoing business with the reporting entity;

(2)  

undertake more detailed analysis of the customer’s KYC information and beneficial owner information, including, where appropriate, taking reasonable measures to identify:

 

(a)  

the source of the customer’s and each beneficial owner’s wealth; and

 

(b)  

the source of the customer’s and each beneficial owner’s funds;

(3)  

verify or re-verify KYC information in accordance with the customer identification program;

(4)  

verify or re-verify beneficial owner information in accordance with the beneficial owner identification requirements specified in Chapter 4 of the Rules;

(5)  

undertake more detailed analysis and monitoring of the customer’s transactions – both past and future, including, but not limited to:

 

(a)  

the purpose, reasons for, or nature of specific transactions; or

 

(b)  

the expected nature and level of transaction behaviour, including future transactions;

(6)  

seek senior management approval for:

 

(a)  

continuing a business relationship with a customer; and

 

(b)  

whether a designated service should continue to be provided to the customer;

(7)  

consider whether a transaction or particular transactions should be processed (r15.10).

If the reason for applying enhanced due diligence is that a designated service is being provided to a customer who is or who has a beneficial owner who is, a foreign politically exposed person, the reporting entity must at least undertake the measures mentioned in (2) and (6) above (r5.11).

 

AMLCTFA s235(1) - Protection from Liability for Reporting Entities
An action, suit or proceeding (whether criminal or civil) does not lie against:
(a)   a person; or
(b)   an officer, employee or agent of the person acting in the course of his or her office, employment or agency;
in relation to anything done, or omitted to be done, in good faith by the person, officer, employee or agent:
(c)   in carrying out an applicable customer identification procedure under this Act; or
(d)   in fulfilment, or purported fulfilment, of a requirement under this Act not to commence to provide a designated service, or not to continue to provide a designated service ...

 

AMLCTFA s92 - Request to Obtain Part A Information from Customer
•     If:
  •     a reporting entity has adopted a standard or joint AML/CTF program;
  •     the reporting entity is providing, or has provided, a designated service to a particular customer; and
  •     the reporting entity has reasonable grounds to believe that the customer has information that is likely to assist the reporting entity to comply with Part A of the program;
  the reporting entity may give a written notice to the customer, requesting the customer to give that information to the reporting entity within the period and in the manner specified in the notice.
•     If the customer fails to comply, the reporting entity may refuse to commence or to continue providing a designated service, or restrict or limit the provision of a designated service, to the customer until the customer provides the information covered by the request.
•     An action, suit or proceeding (whether criminal or civil) does not lie against:
  •     the reporting entity; or
  •     an officer, employee or agent of the reporting entity acting in the course of his or her office, employment or agency;
  in relation to anything done, or omitted to be done, in good faith by the reporting entity, officer, employee or agent in the exercise, or purported exercise, of this power.

The notice given under the first bullet point above must set out the information in the second bullet point above (ie what may happen if the client fails to comply - s92(3)).

Return to Outline


Anti-Money Laundering and Counter-Terrorism Financing
Reporting Obligations

Reporting Obligations
Reporting entities under the AMLCTFA must report:
•     "threshold transactions" ie transfers of physical currency or e-currency involving A$10,000+ or its equivalent in foreign currency (s43);
•     international funds transfer instructions (s45);
•     suspicious matters (s41); and
•     on their compliance with the Act (s47).
Cash dealers under the FTRA must report suspect transactions (s16), unless they are reportable as suspicious matters under the AMLCTFA.

The reference to "e-currency" in s43 refers to an internet-based, electronic means of exchange known as e-currency, e-money or digital currency that is backed by precious metal or bullion and that is not issued by or under the authority of a government body (see s5).

The AMLCTFA ss43 and 45 reporting obligations replaced the FTRA reporting obligations in respect of "significant cash transactions" (ie transfers of physical currency involving A$10,000+ or its equivalent in foreign currency) and international funds transfer instructions.

The AMLCTFA reporting obligation for suspicious matters does not technically replace the FTRA suspect transaction reporting obligation. However, FTRA ss16(4A) and (4B) effectively remove the obligation to comply with FTRA s16 for a cash dealer who is a reporting entity under the AMLCTFA in relation to suspicious designated service transactions. Hence there is still scope for FTRA s16 to operate in relation to a cash dealer who is not a reporting entity under the AMLCTFA or who is involved in a suspect transaction that is not a designated service under the AMLCTFA.

The AMLCTFA reporting obligations are all civil penalty provisions - see ss43(4), 45(4), 41(4) and 47(4).

If a reporting entity communicates information to the Austrac CEO under s41, 43 or 45, then Austrac, the Australian Federal Police, Australian Crime Commission, ATO, Customs, Integrity Commissioner or an investigating officer who is carrying out an investigation arising from, or relating to the matters mentioned in, the information may serve a notice requiring the reporting entity to give such further information or to produce such documents as are specified in the notice (AMLCTFA s49). Failure to comply is also a civil penalty provision.

Austrac has released a reporting policy to assist reporting entities in complying with their obligations under ss41, 43 and 45. The policy sets out the approved methods and processes for these reporting requirements. The policy is available at: http://www.austrac.gov.au/sites/default/files/documents/reporting_policy.pdf.

A compliance report must be in the approved form and contain such information as is required by the approved form (s47(3)). The approved form to be used by financial services organisations is available on Austrac's website at: http://www.austrac.gov.au/businesses/obligations-and-compliance/amlctf-compliance-reports.

The obligation to provide a compliance report does not apply to an AFSL holder whose only designated service is covered by item 54 of table 1 in s6 - ie one who merely arranges for customers to receive a designated service from another reporting entity (s47(5)).

A person is not excused from giving a compliance report on the ground that the report might tend to incriminate the person or expose the person to a penalty (s48).

Austrac has issued 3 public legal interpretations providing guidance on the AMLCTFA reporting obligations: Public Legal Interpretation No. 6 of 2008 Suspect transactions and suspicious matter reports, Public Legal Interpretation No. 7 of 2008 Significant cash transaction and threshold transaction reports and Public Legal Interpretation No. 8 of 2008 Cross-border movements.

The AMLCTFA reporting obligations for threshold transactions and international funds transfer instructions should be systematised (ie embedded into a financial institution's systems and processes) and happen automatically without the need for Compliance involvement. We therefore focus primarily in this course on the requirement to report suspicious matters.

AMLCTFA s41 - Reports of Suspicious Matters
A suspicious matter reporting obligation arises for a reporting entity in relation to a person (the first person) if, at a particular time (the relevant time):
•     the reporting entity commences to provide, or proposes to provide, a designated service to the first person; or
•     both:
  •     the first person requests the reporting entity to provide, or inquires of the reporting entity whether the reporting entity would be willing or prepared to provide, a designated service to the first person; and
  •     the designated service is of a kind ordinarily provided by the reporting entity;
and, at the relevant time or a later time, the reporting entity suspects on reasonable grounds that any of the following conditions is satisfied:
•     the first person, or an agent of the first person who deals with the reporting entity in relation to the provision or prospective provision of the designated service, is not the person they claim to be;
•     information the reporting entity has concerning the provision, or prospective provision, of the service:
  •     may be relevant to investigation of, or prosecution of a person for, an evasion, or an attempted evasion, of a Commonwealth, State or Territory taxation law;
  •     may be relevant to investigation of, or prosecution of a person for, an offence against a Commonwealth, State or Territory law;
  •     may be of assistance in the enforcement of the Proceeds of Crime Act 2002, the regulations under that Act or an equivalent law of a State or Territory; or
  •     may be relevant to the investigation of, or prosecution of a person for, an offence covered by paragraph (a), (b) or (c) of the definition of "financing of terrorism", or by paragraph (a) or (b) of the definition of "money laundering", in AMLCTFA s5; or
•     the provision, or prospective provision, of the service is preparatory to the commission of an offence covered by paragraph (a), (b) or (c) of the definition of "financing of terrorism", or by paragraph (a) or (b) of the definition of "money laundering", in AMLCTFA s5.

In relation to the last 2 bullet points, paragraphs (a), (b) and (c) of the definition of "financing of terrorism", and paragraphs (a) and (b) of the definition of "money laundering", relate to offences under Commonwealth, State and Territory laws (ie they do not include offences under foreign law).

Where a suspicious matter reporting obligation arises, the reporting entity must give the Austrac CEO a report about the matter within 24 hours after forming the relevant suspicion in the case of a financing of terrorism offence, and within 3 business days after forming the relevant suspicion in all other cases (s41(2)).

The report must be in the approved form, contain such information relating to the matter as is specified in the AML/CTF Rules and contain a statement of the grounds on which the reporting entity holds the relevant suspicion (s41(3)). The information requirements are set out in Chapter 18 of the AML/CTF Rules.

As mentioned above, failure to provide the required report is a civil penalty provision (s41(4)).

Note that the AMLCTFA suspicious matter reporting obligation arises where a reporting entity "suspects on reasonable grounds" that one of the circumstances mentioned in s41(1) exists. This is a significantly lower standard than "ought to know" or "believes on reasonable grounds".

AMLCTFA s41(5) provides that the AML/CTF Rules may specify matters that are to be taken into account in determining whether "there are reasonable grounds for a reporting entity to form a suspicion" of a kind mentioned in s41(1). No such rules have been made yet and it seems to me that the operation of these provisions may need further consideration before such rules are made.

In this regard, there is a mismatch in language between ss41(1) and (5). A suspicious matter reporting obligation only arises under s41(1) where "a reporting entity suspects on reasonable grounds" that one of the circumstances mentioned in s41(1) exists. It does not arise simply because "there are reasonable grounds for a reporting entity to form a suspicion" of the kind mentioned in s41(1), as s41(5) refers. The test under s41(1) is partly subjective and partly objective (see below) while the language in s41(5) is wholly objective (the difference between the two is analogous to the difference the SA Court of Appeal found in DPP (Commonwealth) v Sharon Lee Brown (1994) 72 A Crim R 527, above, between ss81(2) and (1), respectively, of the Proceeds of Crime Act 1987).

Read literally, the words "suspects on reasonable grounds" in s41(1) impose a composite two part test, which requires BOTH: (1) that the reporting entity in fact has the relevant suspicion; AND (2) that there are facts known to the reporting entity which give rise to an objectively reasonable basis for it to have been formed that suspicion. If that reading is correct, then for the DPP to succeed in a civil penalty case alleging a breach of s41(1), it would have to establish, on the balance of probabilities, that both these elements were present. Conversely, for a reporting entity to succeed in defending such a case, it would be sufficient to establish, on the balance of probabilities, EITHER: (1) that the reporting entity subjectively did not have the relevant suspicion, notwithstanding that a more diligent, enquiring or objective person might have had reasonable grounds to form such a suspicion; OR (2) that the reporting entity subjectively had the relevant suspicion but the facts on which it formed that suspicion were not an objectively reasonable basis for it to have done so.

Rules made under s41(5) may assist the DPP or a reporting entity in proving or disproving the second element. However, they will have no bearing at all on proving or disproving the first element.

For liability to turn upon whether a reporting entity subjectively suspects that one of the circumstances mentioned in s41(1) exists seems to me to have the potential to favour stupid, ignorant, careless or inattentive reporting entities over those who understand their suspicious transaction reporting obligations and who conscientiously seek to observe them!

Having regard to the decision in DPP (Commonwealth) v Sharon Lee Brown, it may have been better if the drafter of these provisions had instead adopted the schema of CCC ss400.9(1) and (5) - ie impose a suspicious matter reporting obligation where "there are reasonable grounds to suspect" (rather than where "the reporting entity has reasonable grounds to suspect" or "the reporting entity suspects on reasonable grounds") that one of the circumstances mentioned in s41(1) exists and then provide a defence for the reporting entity if it can show that it did not in fact have that suspicion and that this state of mind was objectively reasonable.

That said, there are some dangers for reporting entities in the requirement for a suspicion to be formed on reasonable grounds, as highlighted in Shah v HSBC Private Bank (UK) Ltd [2009] EWHC 79 (QB). In that case, the claimants alleged that they had suffered substantial damages arising out of delays by HSBC in executing 4 transfers from their bank account. At the time the reason given by HSBC for failing to execute the transfers was that they were complying with their UK statutory obligations. However, the underlying reason why each transfer was delayed was because HSBC suspected (incorrectly) that the funds in the claimants' account were criminal property and therefore, before it could proceed with each transaction, it was required to make a disclosure to the relevant authorities and wait for appropriate consent under Part 7 of the UK Proceeds of Crime Act. The claimants sought to argue that the POCA reporting obligation was not triggered unless HSBC had reasonable grounds for their suspicion (a gloss not present in the POCA itself) and that HSBC had therefore breached their contractual obligation to act in accordance with the claimants' instructions. The court rejected the argument, noting that: "Parliament intended suspicion as a subjective fact to be sufficient (1) to expose a person to criminal liability for money laundering and (2) to trigger disclosures to the authorities. Parliament did not require, in addition, that the suspicion be based upon 'reasonable' or 'rational' grounds. There are good practical reasons for this. Unlike law enforcement agencies, banks have neither the responsibility nor the expertise to investigate criminal activity to satisfy themselves that the grounds for their suspicion are well founded, reasonable or 'rational'."

Another area that needs careful attention in the rules to be published under AMLCTFA s41(5) are the principles for attributing suspicion to a reporting entity. Section 41 is only triggered where a reporting entity suspects on reasonable grounds that one of the conditions referred to in s41 is satisfied. In many cases, the reporting entity will be a corporation and the interaction between the reporting entity and a suspicious individual will often happen at relatively junior levels of staff. Under ordinary legal principles, states of mind such as knowledge or suspicion will generally only be attributed to a corporation where more senior members of staff are involved. Note that the attribution rules in Part 2.5 Division 12 of the Commonwealth Criminal Code (corporate criminal responsibility) do not apply as s41 is a civil penalty provision rather than a criminal offence.

FTRA s16(1) and (1A) - Reports of Suspect Transactions
Where:
•     a cash dealer is a party to a transaction; and
•     the cash dealer has reasonable grounds to suspect that:
  •     information that the cash dealer has concerning the transaction:
    •     may be relevant to investigation of an evasion, or attempted evasion, of a taxation law;
    •     may be relevant to investigation of, or prosecution of a person for, an offence against a law of the Commonwealth or of a Territory;
    •     may be of assistance in the enforcement of the Proceeds of Crime Act 1987 or the Proceeds of Crime Act 2002 or the regulations made under those Acts; or
    •     may be relevant to investigation of, or prosecution of a person for, a financing of terrorism offence; or
  •     the transaction is preparatory to the commission of a financing of terrorism offence;
the cash dealer ... shall, as soon as practicable after forming that suspicion:
•     prepare a report of the transaction; and
•     communicate the information contained in the report to the Austrac CEO.

As mentioned above, the AMLCTFA reporting obligation for suspicious matters does not technically replace the FTRA suspect transaction reporting obligation. However, FTRA ss16(4A) and (4B) effectively remove the obligation to comply with FTRA s16 for a cash dealer who is a reporting entity under the AMLCTFA in relation to suspicious designated service transactions. Hence there is still scope for s16 to operate in relation to a cash dealer who is not a reporting entity under the AMLCTFA or who is involved in a transaction which is suspicious (in the relevant sense) but which is not a designated service transaction under the AMLCTFA.

The penalty for failure to give a notice under s16 is imprisonment for 2 years (s28). The penalty for giving an intentionally false or misleading notice is imprisonment for 5 years (s29). The penalty for knowingly giving an incomplete notice is a fine of 10 penalty units for individuals or 50 penalty units for bodies corporate (s30).

The form and content of suspect transaction reports is prescribed by s16(2). They must be prepared in the approved form, contain the reportable details of the transaction, contain a statement of the grounds on which the cash dealer holds the suspicion referred to in s16(1) or (1A) and be signed by the cash dealer. "Reportable details" are defined in s16(6) to mean the details of the transaction that are referred to in Schedule 4 of the Act. The approved form is Austrac Form 16.

Where a cash dealer communicates information to Austrac under s16(1) or (1A), the cash dealer can be required to give such further information as is requested by the Austrac CEO, a "relevant authority" or an investigating officer of a relevant authority who is carrying out an investigation arising from, or relating to the matters referred to in, the information contained in the report (FTRA s16(4)). "Relevant authority" means the Australian Federal Police, Integrity Commissioner, Australian Crime Commission, ATO and Customs (s16(6)).

Note that the FTRA reporting obligation applies to any "transaction", even those that do not involve cash. The term "transaction" is not defined in the FTRA, beyond what is said in s3(7) that "FTRA Part II Division 2 applies in relation to a proposal for a transaction, or negotiations for a transaction, in the same way as it applies in relation to a completed transaction". Austrac has opined that a transaction can be constituted by any business dealing between a cash dealer and a customer. It includes negotiations or discussions which may not result in an actual dealing. However, it does not include mere enquiries (see Austrac Guideline No 1, para 7).

By contrast, the AMLCTFA suspicious matter reporting obligation requires some form of designated service to be involved. This means that a reporting entity under the AMLCTFA that is also a cash dealer under the FTRA (as many will be) could well have an obligation to report a suspect transaction under the FTRA even though it has no equivalent obligation under the AMLCTFA. For example, if an investment advisory division of a conglomerate financial services company came across information about criminal activity in the course of giving advice on a business acquisition/disposal, that could well be disclosable under FTRA s16 even though it may not involve a designated service and therefore does not require disclosure under the AMLCTFA.

Note too that the FTRA reporting obligation arises where a cash dealer "has reasonable grounds to suspect" that a transaction is connected with tax evasion, a Commonwealth or Territory offence, money laundering or financing of terrorism. This is a significantly lower standard than "ought to know" or "has reasonable grounds to believe". It is arguably also a lower standard than the AMLCTFA reporting standard of "suspects on reasonable grounds". Read literally and in isolation, "has reasonable grounds to suspect" appears to me to be an objective standard that can be satisfied regardless of whether the cash dealer in fact has the relevant suspicion, whereas "suspects on reasonable grounds" would clearly call into question the subjective state of mind of the cash dealer.

That said, the obligation to provide a report under s16 runs from the time that the cash dealer has formed the relevant suspicion. Further, one of the required items to be included in the report is a statement of grounds on which the cash dealer holds that suspicion. By necessary implication, therefore, an obligation to report under s16 can only arise if a cash dealer in fact has the relevant suspicion and so not much probably turns on the distinction. The decision in DPP (Commonwealth) v Sharon Lee Brown (1994) 72 A Crim R 527, above, would also lend weight to the view that the words "the cash dealer has reasonable grounds to suspect" in s16 should be interpreted purposively rather than literally and that they effectively have the same meaning as "the cash dealer suspects on reasonable grounds".

Note that the various Australian States and Territories also require that suspect transactions reports are given to Austrac in respect of certain serious offences under State laws so that they can be referred to relevant State law enforcement agencies. By way of example: ...

Financial Transaction Reports Act 1992 (NSW) - s7(1)
A cash dealer who is a party to a transaction, and has reasonable grounds to suspect that information that the cash dealer has concerning the transaction:
(a)   may be relevant to the investigation of, or prosecution of a person for, an offence against the law of the State; or
(b)   may be of assistance in the enforcement of the Confiscation of Proceeds of Crime Act 1989 or the Criminal Assets Recovery Act 1990 or in the administration of the Independent Commission Against Corruption Act 1988,
must, as soon as practicable after forming the suspicion, prepare a report of the transaction and communicate the information contained in it to the [Austrac CEO].

Click here for a copy of the Financial Transaction Reports Act 1992 (NSW). The equivalent Acts in other States and Territories are the Financial Transaction Reports Act (NT), Financial Transaction Reports Act 1992 (QLD), Financial Transaction Reports (State Provisions) Act 1992 (SA), Financial Transaction Reports Act 1993 (TAS), s119 of the Confiscation Act 1997 (VIC) and Financial Transaction Reports Act 1995 (WA).

Failure to comply with s7(1) above is a criminal offence punishable by a fine of 400 penalty units and/or imprisonment for 2 years.

This obligation only arises if the transaction is not reportable as a suspect transaction under the Federal FTRA (s7(2)).

Where a report is given under s7(1) of the State Act or under s16 of the Federal Act, the cash dealer can be required to give additional information by the Commissioner of Police, the Commissioner of the New South Wales Crime Commission, the Commissioner for ICAC or any police officer who is carrying out an investigation arising from, or relating to the matters referred to in, the information (see ss7(6) and 6(1)). The information requested must however be relevant to the investigation of, or prosecution of a person for, an offence against the law of the State or of assistance in the enforcement of the Confiscation of Proceeds of Crime Act 1989 or the Criminal Assets Recovery Act 1990 or in the administration of the Independent Commission Against Corruption Act 1988 (s7(7)).

Note that there is now also a suspicious activity reporting obligation in relation to suspected cases of insider trading or market manipulation in the ASIC Market Integrity Rules that apply to the ASX and Chi-X markets ...

ASX MIR 5.11.1(1) - Obligation to Report Suspicious Market Activity to ASIC
If a market participant has reasonable grounds to suspect that:
(a)   a person ("the insider") has placed an order into or entered into a transaction on the market in relation to a financial product while in possession of inside information (within the meaning of CA s1042A), whether or not the market participant is aware of:
  (i)   the identity of the insider; or
  (ii)   all of the details of the order or transaction; or
(b)   a transaction or an order transmitted to a trading platform has or is likely to have the effect of:
  (i)   creating an artificial price for trading in financial products on the market;
  (ii)   maintaining at a level that is artificial (whether or not it was previously artificial) a price for trading in financial products on the market;
  (iii)   creating, or causing the creation of, a false or misleading appearance of active trading in financial products on the market; or
  (iv)   creating, or causing the creation of, a false or misleading appearance with respect to the market for, or the price for trading in, financial products on the market,
  whether or not the market participant is aware of:
  (v)   the intention of any party to the transaction or order; or
  (vi)   all of the details of the transaction or order,
the market participant must, as soon as practicable, notify ASIC in writing of the details of the transaction or order (to the extent known to the market participant) and the reasons it suspects the matter set out in paragraphs (a) and/or (b).

There is an equivalent requirement in the Chi-X MIR for participants in that market.

A market participant is not required to notify ASIC under ASX MIR 5.11.1(1) if it has reported the relevant information to Austrac under AMLCTFA s41 or FTRA s16 (ASX MIR 5.11.1(2)).

Breach of ASX MIR 5.11.1 attracts a maximum penalty of $20,000.

AMLCTFA s123 - No Tipping Off
(1)   If:
  (a)   a suspicious matter reporting obligation arises or has arisen for a reporting entity in relation to a person; and
  (b)   the reporting entity has communicated information to the Austrac CEO under s41(2);
  the reporting entity must not disclose to someone other than the Austrac CEO or a member of the staff of Austrac that the information has been communicated to the Austrac CEO.
(2)   If:
  (a)   a suspicious matter reporting obligation arises or has arisen for a reporting entity in relation to a person; and
  (b)   either:
    (i)   the reporting entity has formed the applicable suspicion mentioned in s41(1); or
    (ii) the reporting entity has communicated information to the Austrac CEO under s41(2);
  then:
  (c)   where (b)(i) applies, the reporting entity must not disclose to someone other than the Austrac CEO or a member of the staff of Austrac that the reporting entity has formed the applicable suspicion mentioned in s41(1) or any other information from which the person to whom the information is disclosed could reasonably be expected to infer that the suspicion had been formed; and
  (d)   where (b)(ii) applies, the reporting entity must not disclose to a person other than the Austrac CEO or a member of the staff of Austrac any other information from which the person to whom the information is disclosed could reasonably be expected to infer that information had been communicated to the Austrac CEO under s41(2).
Penalty: imprisonment for 2 years and/or 120 penalty units.

A similar non-disclosure obligation also applies in relation to further information communicated or documents given to Austrac or a relevant authority or investigating officer under AMLCTFA s49(1) (s123(3)).

There are, relevantly, defences for disclosure to a legal practitioner for the purpose of obtaining legal advice (s123(5)), disclosure of information about the operation of Part 4 of the Charter of the United Nations Act 1945 (s123(6)); disclosure about the risks of dealing with a particular customer between members of a designated business group that are subject to a joint anti-money laundering and counter-terrorism financing program (s123(7)); disclosures between registered remittance network providers and their registered remittance affiliates (s123(7A)), disclosure by ADIs to owner managed branches (s123(8)); and disclosure under a requirement of Commonwealth, State or Territory law or to an Australian government body that has responsibility for law enforcement (s123(9)).

There are broadly equivalent provisions in FTRA s16(5A)-(5C).

AMLCTFA s235(1) - Protection from Liability for Reporting Entities
An action, suit or proceeding (whether criminal or civil) does not lie against:
(a)   a person; or
(b)   an officer, employee or agent of the person acting in the course of his or her office, employment or agency;
in relation to anything done, or omitted to be done, in good faith by the person, officer, employee or agent: ...
(e)   in compliance, or in purported compliance, with any ... requirement under this Act, the regulations or the AML/CTF Rules.

There is a broadly equivalent provision in FTRA s16(5).

AMLCTFA s51 - Protection of Compliant Reporting Entities from ML Charges
If a person, or an officer, employee or agent of a person, communicates or gives information under s41, 43, 45 or 49, the person, officer, employee or agent is taken, for the purposes of Division 400 and Chapter 5 of the Criminal Code, not to have been in possession of that information at any time.

There is a broadly equivalent provision in FTRA s17.

This is an important provision. Recall that the CCC s400.9 makes it a criminal offence to receive, possess, conceal, or dispose of money or other property, where reasonable grounds exist to suspect that the money or property is proceeds of crime.

AMLCTFA s51 operates to deem you not to be in possession of information included in a suspicious matter report. The effect is that the information given in the report then can’t be used against you to argue that you had reasonable grounds to suspect that the relevant money or property was proceeds of crime. This is a significant incentive to file a suspicious matter report.

The former Austrac Guidelines under the FTRA have been archived by Austrac. However, they do contain useful guidance on factors that may arouse suspicion and include numerous helpful examples. We therefore spend a bit of time looking at the following Austrac Guidelines ...

Austrac Guideline 1 - Factors That May Arouse Suspicion
Factors which should be considered in assessing whether or not a transaction is suspicious include:
•     the nature of, or unusual circumstances surrounding, the transaction;
•     the known business background of the person conducting the transaction;
•     the production of seemingly false identification;
•     opening or attempting to open accounts in a false name;
•     the use of aliases or a variety of similar but different addresses;
•     admissions or statements of involvement in tax evasion or other criminal activities;
•     regular or unusual transactions involving known narcotic source or transit countries;
•     the behaviour of the person(s) conducting the transaction (eg unusual nervousness);
•     the structuring of transactions to avoid disclosure;
•     unusual business dealings, particularly where significant amounts of cash are involved in circumstances that are difficult to explain (Guideline 1, paras 9 and 28).

Click here for a copy of Austrac Guideline No 1.

Examples given in Guideline 1 (para 38) of unusual business dealings include:

>    

exchange of small denomination bills ($5, $10 and $20) for large denomination bills ($100);

>    

regular large cash transactions by a non-customer;

>    

movements of very large amounts of cash by a customer with no apparent legitimate source;

>    

accounts receiving frequent deposits of bearer instruments (eg. bank cheques, money orders, bearer bonds) in amounts just below $10,000;

>    

use of unusually large amounts in travellers cheques;

>    

unusual account holdings, eg:

 

>    

a customer with an inordinately large number of accounts for the type of business s/he is purportedly conducting;

 

>    

accounts under one or more names with regular inter account transfers of aggregated funds not related to any legitimate business or commercial purpose; or

 

>    

an account in which many different persons, perhaps in different places, are depositing cash;

>    

unusual or irregular transfers of funds overseas, eg:

 

>    

telegraphic transfers involving payment in unusually large sums of cash;

 

>    

accounts used as a temporary depository for funds regularly transferred offshore;

 

>    

telegraphic transfers involving payment in cash by non-customers who fail to produce identification; or

 

>    

loans and securities dealings that appear to be a device to disguise the transfer of funds;

>    

unusual use of night deposit boxes or safe deposit boxes especially where cash is involved in large quantities; and

>    

a customer who transacts large amounts of cash inconsistent with the type of occupation or business that the customer is involved in, signalling that money is being laundered by co-mingling cash with business income or by passing what may be illicit cash through the accounts of an apparently legal business.

Austrac Guideline No 4 para 7 suggests that the presence of some of the following factors in a merchant banking or stock broking transaction might be relevant to assessing whether the transaction is a suspect transaction:

>    

a new client or prospective client whose background is unknown or whose reputation is unsound;

>    

ownership or control of an established corporate client has fallen into the hands of a person such as described above;

>    

behaviour by a customer that is out of character including unusual funds flows;

>    

a transaction that does not appear to be driven by ordinary commercial considerations;

>    

parties to the transaction are under serious financial stress and normal rules of commerce appear to have been suspended;

>    

full disclosure to third parties likely to be affected by a proposal is apparently being unfairly withheld;

>    

statements or admissions by persons in a transaction suggest that an illegality or abuse of office may be involved;

>    

the legality of a proposed arrangement is called into question by a legal opinion;

>     the transaction does not proceed to completion because it is perceived to be illegal or wrong.

 

Austrac Guideline 1 Addendum 1 – Use of Cheques
Potentially reportable suspect transactions:
•     Operating an account to which the deposits are predominantly third party cheques.
•     Cheques made out to a business name not being put through the normal trading account of the business but instead deposited into another account (eg in the name of director/partner or family member of the director/partner) or cashed over the counter.
•     A trading account customer cashing a cheque (drawn on the trading account) over the counter although the cheque is made out to a third party.

Click here for a copy of Guideline 1 Addendum 1: Suspect Transaction Reporting - The Use Of Cheques In Money Laundering.

There are a number of other addendums to Guideline 1. Of particular interest is Guideline 1 Addendum 5: Suspect Transaction Reporting - Identifying Suspect Transactions by Call Centres.

Austrac Guideline 4 Enc 1 - Examples of Reportable Money Laundering
(a)   A money market account is operated by two persons. Neither has been identified formally as they became signatories prior to the commencement of the FTRA on 1 Feb 1991. Amounts of cash just under $10,000 and third party cheques have been regularly deposited into the account for the past year. You are instructed to draw a cheque in favour of a third party who is resident in a tax haven for the total amount held in the account.
(b)   A corporate customer facing liquidation has $300m in non-performing loans with your bank. You are informed by a director that the debt will be cleared from a facility recently arranged with a European merchant bank. You can find no reference to the merchant bank in any of the banking almanacs and consider that no-one would lend commercially in these circumstances. You suspect that the source of the funds may be the proceeds of crime.
(c)   Press reports of the arrest of an international drug syndicate lead you to consider whether your firm inadvertently may have been involved in laundering the proceeds of the syndicate’s criminal activities. On reviewing the relevant customer files you come to the view that information available to you at the time should have put you on notice that the funds which passed through a number of the accounts may have been tainted. You subsequently obtain legal advice that the partners of the firm may be vulnerable to a money laundering charge and that, to protect them, you should immediately lodge a suspect transaction report.
(d)   You arrange an interest-only loan of $2,000,000 at 15% p.a. for a client who wishes to expand a business operation. The monthly interest is paid by cheque regularly for 3 months. You then notice that, over the next 3 month period, the interest is paid by 3 or more cash payments each month and never by cheque as before. The cash payments are roughly equal in amount and are all under $10,000. You suspect that the client is trying to evade the requirement that cash transactions of $10,000 and over be reported to Austrac.
(e)   As the underwriter of a share issue you learn that an employee of your firm has placed a parcel of shares with a client who paid with $100,000 in cash. The client is a businessman who runs a chain of fast-food outlets. You know that another person involved in running the same business has recently been charged with importing prohibited drugs. You suspect that the cash payment for the shares is connected with tax evasion and/or laundering funds received from the drug trafficking.
(f)   A customer requests you to supply a quantity of Commonwealth bonds in bearer form to the value of $100,000. The customer insists that the parcel contains only bonds with a face value of less than $10,000. Payment is made with 10 bank drafts each less than $10,000, from different banks together with a small amount of cash. You suspect money laundering and an attempt to avoid the FTRA reporting provisions.
(g)   You are an executive director of a merchant bank that has recently taken over another merchant bank. You discover that, late in June, the newly acquired bank advanced a temporary loan of $10 million to a company for the purpose, it seems, of deceiving shareholders and creditors as to the state of the company's liquidity. The loan was repaid a week later. You suspect that the parties involved in the transaction committed the offence of money laundering and that the money repaid under the loan was tainted by that crime.
(h)   Your merchant bank is asked by a client to review, and where necessary, to recommend changes in its corporate financial structure. During the course of the review you discover that the company has an extensive network of subsidiary companies and that some of these companies have been used for the purpose of fraudulently misrepresenting the amount of income tax payable. Apart from the possibility of tax evasion offences, you suspect that the offence of money-laundering has been committed on numerous occasions when tainted funds have been transferred from company to company with the group.

Click here for a copy of Guideline 4 Enclosure 1: Areas of Suspect Activity - Money Laundering.

Austrac Guideline 4 Enc 2 – Examples of Reportable Tax Evasion
(a)   A money market account with a substantial credit balance is in the name of a non-resident. Interest is accumulated in the account, after deducting 10% withholding tax. You receive information that the beneficial owner of the funds is an Australian resident and suspect that the account may be a vehicle to evade tax.
(b)   An Australian public company has an offshore bank account with a branch of your merchant bank in a tax haven country. You receive instructions from the company to expect substantial deposits into the offshore account from a third party. You later discover that the third party is a European wholesaler and that the deposits are part payment for exports made by the Australian company. You suspect that the arrangement is designed to evade income tax.
(c)   A corporation seeks to roll over a bill facility and in support provides financial statements for the last tax year. The level of security is assessed as being marginal and the managing director provides additional information that cost of work in progress at balance date was understated in the books as it did not take into account accumulated overheads. The managing director intimated that full accounting for overhead costs would be made at the time of completion of the relevant contracts. You suspect an unlawful tax deferral scheme.

Click here for a copy of Guideline 4 Enclosure 2: Areas of Suspect Activity - Tax Evasion.

Austrac Guideline 4 Enc 3 – Examples of Reportable Corporate Fraud
(a)   A listed public company, which has a strong chairman and a weak board of directors, seeks to restructure. There is some doubt as to the ongoing viability of the company and it becomes apparent during your involvement with the corporation that large sums have been transferred as management fees from the corporation to entities associated with the chairman. You suspect that the chairman may not have acted honestly in the discharge of his office.
(b)   A director of a publicly listed building company is known to have recently completed his own development project. During the course of providing advice or arranging finance you become aware that the resources of the public company have been used to assist in completing this private development. You suspect that the public company may not have been reimbursed for this expenditure.
(c)   A medium sized corporate customer, shortly before going into voluntary liquidation, sells its prime asset at apparently less than market value. At around the same time less desirable assets are purchased by the company from interests you suspect are associated with the directors, and at prices which, according to your information, are well in excess of their true value.
(d)   A property trust company is controlled by one of your clients. It becomes apparent during the course of providing advice that secret commissions and other benefits are being received by your client. You understand that these commissions and other benefits are much beyond the level of remuneration authorised by the trust deed.
(e)   You are asked to analyse the prospects of a small second board listed company. You discover that the results obtained are substantially less than the industry average and you receive confidential information that the executive directors have been systematically skimming profits for a number of years.
(f)   A growing proportion of the assets of a listed company consist of receivables which have no connection with the trading activities of the firm. You are asked by the managing director to accept funds from the company on instructions to on-lend to persons you suspect are associates of the managing director. You suspect that the managing director is in breach of his fiduciary responsibility to shareholders.
(g)   You are asked to arrange finance for the directors of a listed public company in a proposed management buy-out. Your clients advise you, in support of the lending proposal, that the deal is to be structured in such a way that their risk is all but eliminated. You suspect on learning more of the proposal that ordinary shareholders will be disadvantaged by the arrangement and that the directors are in breach of their duty to protect the interests of shareholders.
(h)   You are asked to assist in a restructuring proposal for a public company. You discover that the published profits were in the main generated either from fees booked at the end of the financial year (and subsequently reversed at the beginning of the next financial year) or from extraordinary profits on the sale of real estate to associated companies. You also find that there are substantial unrealised losses in off balance sheet companies within the group. You suspect that the group has been insolvent for some time and that the directors may have decided to trade-on, contrary to the interests of creditors.
(i)   A known corporate raider has recently acquired a controlling interest in a listed company and has installed its directors on the board. During a relatively short period of time the substantial liquid assets of the public company are lent without adequate security to the corporate raider. The shares of the public company plummet and you suspect that the directors installed by the corporate raider have not acted in the interests of the listed company.
(j)   You are asked to assist in a refinancing proposal. During the assignment you discover that the security for some of the existing borrowing is either over-valued or non-existent. You suspect that the company is insolvent and that fraud may have been committed.
(k)   A new client seeks advice on the acquisition of an insurance company whose parent is in financial difficulty. You conclude that the client does not have access to sufficient funds to complete the purchase and you cease to act in the matter. Subsequently you are surprised to learn that the insurance company has been purchased by your former client. You are reliably informed that the insurance company's own assets were used in the settlement.

Click here for a copy of Guideline 4 Enclosure 3: Areas of Suspect Activity - Corporate Fraud.

In example (f) above, the reference to a breach of fiduciary duty is not really relevant. It is the breach of statutory duty as an officer of the company that makes the transaction reportable.

Example (g) is somewhat problematical. Any management buy-out is likely to involve some transfer of benefits from shareholders to management. Typically the transaction will need to be disclosed to and approved by shareholders at a general meeting. If forthcoming, informed shareholder approval would cure any potential breach of fiduciary duty. Again, the reference to a suspected breach of (the common law) duty to shareholders is not relevant. Only a suspected breach of statutory duties to the company under the Corporations Act would be reportable.

I am not sure about example (k), at least as it relates to the FTRA. If you immediately realised that there was no way the prospective new client could afford the purchase and told them that you weren't interested in taking on the instruction then I don't think that would be a reportable "transaction" under the FTRA. It is just an enquiry and it was the accepted position of Austrac under the FTRA that you did not have to report mere enquiries. Note that this position has changed under the AMLCTFA, since that Act specifically applies to enquiries of a reporting entity as to whether it is willing to provide a designated service.

Even if you advised for a period before you came to the realisation that the client could not afford the purchase and then terminated your involvement, so that it could properly be said that you were a party to a "transaction" for a period, at no time was it a suspect transaction while you were a party to it. It is only after your involvement has ceased that you learn information that causes you to be suspicious. In this regard, FTRA s16 is drafted in the present tense (a cash dealer is a party to a transaction and … has reasonable grounds to suspect …). Again, this position has changed under the AMLCTFA, since that Act applies if you form the relevant suspicion either at the "relevant time" (ie when you do the transaction or receive a request or enquiry about the transaction) or at a later time.

Austrac Guideline 4 Enc 4 – Examples of Reportable Securities Offences
(a)   A broker suspects that an account which is traded heavily and has a number of profitable same day trades may be in a false name and be beneficially owned by an employee of the firm. The broker notices an increase in the number of transactions put through the suspense account and suspects a connection with the same employee.
(b)   A company officer is known to be trading in his own company's securities. Having regard to the timing, urgency and size of the trades, you suspect that the company officer may be seeking to profit from his/her insider knowledge of the company and/or to manipulate the price of the securities in the market.
(c)   A client you understand to be close to the controlling interests of a public company introduces a new customer who immediately begins to acquire a substantial holding in that company. A takeover offer is announced and the new client almost immediately accepts the offer. You suspect warehousing.
(d)   A client places buy and sell orders in such a way that you suspect an attempt to influence the share price. This may be attempted by ‘ramping’ or ‘pump and dump’ operations or possibly using ‘wash sales’ or ‘matched orders’.
(e)   You are invited to underwrite a company share issue. You become aware that the prospectus does not set out full particulars of the nature and extent of the interest of a director in property proposed to be acquired. Further, you consider that the valuation of the asset to be acquired is much inflated.
(f)   A rumour that a mining exploration company is about to announce the opening of a new field has caused the price of shares in that company to rise substantially. A director you understand to be the source of the rumour engages you to sell a substantial parcel of scrip. You suspect insider trading. When the rumour is proved false and the share price falls the same director becomes a buyer. You suspect market manipulation.
(g)   A client, in placing a sell order, tells you of a telephone call received from a European broking firm which is unknown to you. The offer promises fantastic potential profits from certain investments in South East Asia. The marketing technique leads you to suspect that a ‘boiler room’ fraud may be operating.
(h)   Your firm’s internal auditors report to you that a partner in the firm has been systematically trading ahead of customer orders and that the firm has profited as a result. There is nothing to suggest that any customers are aware of the practice.

Click here for a copy of Guideline 4 Enclosure 4: Areas of Suspect Activity - Securities Offences.

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Anti-Money Laundering and Counter-Terrorism Financing
Correspondent Banking Obligations

AMLCTFA – Correspondent Banking Obligations
•     A financial institution must not enter into a correspondent banking relationship with another person if they are reckless as to whether that other person is a shell bank or a financial institution that has a correspondent banking relationship with a shell bank (s95).
•     If a financial institution finds itself in a correspondent banking relationship with a shell bank or another financial institution that has a correspondent banking relationship with a shell bank, it must terminate that relationship (s96).
•     Before a financial institution enters into a correspondent banking relationship with another financial institution, the financial institution must carry out a due diligence assessment (s97).
•     If a financial institution has entered into a correspondent banking relationship with another financial institution, the financial institution must carry out regular due diligence assessments (s98).

These provisions are all civil penalty provisions - see ss95(2), 96(4), 97(3) and 98(7).

For these purposes, "correspondent banking relationship" means a relationship that involves the provision by one financial institution of banking services to another financial institution where: (a) the first financial institution carries on an activity or business at or through a permanent establishment in a particular country; (b) the second financial institution carries on an activity or business at or through a permanent establishment in another country; (c) the correspondent banking relationship relates, in whole or in part, to those permanent establishments; (d) the relationship is not of a kind specified in the AML/CTF Rules; and (e) the banking services are not of a kind specified in the AML/CTF Rules (s5).

A "shell bank" is a corporation that: (1) is incorporated and authorised to carry on banking business in a foreign country but does not have a physical presence there; and (2) is not an affiliate of another corporation that is incorporated and authorised to carry on banking business in a particular country and that has a physical presence in that country (s15(1)).

For these purposes, a corporation has a physical presence in a country if, and only if: (a) the corporation carries on banking business at a place in that country; and (b) at least one full‑time employee of the corporation performs banking‑related duties at that place (s15(2)) and a corporation is affiliated with another corporation if, and only if: (a) the corporation is a subsidiary of the other corporation; (b) at least one individual passes the control test in relation to both corporations; or (c) under the regulations, both corporations are taken to be under common control (s15(3)).

The initial due diligence assessment that must be carried out under s97, and the regular due diligence assessments that must be carried out under s98, must include an assessment of the risk the institution may reasonably face that the correspondent banking relationship might (whether inadvertently or otherwise) involve or facilitate money laundering or financing of terrorism (ss97(1) and 98(1)). Chapter 3 of the AML/CTF Rules sets out further requirements for a due diligence assessment of a correspondent banking relationship.

For further guidance, see Austrac Guidance Note 07/01: Correspondent banking.

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Anti-Money Laundering and Counter-Terrorism Financing
Record Keeping Obligations

AMLCTFA – Record Keeping Obligations
•     The AML/CTF Rules may require a reporting entity to make a record of a designated service (s106). Where that applies, the reporting entity must retain the record for 7 years (s107).
•     If a customer of a reporting entity gives it a document relating to the provision of a designated service, it must retain the original or a copy of the document for 7 years (s108).
•     A reporting entity must make and retain for 7 years a record of any EFT instructions it processes (s115).
•     A reporting entity must retain a copy of its anti-money laundering and counter-terrorism financing program, and make and retain a record of its adoption, for 7 years (s116).
•     A reporting entity must make a record of a customer identification procedure and the information it receives and retain that for 7 years after the end of the reporting entity’s relationship with the customer (ss111-114).
•     A reporting entity must also retain a copy of its due diligence assessments of correspondent banking relationships for 7 years (s117).

The FTRA also contains record keeping obligations that applied to "financial institutions" in relation to accounts, safety deposit box facilities, EFTs, international fund transfers and loans prior to 13 December 2006. These have now been superseded by the AMLCTFA record keeping obligations.

These provisions are all civil penalty provisions - see ss106(5), 107(3), 108(3), 109(5), 110(4), 112(4), 113(3), 114(6), 115(3), 116(5) and 117(3).

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Anti-Money Laundering and Counter-Terrorism Financing
Enforcement

AMLCTFA s175 – Civil Penalty Orders
If the Federal Court is satisfied that a person has contravened a civil penalty provision, it may order the person to pay the Commonwealth a pecuniary penalty of up to:
•    in the case of a body corporate - 100,000 penalty units;
•    in any other case - 20,000 penalty units.

CA s175(3) provides that in determining the amount of a pecuniary penalty, the Federal Court must have regard to all relevant matters, including: (a) the nature and extent of the contravention; (b) the nature and extent of any loss or damage suffered as a result of the contravention; (c) the circumstances in which the contravention took place; (d) whether the person has previously been found by the court in proceedings under the AMLCTFA to have engaged in any similar conduct; and (e) where the court considers that it is appropriate to do so, whether the person has previously been found by a court in proceedings under the FTRA or under a law of a State or Territory or by a foreign court to have engaged in any similar conduct.

Only the Austrac CEO may apply for a civil penalty order (s176). Proceedings for a civil penalty order must be started no later than 6 years after the contravention (s178).

The Austrac CEO may give a reporting entity a "remedial direction" requiring it to take specified action directed towards ensuring that it does not contravene a civil penalty provision, or is unlikely to contravene a civil penalty provision, in the future (s191). The Austrac CEO may also apply for injunctions and interim injunctions (ss192 and 193) and accept enforceable undertakings (ss197 and 198) in relation to a contravention of a civil penalty provision.

AMLCTFA s174 – Ancillary Liability for Contravention of Civil Penalty Provisions
A person must not:
(a)   attempt to contravene a civil penalty provision;
(b)   aid, abet, counsel or procure a contravention of a civil penalty provision;
(c)   induce, whether by threats or promises or otherwise, a contravention of a civil penalty provision;
(d)   be in any way, directly or indirectly, knowingly concerned in, or party to, a contravention of a civil penalty provision; or
(e)   conspire with others to effect a contravention of a civil penalty provision.

This too is a civil penalty provision - s174(2).

AMLCTFA – Offences
It is an offence:
•     to produce false or misleading information to Austrac or other responsible authorities under the Act (s136);
•     to produce a false or misleading document to Austrac or other responsible authorities under the Act (s137);
•     to forge a document for use in an applicable customer identification procedure (s138);
•     for a reporting entity to provide a designated service using a false customer name or on the basis of customer anonymity (s139);
•     for a customer to receive a designated service using a false customer name or on the basis of customer anonymity (s140);
•     for a customer commonly known by 2 or more different names not to disclose those names when receiving a designated service (s141).

The penalty for first 3 offences is imprisonment for 10 years and/or 10,000 penalty units and for the last 3 offences is imprisonment for 2 years and/or 120 penalty units.

AMLCTFA s142 – Structuring Transactions to Avoid Reporting
A person (the first person) commits an offence if:
(a)   the first person is, or causes another person to become, a party to 2 or more non-reportable transactions; and
(b)   having regard to:
  (i)   the manner and form in which the transactions were conducted, including the matters to which s142(3) applies; and
  (ii)   any explanation made by the first person as to the manner or form in which the transactions were conducted;
it would be reasonable to conclude that the first person conducted, or caused the transactions to be conducted, in that manner or form for the sole or dominant purpose of ensuring, or attempting to ensure, that the money or property involved in the transactions was transferred in a manner and form that would not give rise to a threshold transaction that would have been required to have been reported under s43.
Penalty: imprisonment for 5 years and/or 300 penalty units.

The matters referred to in s142(3) are: (a) the value of the money or property involved in each transaction; (b) the total value of the transactions; (c) the period of time over which the transactions took place; (d) the interval of time between any of the transactions; and (e) the locations at which the transactions took place.

There is a similar offence in AMLCTFA s143 for conducting transfers so as to avoid reporting requirements relating to cross-border movements of physical currency.

FTRA s31 contains a corresponding offence to AMLCTFA s142 - ie a person being a party to 2 or more non-reportable cash transactions where, having regard to the same factors as AMLCTFA s142(3), it would be reasonable to conclude that the person conducted the transactions in that manner or form for the sole or dominant purpose of ensuring, or attempting to ensure, that the currency involved in the transactions was transferred in a manner and form that would not give rise to a significant cash transaction or would give rise to exempt cash transactions.

It was endeavouring to structure transactions to avoid disclosure of a reportable cash transaction that ultimately led to Simon Hannes being identified as "Mark Booth" and charged with breaching both FTRA s31 and the insider trading provisions of the Corporations Act (see R v Hannes [2002] NSWSC 1182).

In Leask v The Commonwealth of Australia (1996) 187 CLR 579, the High Court upheld the constitutional validity of FTRA s31 as a valid exercise of Commonwealth legislative power under s51(ii) (taxation) and s51(xii) (currency, coinage, and legal tender) of the Constitution.

In Question Of Law Reserved (No.2 of 1998) (1998) 154 ALR 161, the court was asked by a magistrate to rule on a number of points of law in relation to the operation of s31(1) of the FTRA, the main one being whether it is a necessary component of the offence constituted by that section that the accused should know his act of avoiding the generation of a significant cash transaction is illegal and if so in what terms should a direction be given to a jury? The court answered the question as follows:

    

"No. It is sufficient to prove that the accused person knows: - the facts that give another party to the transaction the character of a cash dealer for the purposes of the Act; - that he or she was a party to a transaction that involved the physical transfer of currency; - that the amount of currency involved in each transaction had a value of less than $10,000; - that a transaction involving the transfer of currency of $10,000 or more in value must be reported to a government agency and that a transaction involving the transfer of currency of less than $10,000 in value need not be reported to a government agency.

    

The jury should be directed that they must be satisfied of these matters beyond reasonable doubt."

Note that this does not apply to a failure to lodge a report required under ss41, 43 45 or 467 of the AMLCTFA or under ss7, 15, 16 or 17B of the FTRA. In other words, the prosecution does not have to prove that the accused knew he or she had a filing obligation in order to succeed in a prosecution. In R v Taib; ex parte Commonwealth DPP (1998) 147 FLR 273, the accused was charged with attempting to take the equivalent of $1.4m in foreign currency out of the country without giving a report under s15 of the FTRA. His defence was that he was not aware of the obligation to give a report. Pincus JA said (at p276):

  "The South Australian decision in re Question of Law Reserved (No. 2 of 1998) … which was relied on by the primary judge, dealt with the requirement of mens rea in offences under s. 31(1) of the Act. … [T]hat … case is distinguishable. Section 31 deals with offences of which an element is, to put it simply, a purpose of evasion of the Act. In such a context it would not seem difficult to conclude that proof that the accused knew, at least in a general way, what the Act required would be needed. The South Australian case provides a contrast with the present; there, one could find indications, in the provision creating the offence, supporting the view at which the court arrived. Here, on the other hand, nothing in the actual language used points towards the conclusion for which Mr Taib’s counsel contend. The arguments they have advanced rely, of necessity, on broader considerations and in particular on the harshness of subjecting Mr Taib to a criminal penalty under a law of whose existence he had no reason to be aware. That is a consideration which may always be urged against applying the basic presumption, which is that a statute creating an offence is not so read as to require that the prosecution prove, as an element of the offence, that the accused knew of the relevant law. It is not, however, a consideration which applies with particular force to the provision here in question."

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Proceeds of Crime Act

POCA s5 - Objects
The principal objects of the Act are:
(a)   to deprive persons of the proceeds of offences, the instruments of offences, and benefits derived from offences, against the laws of the Commonwealth or the non-governing Territories;
(b)   to deprive persons of literary proceeds derived from the commercial exploitation of their notoriety from having committed offences;
(ba)  

to deprive persons of unexplained wealth amounts that the person cannot satisfy a court were not derived from certain offences;

(c)   to punish and deter persons from breaching laws of the Commonwealth or the non-governing Territories;
(d)   to prevent the reinvestment of proceeds, instruments, benefits, literary proceeds and unexplained wealth in further criminal activities;
(da)   to undermine the profitability of criminal enterprises;
(e)   to enable law enforcement authorities effectively to trace proceeds, instruments, benefits, literary proceeds and unexplained wealth;
(f)   to give effect to Australia's obligations under the Council of Europe Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime, and other international agreements relating to proceeds of crime; and
(g)   to provide for confiscation orders and restraining orders made in respect of offences against the laws of the States or the self-governing Territories to be enforced in the other Territories.

Click here for a copy of the Proceeds of Crime Act 2002 (Cth).

As an example of the operation of POCA in the financial services arena, in 2015, the former chairman of Gunns Limited was ordered to pay a $500,000 pecuniary penalty under POCA following his criminal conviction for insider trading in 2013. This was the sum agreed in a mediation as the amount of the benefit he derived from his insider trading (see ASIC Media Release 15-387).

There is similar legislation to POCA in all States and Territories: Confiscation Of Criminal Assets Act 2003 (ACT); Confiscation of Proceeds of Crime Act 1989 (NSW); Criminal Property Forfeiture Act (NT); Criminal Proceeds Confiscation Act 2002 (Qld); Criminal Assets Confiscation Act 2005 (SA); Crime (Confiscation Of Profits) Act 1993 (Tas); Confiscation Act 1997 (Vic); and Criminal Property Confiscation Act 2000 (WA).

One of the hurdles that the State laws face is s109 of the Constitution. In Tat Sang Loo v DPP (Victoria) [2005] VSCA 161, the Victorian Court of Appeal held that ss70 and 72 of the Confiscation Act 1997 (Vic) were operationally inconsistent with, and could not operate concurrently with, the winding up provisions in CA Chapter 5, a federal law.

POCA s213(1) – Notice to Financial Institution to Provide Information
An officer specified in s213(3) may give a written notice to a financial institution requiring the institution to provide to an authorised officer any information or documents relevant to any one or more of the following:
(a)   determining whether an account is or was held by a specified person with the financial institution;
(b)   determining whether a particular person is or was a signatory to an account;
(c)   if a person holds an account with the institution, the current balance of the account;
(d)   details of transactions on such an account over a specified period of up to 6 months;
(e)   details of any related accounts (including names of those who hold or held those accounts);
(ea)  

determining whether a stored value card was issued to a specified person by a financial institution;

(eb)  

details of transactions made using such a card over a specified period of up to 6 months;

(f)   a transaction conducted by the financial institution on behalf of a specified person.

POCA s338 defines "financial institution" to mean:

(a)   a body corporate that is an ADI for the purposes of the Banking Act 1959;
(b)   the Reserve Bank of Australia;

(c)  

a society registered or incorporated as a co-operative housing society or similar society under a law of a State or Territory;

(d)   a person who carries on State banking within the meaning of paragraph 51(xiii) of the Constitution;
(e)   a body corporate that is a financial corporation within the meaning of paragraph 51(xx) of the Constitution;
(f)   a body corporate that, if it had been incorporated in Australia, would be a financial corporation within the meaning of paragraph 51(xx) of the Constitution;
(g)   a trading corporation (within the meaning of paragraph 51(xx) of the Constitution) that carries on a business of operating a casino; or

(h)  

a trading corporation (within the meaning of paragraph 51(xx) of the Constitution) that is a totalisator agency board.

POCA s213(2) provides that an officer must not issue a s213 notice unless the officer reasonably believes that giving the notice is required to determine whether to take any action under the Act or in relation to proceedings under the Act.

POCA s213(3) states that the officers who may give a notice to a financial institution are the Commissioner, a Deputy Commissioner or a senior executive employee of the Australian Federal Police, the Integrity Commissioner; the CEO or an examiner of the Australian Crime Commission; the Commissioner of Taxation, the CEO of Customs or the chairperson of ASIC.

 

POCA s219 – Monitoring Orders
A judge of a court of a State or Territory that has jurisdiction to deal with criminal matters on indictment may make an order (a monitoring order) that a financial institution provide information about transactions:
(a)   conducted during a particular period through an account held by a particular person with the institution;
(b)  

made using a stored value card issued to a particular person by a financial institution,

if the judge is satisfied that there are reasonable grounds for suspecting that:
(c)   the person who holds the account or to whom the stored value card was issued:
  (i)   has committed, or is about to commit, a serious offence; or
  (ii)   was involved in the commission, or is about to be involved in the commission, of a serious offence; or
  (iii)   has benefited directly or indirectly, or is about to benefit directly or indirectly, from the commission of a serious offence; or
(d)   the account or card is being used to commit an offence against Part 10.2 of the Criminal Code (money laundering).

"Serious offence" is defined in POCA s338. In general terms, it includes drug trafficking, money laundering, terrorism, various offences against the AMLCTFA and FTRA, offences against the Migration Act 1958 relating to people smuggling and the organised harbouring of illegal entrants, cartel conduct in breach of the CCA, serious fraud and other offences prescribed by the regulations.

POCA ss215 and 221  – Protection From Suit
•     No action, suit or proceeding lies against a financial institution or an officer, employee or agent of the institution acting in the course of that person's employment or agency in relation to any action taken by the institution or person under a s213 notice or in complying with a s219 order or in the mistaken belief that action was required under such a notice or order.
•     A financial institution, or person who is an officer, employee or agent of a financial institution, who provides information under a s213 notice or s219 order is taken, for the purposes of Part 10.2 of the Criminal Code (offences relating to money-laundering), not to have been in possession of that information at any time.

Recall that the CCC s400.9 makes it a criminal offence to deal with money or other property where reasonable grounds exist to suspect that the money or property is proceeds of crime. These sections operate to deem you not to be in possession of information included in a response to a s213 notice or s219 order. The effect is that information given in the response then can't be used against you to argue that you had reasonable grounds to suspect that the relevant money or property was proceeds of crime - a significant incentive to comply carefully with a s213 notice or s219 order.

POCA ss217 and  223 – Offence to Disclose Existence of Notice or Order
It is an offence if a person:
•     who is given a s213 notice which specifies that information about the notice must not be disclosed, discloses the existence or nature of the notice;
•     discloses the existence or operation of a s219 order to another person and the disclosure is not to a person and for a purpose specified in s223(4); or
•     discloses information to another person, the other person could infer the existence or operation of a s219 order from that information and the disclosure is not to a person and for a purpose specified in s223(4).

The penalty for the first mentioned offence is imprisonment for 2 years and/or a fine of 120 penalty units for individuals and 600 penalty units for bodies corporate. The penalty for the last 2 offences is imprisonment for 5 years and/or a fine of 300 penalty units for individuals and 1,500 penalty units for bodies corporate.

POCA s223(4) provides that a person may disclose the existence or operation of a s219 order to various enforcement agencies or Austrac for various purposes, to an officer or agent of the financial institution for the purpose of ensuring that the order is complied with, or to a barrister or solicitor for the purpose of obtaining legal advice or representation in relation to the order.

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Bribery and Corruption

CCC s141.1(1) - Bribery of Commonwealth Public Officials
A person is guilty of an offence if:
(a)   the person dishonestly:
  (i)   provides a benefit to another person;
  (ii)   causes a benefit to be provided to another person;
  (iii)   offers to provide, or promises to provide, a benefit to another person; or
  (iv)   causes an offer of the provision of a benefit, or a promise of the provision of a benefit, to be made to another person; and
(b)   the person does so with the intention of influencing a [Commonwealth] public official (who may be the other person) in the exercise of the official's duties as a [Commonwealth] public official.
Penalty: for individuals, imprisonment for 10 years and/or a fine of 10,000 penalty units and, for bodies corporate, a fine equal to the greater of:
•     100,000 penalty units
•     if the court can determine the value of the benefit that the body corporate, and any body corporate related to the body corporate, have obtained directly or indirectly and that is reasonably attributable to the conduct constituting the offence -3 times the value of that benefit;
•     if the court cannot determine the value of that benefit - 10% of the annual turnover of the body corporate during the period of 12 months ending at the end of the month in which the conduct constituting the offence occurred.

Click here for a copy of the Commonwealth Criminal Code 1995.

There is a corresponding offence for a Commonwealth public official to ask for or accept a bribe (s141.1(3)).

"Commonwealth public official" is defined in the dictionary to the CCC to include, amongst others, the Governor-General, a Minister, a member of either House of the Parliament, a Commonwealth judicial officer, various Territorial officials, an employee of the Commonwealth or of a Commonwealth authority, a member of the Australian Defence Force and a member of the Australian Federal Police.

"Benefit" is defined to include any advantage and is not limited to property (s140.1).

CCC s142.1(1) - Corrupting Benefits to Commonwealth Public Officials
A person is guilty of an offence if:
(a)   the person dishonestly:
  (i)   provides a benefit to another person;
  (ii)   causes a benefit to be provided to another person;
  (iii)   offers to provide, or promises to provide, a benefit to another person; or
  (iv)   causes an offer of the provision of a benefit, or a promise of the provision of a benefit, to be made to another person; and
(b)   the receipt, or expectation of the receipt, of the benefit would tend to influence a [Commonwealth] public official (who may be the other person) in the exercise of the official's duties as a [Commonwealth] public official.
Penalty: imprisonment for 5 years.

There is a corresponding offence for a Commonwealth public official to ask for or accept a corrupting benefit (s142.1(3)).

The difference between s142.1(1) and 141.1(1) is that the former does not require the prosecution to prove the person paying the bribe intended to influence the official in the exercise of his or her duties. Instead it is only necessary to prove the payment would tend to influence the official.

CCC s70.2(1) - Bribing a Foreign Public Official
A person is guilty of an offence if:
(a)   the person:
  (i)   provides a benefit to another person;
  (ii)   causes a benefit to be provided to another person;
  (iii)   offers to provide, or promises to provide, a benefit to another person; or
  (iv)   causes an offer of the provision of a benefit, or a promise of the provision of a benefit, to be made to another person;
(b)   the benefit is not legitimately due to the other person; and
(c)   the first-mentioned person does so with the intention of influencing a foreign public official (who may be the other person) in the exercise of the official's duties as a foreign public official in order to:
  (i)   obtain or retain business; or
  (ii)   obtain or retain a business advantage that is not legitimately due to the recipient, or intended recipient, of the business advantage (who may be the first-mentioned person).
Penalty: for individuals, imprisonment for 10 years and/or a fine of 10,000 penalty units and, for bodies corporate, a fine equal to the greater of:
•     100,000 penalty units
•     if the court can determine the value of the benefit that the body corporate, and any body corporate related to the body corporate, have obtained directly or indirectly and that is reasonably attributable to the conduct constituting the offence -3 times the value of that benefit;
•     if the court cannot determine the value of that benefit - 10% of the annual turnover of the body corporate during the period of 12 months ending at the end of the month in which the conduct constituting the offence occurred.

CCC s70.2(1A) provides that for the purposes of (c) above, the first‑mentioned person does not need to intend to influence a particular foreign public official, and business or a business advantage does not need to be actually obtained or retained.

CCC s70.2(2) provides that in determining whether a benefit is not legitimately due, you disregard the fact that the benefit may be, or be perceived to be, customary, necessary or required in the situation, the value of the benefit and any official tolerance of the benefit.

CCC s70.2(3) provides that in determining whether a business advantage is not legitimately due, you disregard the fact that the business advantage may be customary, or perceived to be customary, in the situation; the value of the business advantage; and any official tolerance of the business advantage.

CCC s70.3 provides a defence where the conduct in question is lawful under a written law in force in the foreign public official's country. There is also a defence in s70.4 for "facilitation payments". These are benefits of a minor nature paid for the sole or dominant purpose of expediting or securing the performance of a routine government action of a minor nature. There is a list in s70.4(2) of "routine government actions of a minor nature". They must not involve, and the payment must not encourage, any decision about whether to award new business, to continue existing business or the terms of new business or existing business. To take advantage of the defence, a record must be made of the payment that complies with s70.4(3) (which includes the names of the persons making and receiving the payment) and that record must be retained for 7 years.

CCC s70.5 sets out the territorial and nationality requirements for s70.2. To commit an offence, the act must happen, wholly or partly, in Australia or on an Australian aircraft or an Australian ship or, if the conduct occurred wholly outside Australia, must involve an Australian citizen or resident or body corporate incorporated in Australia.

CCC s70.1 defines various expressions for the purposes of this division. "Foreign public official" includes not only employees and officials of foreign government organisations but also individuals who perform work for a foreign government body under a contract, employees of a public international organisation, individuals who perform work for a public international organisation under a contract and members or officers of the legislature of a foreign country or of part of a foreign country, and members of the executive, judiciary or magistracy of a foreign country or of part of a foreign country. "Foreign government body" is defined to mean (a) the government of a foreign country or of part of a foreign country; (b) an authority of the government of a foreign country; (c) an authority of the government of part of a foreign country; (d) a foreign local government body or foreign regional government body; and (e) a foreign public enterprise. Again, “benefit" is defined to include any advantage and is not limited to property. "Business advantage" is defined to mean any advantage in the conduct of business.

Australia has had two recent high profile foreign bribery/corruption cases - one involving Securency and Note Printing Australia (the first 50% owned, and the second wholly owned, by the Reserve Bank of Australia) and bribes allegedly paid to foreign officials in South East Asia to encourage their selection of Australia's proprietary polymer bank note technology (see R v Ellery [2012] VSC 349 and RBA Media Release dated 1 July 2011) and the other involving AWB and corrupt contractual dealings with the Iraqi regime around wheat trades (see ASIC v Lindberg [2012] VSC 332). In 2015, the AFP also charged two directors of an Australian-based construction company with conspiracy to bribe a foreign public official and money laundering offences (see http://www.abc.net.au/news/2015-02-26/foreign-bribery-investigation-lifese-construction-company/6263062).

CCC Division 70 is broadly the equivalent of the US Foreign Corrupt Practices Act ("FCPA"). In May 2015, the US SEC charged BHP Billiton with violating the FCPA when it sponsored the attendance of foreign government officials at the Summer Olympics. BHP Billiton had invited 176 government officials and employees of state-owned enterprises to attend the Games at the company’s expense, and ultimately paid for 60 such guests, as well as some spouses and others who attended along with them. Sponsored guests were primarily from countries in Africa and Asia, and they enjoyed 3 and 4 day hospitality packages that included event tickets, luxury hotel accommodations, and sightseeing excursions valued at $12,000 to $16,000 per package. BHP Billiton agreed to pay a $25 million penalty to settle the SEC's charges (see SEC Media Release 015-93).

CCC ss490.1 and 490.2 make it an offence (among other things) for an individual or corporation to intentionally or recklessly facilitate, conceal or disguise an occurrence of bribery in their accounting documents. Intentionally doing so is punishable, for individuals, by imprisonment for 10 years and/or a fine of 10,000 penalty units and, for corporations, a penalty equal to the greatest of: (a) 100,000 penalty units; (b) if the court can determine the value of the benefit that the body corporate, and any body corporate related to the body corporate, have obtained directly or indirectly and that is reasonably attributable to the conduct constituting the offence, 3 times the value of that benefit; and (c) if the court cannot determine the value of that benefit, 10% of the annual turnover of the body corporate during the period of 12 months ending at the end of the month in which the conduct constituting the offence occurred.

There are also bribery-related offences under State law, eg …

NSW Crimes Act 1900 s249B(2) - Corrupt Commissions or Rewards to Agents
If any person corruptly gives or offers to give to any agent, or to any other person with the consent or at the request of any agent, any benefit:
(a)   as an inducement or reward for or otherwise on account of the agent's:
  (i)   doing or not doing something, or having done or not having done something; or
  (ii)   showing or not showing, or having shown or not having shown, favour or disfavour to any person,
  in relation to the affairs or business of the agent's principal; or
(b)   the receipt or any expectation of which would in any way tend to influence the agent to show, or not to show, favour or disfavour to any person in relation to the affairs or business of the agent's principal,
the first-mentioned person is liable to imprisonment for 7 years.

Click here for a copy of the NSW Crimes Act 1900.

For these purposes, "agent" is defined in s249A to include:

(a)  

any person employed by, or acting for or on behalf of, any other person in any capacity;

(b)  

any person purporting to be, or intending to become, an agent of any other person;

(c)  

any person serving under the Crown;

(d)  

a police officer;

(e)  

a councillor within the meaning of the Local Government Act 1993;

(f)  

a councillor within the meaning of the Aboriginal Land Rights Act 1983; and

(g)  

a Board member of a Local Aboriginal Land Council within the meaning of the Aboriginal Land Rights Act 1983.

"Principal is also defined in s249A, in effect, as the person for whom the agent is acting.

You will see that in some respects s249B is wider, and in others narrower, than the CCC provisions mentioned earlier. It applies to all agents. It could apply, for example, to a bribe that a person gave to a company officer to encourage him or her to award a company contract in the person's favour. However, it probably does not apply to MPs, who are not persons serving "under the Crown" and do not otherwise fall within the definition of "agent" above. Payments to MPs would however be caught by the common law offence of bribery of a public official …

 

NSW Criminal Law - Bribery of Public Officials
Bribery – the receiving or offering of any undue reward by or to any person in order to influence his behaviour when acting in an official capacity or performing a public function and incline him to act contrary to the known rules of honesty and integrity – is a common law offence: see eg R v Whitaker [1914] 3 KB 1283 and R v Munro [1999] NSWCCA 31.

NSW criminal law is based party on statute and partly on the common law. Bribery of a public official is a common law offence.

In R v Whitaker, it was stated that it is a misdemeanour at common law for a public officer, whether judicial or ministerial, to accept a bribe as an inducement to him to show favour or forebear to show disfavour to any person towards whom an impartial discharge of the officer’s duty demands that he should show no favour or disfavour. In that case, the colonel of a regiment accepted money from a firm of caterers to induce him to accept their representative as tenant of the regimental canteen. It was held that he was a ministerial officer and guilty of accepting a bribe.

In R v Munro, the appellant was tried upon an indictment charging three counts of common law bribery. On one there was a directed verdict of acquittal, on another he was found not guilty but on the third he was found guilty. The third count involved a payment of $5,000 to a local councillor "as an inducement to incline him to act in a manner contrary to his duty, namely to show favour to" the accused. On appeal, however, the conviction on the third charge was set aside for evidentiary reasons. Notwithstanding this, here is clear judicial recognition of common law bribery as an offence under NSW law.

Common Law - Bribery of Fiduciaries
Aequitas v AEFC [2001] NSWSC 14 – if:
(a)   a donor makes a gift to a fiduciary;
(b)   the gift relates to the fiduciary's position, in the sense that it is an inducement to the fiduciary to use his or her position in a particular way; and
(c)   the gift is secret between the donor and the fiduciary, in the sense that the principal is not aware of it,
then that is a bribe and accepting it is a breach of fiduciary duty owed by the fiduciary to the principal. The donor will also be liable to the principal under the second limb of the rule in Barnes v Addy (1874) LR 9 Ch App 244.

The second limb of Barnes v Addy says that strangers can be liable for the acts of a trustee in breach of trust if they "assist with knowledge in a dishonest and fraudulent design on the part of the trustee" - ie if they act as accessories.

In Aequitas v AEFC, Aequitas had been established by the corporate advisory arm of AEFC, AEFCAS, a joint venture between AEFC and an entity associated with various executives. Its shareholders and directors initially were executives of AEFCAS and associated parties. They caused Aequitas to purchase from AEFC Leasing a 74.8% shareholding in another company, R, which was shortly to be listed. Initially the price was to be $910,000, but it was increased to $960,000 to allow for the payment of a fee of $50,000 to AEFCAS for "structuring the transaction". This price was almost 4 times what AEFC Leasing had acquired the shares for less than 2 months earlier. The $50,000 fee then found its way back to AEFC under the joint venture arrangements. Shares in Aequitas were subsequently offered to a number of institutional investors via a private placement memorandum. The $50,000 fee was not disclosed to the independent directors of Aequitas or in the private placement memorandum. The individuals involved at AEFCAS were aware at the time of the sale that R’s financial position was not as strong as was portrayed in the private placement memorandum. As it transpired, R went into receivership one month after it listed. Aequitas brought an action against AEFC on the basis that its agent AEFCAS had breached its fiduciary duties as adviser to Aequitas, and against AEFC and AEFC Leasing on the basis that they were promoters of Aequitas and had breached their fiduciary duties to Aequitas. It also asserted that various payments made to AEFCAS by AEFC Leasing, including the $50,000 mentioned earlier, were bribes.

The court found that the payment of $50,000 was indeed a "bribe" paid to AEFCAS. It was capable of acting as an inducement to AEFCAS and two of its employees who were directors of Aequitas at the time to effectuate the sale of the R shares to Aequitas. There was a clear conflict between AEFCAS’s fiduciary duties to AEFC as agent for the corporate advisory joint venture and to Aequitas as its promoter. The fact that AEFCAS itself would not be the ultimate beneficiary of the payment was not decisive. It was in the interests of AEFCAS and its employees to see the transaction through to its completion and secure the fee for AEFCAS, so that AEFCAS could be regarded as successful and profitable and worthy of further support from AEFC.

The court said (at para 380-82):

    

"I turn to the question of the most appropriate remedy in respect of the bribe. At common law, the principal has alternative remedies, both against the donor and against the fiduciary agent .... The principal may recover the amount of the bribe in an action for money had and received or, alternatively, sue for damages for fraud to recover the amount of the actual loss sustained in consequence of entering into the transaction in respect of which the bribe was given.

    

In equity, however, the giving of a bribe is treated as a species of equitable fraud, for which the remedies include rescission of the transaction induced by the bribe. As James LJ said in Panama & South Pacific Telegraph Company v India Rubber Gutta Percha & Telegraph Works Co (1875) LR 10 Ch App 515, 526:

    

    

"According to my view of the law of this Court, I take it to be clear that any surreptitious dealing between one principal and the agent of the other principal is a fraud on such other principal, cognisable in this Court. That I take to be a clear proposition, and I take it, according to my view, to be equally clear that the defrauded principal, if he comes in time, is entitled, at his option, to have the contract rescinded, or, if he elects not to have it rescinded, to have such other adequate relief as the Court may think right to give him."

     The "other adequate relief" to which James LJ referred includes equitable compensation in a measure designed to restore the plaintiffs to the position they would have occupied had the bribe not been given."

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Compliance Ramifications

Every financial services firm should have:
•     an AML-CTF compliance program;
•     reporting and record keeping processes that comply with AMLCTFA requirements;
•     compliance procedures to deal with suspicious matter reporting;
•     a clear and unequivocal corporate policy banning payments or the giving of other benefits to local and overseas public officials to secure a business advantage or avoid a business disadvantage;
•     compliance procedures governing the giving of gifts (including lavish entertainment) to local and overseas public officials and other persons with whom the firm does business; and
•     compliance procedures governing the receiving of gifts (including lavish entertainment) by staff.

Gifts to staff from clients can raise "undue influence" issues. Gifts to staff from others who want to deal with clients can raise bribery/conflict of interest/constructive trust issues.

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