AML Compliance Guidelines: Australia

Australia, having an established political system, independent legal system, open and free economy, developed financial system and a robust real estate market, remains an attractive destination to store and integrate criminal proceeds.

According to a report (2020-21) by the Australian Institute of Criminology (AIC) the amount of criminal proceeds generated in Australia per year could be as high as $43.7 billion.

Criminals use formal and non-formal channels of the Australian economy to legalise the proceeds of crime, thus requiring strong Anti-Money Laundering and Countering Financing of Terrorism laws.

The Australian Government has introduced significant changes in their AML/CTF laws to counter emerging threats and technology exploitation by simplifying and clarifying the regulations, and bringing the vulnerable sectors under AML rules in Australia as they could otherwise facilitate or be exploited by the criminals.

These measures not only protect the financial system from criminals but  also compliment the international standard and recommendations of the Financial Action Task Force.

What are the key Sanctions and AML/CTF regulatory bodies in Australia?

• AUSTRAC (Australian Transaction Reports and Analysis Centre)
• DFAT (Department of Foreign Affairs and Trade)

AUSTRAC (Australian Transaction Reports and Analysis Centre)

AUSTRAC is the main regulatory and supervisory authority of Australia’s anti-money laundering and counter-terrorism financing (AML/CTF) regime and also the financial intelligence unit of the  country.

As primary regulatory authority AUSTRAC ensures all regulated entities are complying with their obligations under the Anti Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act) and the Financial Transaction Reports Act 1988 (FTR Act).

AUSTRAC regulates the business activities in the financial services, bullion, gambling and digital currency exchange sectors.

These business activities are called designated services and have been under AML rules in Australia because they pose a risk for money laundering, terrorism financing and even use by the sanctioned entities.

What operations constitute designated activity in Australia?

• Opening bank accounts
• Providing loans
• Trading in shares
• Trading in bullion
• Gambling at casinos, race tracks or gaming machines

Who is regulated under AML CTF laws in Australia?

• Banks
• Fintech
• Bookmakers and betting agencies
• Bullion dealers (Trading in Gold and Silver)
• Casinos
• Digital currency exchanges (Virtual or Cryptocurrency)
• Financial services providers
• Remittance service providers
• Motor vehicle dealers (under FTR Act)
• Solicitors (under FTR Act)

What are the key legislations and legal instruments governing AML and Sanctions Screening requirements in Australia?

• Anti‑Money Laundering and Counter‑Terrorism Financing Act 2006
• Anti‑Money Laundering and Counter‑Terrorism Financing Rules (2007)
• Financial Transaction Reports Act 1988 (FTR Act)
• Criminal Code Act 1995
• Autonomous Sanctions Act 2011

What is the AML and CFT Act 2006?

The Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act) is the primary legislation that regulates AUSTRAC’s functions.

The AML Act requires implementation of a risk-based approach as part of compliance with Australia’s Anti-Money Laundering laws, and imposes 6 key obligations on regulated businesses:

What are the key obligations of regulated entities under the AML/CTF Act?

Enrolment and registration with AUSTRAC: This act requires all the regulated entities providing designated services including remittance service providers and digital currency exchange to register and enrol with the AUSTRAC.

Developing AML/CTF Program:  Regulated entities are required to develop an effective AML/CFT Program in Australia to identify, manage and mitigate risks related to money laundering and terrorist financing in providing designated services to their customers.

Customer due diligence (CDD): Regulated entities are required to obtain and verify customer identification details including PEP screening and adverse media screening before providing designated service, in order to implement measures based on customer’s risk profile.

Ongoing due diligence (ODD): Regulated entities must conduct ongoing customer- due diligence, throughout the course of the business relationship, including transaction monitoring and enhanced CDD.

Reporting requirements: Regulated entities are required to report significant cash transactions of A$10,000 or more, suspicious matters, all instructions for the transfer of value sent into or out of Australia and annual compliance reports, and cross border movements of monetary instruments.

Maintaining record: Regulated entities should maintain record of all customers and transactions up to seven years and make it available to authorities for investigation purposes.

What are AML and CTF Rules 2007?

The Anti-Money Laundering and Counter-Terrorism Financing Rules 2007 (AML and CTF Rules 2007) is the subsidiary legislation instrument enacted in order to provide broader detail and guidance on the obligations set out in the AML/CFT Act 2006.

What are the key elements of the AML/CFT compliance program under AML/CFT Rules (2007) in Australia?

Identification of Politically Exposed Persons (Part B Part 4.13)

An AML/CTF program should include policies, controls, and AML procedures in Australia to identify whether a customer or beneficial owner is a politically exposed person. The determination should be performed before the provision of a designated service to the customer or as soon as practicable after the designated service has been provided.

Standard anti-money laundering and counter-terrorism financing (AML/CTF) program (Part A – Part 8.1)

The main goal of Part A of a standard AML/CTF program is to identify, manage and mitigate money laundering or terrorism financing risk a regulated entity may face when conducting designated services at or through a registered entity  in Australia. These Rules set out the requirements with which Part A of a standard AML/CTF program must comply.

Customer Due DIligence Requirements for Obliged sectors under AML/CFT Laws:

Adverse media monitoring is a crucial part of customer due diligence in order to comply with anti-money laundering laws in Australia. For the purpose of the above paragraph a customer of the reporting entity should be screened against all applicable terrorist lists and adverse media information to assess any potential involvement in  predicate offences, available publicly or otherwise to identify, manage or mitigate the risks reporting entities may face before or after establishing a relationship to provide a designated service.

Financial Transaction Reports Act 1988

What are obligations set out by FTR Act 1988?

Under the Financial Transaction Reports Act, motor vehicle dealers and solicitors who provide insurance directly or on behalf of a third party, shall report suspicious transactions and significant cash transactions of A$10,000 or more to AUSTRAC.

Criminal Code Act 1995

The Criminal Code Act includes various provisions regarding money laundering, terrorism and terrorist financing. Division 101 and 102 of the Act criminalises acts of terrorism, financing, supporting, transfering funds to, for or from a terrorist organisation. Part 10.2 of the Act deals with money laundering and related offences.

The Code sets out a series of offences varying in seriousness depending on the value of money or property and the offender’s state of mind.

The Government lists terrorist organisations for the purposes of the relevant offences in the Criminal Code.

For AML obligated sectors in Australia, screening of listed terrorist organisations becomes of paramount importance to avoid offences laid down in the Criminal Code Act 1995.

Who is the Sanctions regulator in Australia?

The Australian Sanctions Office (ASO) is the Australian Government’s sanctions regulator. ASO sits within DFAT’s (Department of Foreign Affairs and Trade) Regulatory Legal Division in the Security, Legal and Consular Group.

Which sanction regimes are applicable in Australia?

Australia implements two sanction regimes United Nations Security Council (UNSC) sanctions under the Charter of UN ACT 1945 and Australian autonomous sanctions under the Autonomous Sanctions Act 2011 and the Autonomous Sanctions Regulations 2011.

These sanctions may include restrictions on trade in goods and services (Arms Sale, Oil Explorations), travel bans, targeted financial sanctions (Al-Qaida, The Taliban, Russia, Syria, Iran, & DPRK etc) and specifications of vessels etc. These sanctions not only affect the financial institutions and corporate service providers but also  importers and exporters of different products and services as well.

These sanctions are called primary sanctions and apply to activities in Australia and activities undertaken overseas by the Australian citizens and Australian registered body corporates including activities on board an Australian aircraft or ship. These sanctions have extraterritorial effect.

What are the other sanctions which can be relevant based on jurisdiction and operations of an entity?

Apart from above mentioned primary sanctions, entities in Australia may have to comply with secondary sanctions issued by OFAC (Office of Foreign Assets Control) USA. These sanctions target third parties dealing or transacting with different sanctioned entities outside the US. For example an Australian entity may be restricted access to the US financial system for transacting with Iran or North Korea. Secondary sanctions mostly relate to IRAN, North Korea, Russia, Syria and China.

It is recommended that every entity exposed to sanctions risks in Australia conducts their own due diligence based on the nature of their products or services, industry or sector, region or countries of operation. Therefore, they must have a screening process tailored to assess the risks in order to implement a risk based approach.

How can you comply with sanctions in Australia?

When it comes to using the sanctions screening tools to comply with sanction regimes, the AML solutions in Australia that offer through screening of not only Sanctions, but also Watchlists, PEPs, RCAs and Adverse Media all in one place, remain the smartest choice, since they provide a 360 degree view of customer risk.

AML Watcher’s comprehensive Sanctions Screening tool allows financial and non-financial institutions to comply with Australia’s Sanctions regulations, United Nation Security Council (UNSC) Sanctions, UN Consolidated Sanctions, United States Sanctions (OFAC), European Union (EU) Sanction, or any other unilateral sanctions customised to the need of an organisation, offering real time data updates, fetched right from the official source.

What are the consequences of not complying with the Sanction Regulations in Australia?

It is a serious criminal offence to contravene a sanctions measure (or a condition of a sanctions permit).

These offences are punishable for individuals by up to 10 years in prison, and/or a fine the greater of 2500 penalty units ($782,500 as of 1 July 2023) or three times the value of the transactions.

They are punishable for corporate bodies by a fine the greater of 10,000 penalty units ($3.13 million as of 1 July 2023) or three times the value of the transaction/s.

Therefore, financial institutions and businesses dealing with entities subject to sanctions and sanctioned entities must undergo  sanctions screening instead of de-risking in order to avoid heavy fines, reputation loss and customer confidence.

Future of AML Compliance in Australia

What are the proposed reforms and what businesses are going to be added to Australia’s AML/CTF regime?

As per the 4th Follow-Up report of FATF published in March 2024, Australia is non compliant with the four FATF recommendations and three of them are related to DNFBPs. This implies that the DNFBPs sector in Australia which includes legal firms, accountancy firms, real estate brokers and agents, and dealers in precious stones and metals needs major regulatory reforms which are expected in coming months.

According to an update on Sep 4, 2024 the Attorney General’s Department of Australian Government have conducted second round of consultation with stakeholders from government and affected sectors for the proposed reforms in the AML/CTF regime to extend it to gatekeeper professions in real estate, legal, and precious metals and stones sector (also known as tranche 2 entities) to meet the regulatory requirement set by FATF for DNFBPs.

In addition to extending the AML/CTF regime to tranche 2 sectors, according to the consultation paper the department has been seeking advice from industry to simplify, modernise and clarify existing AML CFT Australia  measures. 

Stakeholders from industry have also  expressed strong interest in understanding how to integrate new and emerging technologies like biometric databases and digital identity for CDD procedures.

What are new anti money laundering laws for legal, accountancy and precious metals sector of Australia

On September 11, 2024, the Attorney General introduced a Bill in the parliament to amend the Anti-Money Laundering and Counter-Terrorism Financing Act (2006).  

The bill, if passed into law, can bring significant and long overdue reforms to Australia’s AML/CTF regime. If approved by Parliament, this Bill will add the ‘tranche 2’ entities in the AML/CTF regime and will  simplify, clarify and streamline it. 

This implies that lawyers, accountants, real estate professionals and dealers in precious stones and metals in Australia will be regulated under AML/CTF rules and just like other AML obligated sectors, they will also be required to do PEP screening and sanctions screening as part of AML screening.

What are AML/CTF Compliance Requirements for Digital Currency Exchanges (DCE) in Australia?

Digital currency exchanges (cryptocurrency) in Australia are regulated by AUSTRAC under the AML/CTF regime, however, the recent FATF’s Fourth Follow-Up Report published in March 2024 indicated that implementation for FATF crypto Travel Rule for VASPs (Virtual Assets Service Providers) was lacking. Under FATF Travel rule requirements for Virtual Asset Service Providers as Financial institutions dealing in virtual currency/assets will be required to pass on specific information about both the payer and beneficiary to the receiving financial institution. So, there’ll be a need to screen both payer and beneficiary at the both ends to combat money laundering and terrorism financing.

According to the National Risk Assessment report,  Australia is consulting on requirements that would implement FATF’s ‘Travel Rule’ to digital currency transactions. While the crypto Travel Rule has not been implemented in Australia, digital currency exchanges are obliged to perform AML screening to check for high-risk entities such as PEPs and sanctioned entities.

What are AML compliance obligations for Bullion Dealer (Trade in Gold and Silver) in Australia?

Bullion dealers are businesses that buy or sell bullion and may include dealers in precious metals, refiners, jewellers, coin dealers and pawnbrokers. Buying a bullion from a wholesaler or buying and selling of bullion in the course of carrying out a bullion-dealing business is a designated service.

If you’re engaged in any of the above designated services you’re a regulated entity under AML CFT Act and have certain obligations including registering with AUSTRAC, implementing and maintaining AML CFT program, identifying and verifying customers, reporting certain transactions to AUSTRAC and record-keeping.

As per the AUSTRAC guidelines suspicion indicator for bullion dealers during the identification process could include customer being identified as a PEP or linked to one, customer is related to adverse crime related media, customer is a member of or linked to a known terrorist organisation, customer is matched through screening against an international or Australian sanctions list.

What are Anti-Money Laundering rules and guides for the Legal Sector in Australia?

Law Council of Australia has issued comprehensive guidelines for the legal sector to raise awareness about money laundering and terrorism financing to avoid and prevent legal practitioners from being unknowingly part of the financial crimes. It provides important measures and instruction on how and what actions legal practitioners can take to mitigate exposure to money laundering and terrorism financing.

Guidance note 8 provides recommendations and suggestions about the level of due diligence required to be taken for specific clients based on their identity, type and geographical connections of the client, third party involvement, identity of counterparty and service delivery channel etc.

Guidance note 10 provides recommendations about how to identify if someone is a PEP. It also provides details about who are PEPs, their types and measures to be taken when dealing with PEPs. While these guidelines are not binding in nature meaning it puts no statutory obligation on the practitioners under the AML CTF regime they do highlight the best practices adopted by the legal sector to comply with AML guidelines in Australia. With the AML and CFT Amendment bill being proposed in parliament, the legal sector in Australia will be the AML obliged sector. 

While all the entities regulated under AML laws in Australia need to cautiously follow and comply with the AML regulations, the sectors who have faced increased enforcement actions need to be extra careful regarding their compliance strategies. For example, some of the money service businesses and casinos in Australia have faced heavy fines in recent months pushing for the call for firms in industry to scrutinise their AML compliance programs and implement a rigorous AML Screening.