November 2006 Top Story:
**MLI ARCHIVE***
Bill introduces $11m fines for AML breaches
After three years of endless discussion, Australia’s AML/CTF Bill has finally found its way into parliament – and the penalties are tough.
Canberra: The government has revealed its long overdue anti-money laundering and counter-terrorism financing legislation, which features civil penalties of up to $11m for firms that breach the new laws.
Individuals could face prison terms of 10 years and fines of up to $1.1m if they are found guilty of laundering-related offences.
The 300-page AML and CTF Bill 2006, introduced to parliament on November 1, has been branded one of the toughest in the world by media pundits.
Companies can face civil penalties of up to $11m per incident if they fail to run appropriate checks on their customers’ identities, an amount which some experts believe is in line with some of the bigger fines levied overseas – and at least comparable with breaches of compliance in other areas of financial services legislation in Australia.
Ros Grady, Mallesons Stephen Jaques’ AML expert in Melbourne, said she had seen cases overseas which imposed much higher civil penalties than in Australia but “we’re heading in that direction”.
“All the same, when you look at the penalties for breaches of the Corporations Act in Australia, it’s up there.”
“And that means such things as an entity not identifying a customer properly, not having the right AML program in place and not undertaking ongoing customer due diligence when required could spell the $11m fine.”
Attorney-General Philip Ruddock said the government had respected the industry’s calls for a regime that did not place excessive burdens on businesses and stressed the importance of being seen to comply with international AML standards.
The Investment and Financial Services Association said the government had reached a sensible balance between the competing interests of legislators and industry participants.
The government has also hinted it will to push the AML legislation through parliament within two weeks so as to take effect on January 1, 2007.
However, the Australian Bankers’ Association had not commented on the bill as MLI went to press and much depends on this body “offering its consent”.
The bill also clarifies timelines for industry compliance which have been hotly debated since the second draft law was aired.
All AML functions must be completed in four “milestones” staggered over a 24-month period.
Austrac will give companies a further 12 month “breathing space” unless an organisation has shown no reasonable efforts to comply.
Areas in the bill dealing with reports about cross-border movements of physical currency, electronic funds transfer instructions and records about electronic funds transfers will be effective immediately.
The areas dealing with AML/CTF compliance reports and correspondent banking will be effective after six months.
The areas dealing with identification procedures, AML/CTF programs and records of identification procedures will have to be complied with after 12 months.
Areas dealing with ongoing customer due diligence and suspicious matter reporting will come into play after two years.
KPMG’s associate director, Tony Byrne, told MLI that many had not yet understood the staggered nature of compliance, which acts as a series of forced milestones.
“For instance, the big one comes round in the first six months – compliance reporting,” said Byrne.
“If you don’t get it in place then you have 12 months grace from
that milestone, but you can be prosecuted after 18 months and so on a year after
each milestone.”
“People thought they could build in an implementation plan of 36 months,
but you can’t. Entities need to work out what measures should be
in place by what milestone.”
Ernst & Young partner Rob Walsh said people who has been following this at an industry level had been aware of the staggered time frames where “the more difficult and costly stuff would be back-ended after two years”.
The bill comes into parliament only days after federal Justice Minister Chris Ellison unveiled a $160m package to support the legislation. The package includes $139m to improve resources for Austrac and would help fund 190 extra positions needed when the financial intelligence unit becomes the country’s official AML/CTF regulator.
The government’s package includes $13.1m to fund an advertising and public education campaign to improve public awareness of the tougher ID requirements. Walsh also welcomed the initial educative approach.
However, in general Walsh said that for some organisations “every day of the transition period will count”.
“For larger organisations, the size, scope and complexity of what will be required will be even greater,” he said.
Mallesons’ Grady welcomed certain provisions that exempted companies which performed “incidental” transactions which were not a normal part of its business.
“Before, if a corporate group offered a loan to a subsidiary, the provider of the loan would have had to become a designated entity. That no longer applies,” she said.
She welcomed other amendments, such as the fact that a member of a group can now discharge the various AML obligations of another member of the same group, thus preventing role duplications .
“But when all is said, a lot of the provisions will be in the rules,” said Grady.
“And we have not seen the rules yet, which is a great shame.”
DelMonte Publications Nov 2006
