AUSTRAC approved amendments to the AML/CTF Rules in December 2021 which need to be reviewed by Reporting Entities to ensure their AML/CTF Program and processes are up to date.
These are:
- Chapter 37A and 38 of the AML/CTF Act were updated to allow reporting entities to rely on customer identification procedures undertaken by reliable third parties on either an ongoing or case-by-case basis.
- Chapter 79 in the AML/CTF Rules which allows a Reporting Entity to carry out applicable customer identification procedures ("ACIP") after opening an account, provided no transaction other than an initial deposit made at the time of the account opening is conducted in relation to the account.
- Chapter 123 of the AML/CTF Act was updated to clarify and expand on obligations in relation to the tipping off provisions and customer due diligence processes.
What Changes have been Approved?
Chapter 37A and 38 – Reliance on customer identification procedures provided by reliable third parties
The updates to Chapters 37A and 38 of the AML/CTF Act took effect in June 2021 and now permit reporting entities to rely on customer identification procedures completed by reliable third parties. These third parties must be either: a reporting entity or an AML/CTF-regulated foreign equivalent. The updates to the AML/CTF Act provide reporting entities with two options for relying on third party customer identification procedures: an ongoing arrangement, or a case-by-case basis. If an entity chooses to rely on customer identification procedures provided by a third party, their own Applicable Customer Identification Procedures ("ACIP") are considered complete.
- Ongoing Arrangement
Section 37A of the AML/CTF Act allows reporting entities to rely on customer identification procedures provided by a reliable third party when a written agreement or arrangement (Customer Due Diligence ("CDD") arrangement) has been entered into. If you have reasonable grounds to believe the reliable third party has appropriate AML/CTF systems and controls that meet each of the requirements prescribed under Chapter 7 of the AML/CTF Rules at the time you entered into the CDD arrangement you may also rely on this provision.
- Case by Case
Section 38 of the AML/CTF Act allows you to rely on identification procedures carried out by a reliable third party on a case-by-case basis, without a CDD arrangement with a reliable third party. Reporting Entities may rely on this provision if they have reasonable grounds to believe that it is appropriate to rely on the third party's identification procedure, taking into account the ML/TF risks you face and the other matters set out in Chapter 7 of the AML/CTF Rules.
Chapter 79 – ACIP can occur after an initial deposit is made to an account:
A Reporting Entity can now carry out ACIP in respect of a customer after opening an account provided no transactions, other than an initial deposit, are conducted in relation to the account. Opening an account is defined in section 5 of the AML/CTF Act as creating the account. An account is considered open regardless of whether:
- the account number has been given to the holder of the account; or
- the holder of the account or any other signatory to the account, can conduct a transaction in relation to the account.
The amendment does not restrict the methods of deposit used to make the initial deposit. For example, an initial deposit transaction conducted in relation to the account could be cash or a cheque.
To rely on Chapter 79, a Reporting Entity must:
- make a determination that opening the account and accepting an initial deposit before completing the ACIP is essential to avoid interrupting the ordinary course of business;
- implement appropriate risk management procedures and controls to effectively manage the money laundering and terrorism financing (ML/TF) risks associated with providing designated services to a customer that has not completed ACIP; and
- have systems and controls in place to ensure it carries out ACIP as soon as practicable.
It is an objective test as to whether it is essential to avoid interrupting the ordinary course of business, and the determination must be made on reasonable grounds, relying on objectively ascertainable facts to support the determination including but not limited to:
- the nature and type of customer, the relevant circumstances or products;
- the purpose of the account being opened;
- that opening an account in these circumstances makes economic business sense; and
- ensuring that there is little risk of ML/TF occurring.
The appropriate risk management procedures and controls are not prescribed but are to be determined by the Reporting Entity based on the ML/TF risks posed by the customer.
It should be noted that section 34 of the AML/CTF Act prohibits Reporting Entities from providing any further services to the customer until the ACIP is completed, with the exception of closing the account and remitting funds back to the customer or to the Commonwealth as unclaimed monies.
Previously, Reporting Entities were prohibited from providing any part of a designated service if ACIP could not be completed for the prospective customer. This obligation applied regardless of whether it involved a one-off transaction or an ongoing business relationship.
Chapter 123 – Tipping Off
Prior to the new rules coming into force, reporting entities were prohibited from disclosing the creating of Suspicious Matter Reports (SMRs) to anyone other than AUSTRAC. However, changes to section 123 of the AML/CTF Act permit the sharing of SMRs and SMR related information in a number of circumstances. Now, this information can be shared with:
- external auditors; and
- foreign members of the same corporate or Designated Business Group with which the Reporting Entity has a shared customer.
Note: this is only applicable if the foreign members are regulated by laws of a foreign country that give effect to some or all of the Financial Action Task Force ("FATF") recommendations.