New reforms to the Anti-Money Laundering and Counter-Terrorism Financing Act have now come into effect.

According to AUSTRAC, the reforms aim to streamline compliance and help protect business from money laundering, terrorism financing and other serious crimes. Customer identification procedures are a key feature of the changes.

These include:

  • New circumstances in which reporting entities may rely on due diligence performed by a third party.
  • Explicit prohibition made to reporting entities from providing a designated service if customer ID procedures cannot be performed.

The news of the new rules comes in the same week that the Senate has announced an inquiry into Australia’s AML/CTF regime , with public hearings set to commence by the end of the year.

The detail

Phase 1.5 of the AML/CTF Regime was first introduced into Parliament in October 2019. It implements the next phase of reforms to the country’s anti-money laundering and counter-terrorism financing laws, bringing Australia’s AML/CTF compliance more in line with international regimes.

It aims to strengthen Australia’s capabilities to address money laundering and terrorism financing risks: increase the resilience of our financial system against criminal threats, while making it easier for businesses to understand and comply with their obligations.

Phase 1.5 mostly focuses on customer due diligence. It extends reporting entities’ ability to rely on customer identification and verification procedures undertaken by a third party under certain scenarios like a written agreement and appropriate regular checks.

It also explicitly prohibits reporting entities from providing their services until ID verification is confirmed. Although this part is not new, its inclusion highlights its importance. You used to be able to commence service and perform the check up to 14 days later.

When onboarding a new customer, it is important to check the person’s identity by using either reliable and independent documentation, or electronic data (or both). It is worth mentioning here that this is the case for onboarding individuals as well as ‘non-individuals’.

As part of Know Your Customer (“KYC”) procedures, focusing on the verification of customer ID is very important. illion’s processes underpin the digitisation of ID verification and enable customers to achieve compliance without document collection.

At the end of the process, you have to be fully satisfied that the person is who they claim to be.

Increasingly we are seeing a move towards the use of Biometric solutions to additionally verify the customer claiming a valid identity is the owner of that identity even though this is not currently part of the AML legislation.

Businesses should therefore review their customer due diligence policies to ensure they are compliant and make sure they have the procedures in place to file a suspicious report when customer due diligence can’t be completed.

Know… and keep on knowing

The days are gone where banks and others could sign up a customer and then fail to monitor their spending and transaction history from that point on. Monitoring and ongoing due diligence are particularly important, especially for those with ageing legacy IT systems.

Other measures

Other measures under the new legislation include:

  • Strengthened correspondent banking requirements by prohibiting financial institutions from entering into a correspondent banking relationship that permits its accounts to be used by a ‘shell bank’; and requiring banks to conduct due diligence assessments before entering, and during, all correspondent banking relationships.
  • New exceptions to the prohibition on ‘tipping off’ to permit reporting entities to share suspicious matter reports and related information with external auditors and foreign members of corporate and designated business groups.
  • Greater information sharing, enabled between the public and private sector to enhance investigation capabilities.
  • Streamlined provisions relating to cross-border movement of physical currency and bearer negotiable instruments, such as cheques and bills of exchange.

Phase 2, which has an unknown timeframe, will bring other businesses into the regime. These include non-financial businesses like lawyers, accountants and real estate agents.

With civil penalty provisions under the AML/CTF Act attracting a fine of up to $22.2m, and the significant financial settlements that AUSTRAC has reached with reporting entities in Australia in recent years, businesses should take this opportunity to closely review their AML/CTF programs, especially in the context of customer due diligence.

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Contact if you’d like a confidential discussion and an opportunity to review your AML/CTF procedures.