## _cr06409 ## Source details **Canonical URL:** [_cr06409](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2006/_cr06409.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2006/_cr06409.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2006/_cr06409.pdf.json) --- ### Executive summary and overall assessment - Report prepared by the Financial Action Task Force; summarizes AML/CFT measures in place in Australia as at March 2005 (date of on-site visit). - Views agreed by FATF and Australia; do not necessarily reflect views of the Boards of the IMF or World Bank. - Australian Government is updating legislation to implement the revised FATF Recommendations. - Overall findings: - Legal regime to combat money laundering and terrorist financing is generally comprehensive. - Further action needed to enhance effective implementation of the money laundering offence. - Terrorist financing offences are broadly satisfactory but wording should be broadened to specifically cover collection/provision of funds for terrorist organisations and individual terrorists. - Confiscation and freezing systems appear comprehensive and in line with international standards. - AUSTRAC is an effective FIU; preventive and supervisory implementation of AML/CFT requirements is not effective to meet revised FATF 40 Recommendations—significant changes needed. - New legislation is in process to rectify many deficiencies. ### Legal framework, offences, and institutional responsibilities - Money laundering - Criminalised under revised Division 400 of the Criminal Code Act 1995 (came into effect in January 2003). - Division 400 creates penalties depending on level of knowledge (knowing and wilful, recklessness, negligence) and value of property. - Predicate offences include all indictable offences—i.e., those with a minimum penalty of 12 months imprisonment. - Commonwealth-level prosecutions: ten dealt with summarily and three on indictment since 2003, with five convictions. - Money laundering also criminalised at State and Territory level; lack of statistics on State/Territory prosecutions and convictions prevents evaluation of their effectiveness. - Terrorist financing - Suppression of the Financing of Terrorism Act 2002 (SoFTA) came into force in July 2002; amended Criminal Code Act 1995 to include offences: receiving funds from or making funds available to a terrorist organisation; providing or collecting funds to facilitate a terrorist act. - Identified deficiency: offence does not specifically cover collection of funds for a terrorist organisation or provision/collection of funds for an individual terrorist—this should be rectified. - There have not been any prosecutions for terrorist financing. - Confiscation and freezing - Proceeds of Crime Act 2002 (POCA) provides for both conviction- and civil-based forfeiture. - Commonwealth-level forfeitures for 2003-2004: 70 confiscations with a total value of AUD 10 million. - Authorities indicated approximately 10—20% of these cases involved money laundering or offences against the Financial Transactions Reports Act 1988 (FTR Act); none involved financing of terrorism. - DFAT consolidated list contains over 540 names, including all 443 names from the S/RES/1267 list plus approximately 89 other names; two freezings from the consolidated list (one freezing remains in place) of approximately $2,000. - UN Security Council Resolutions 1267 and 1373 implemented through revised Charter of the United Nations Act 1945 (CoTUNA) and its Regulations of 2002. ### AUSTRAC (Financial Intelligence Unit) and law enforcement powers - AUSTRAC - Australia’s FIU and AML/CFT regulator; established in 1989 within Attorney-General’s portfolio. - Collects financial transaction reports from prescribed cash dealers including financial services, gaming sectors, solicitors, and members of the public. - Reported reporting volumes in 2004: approximately 9 million IFTIs, 2 million SCTRs, 12,000 SUSTRs, and 25,000 ICTRs. - AUSTRAC staffing: 154 AUSTRAC personnel. - Active Egmont Group member since 1995; utilises sophisticated technologies for analysis. - Information made available on-line to AUSTRAC's 28 partner agencies. - Law enforcement and investigative powers - Commonwealth, State and Territory authorities have adequate powers for gathering evidence, compelling production of documents, and special investigative techniques (controlled deliveries, undercover officers, electronic interception, surveillance, search powers). - AFP enforces most Commonwealth criminal law; CDPP prosecutes offences against Commonwealth law. - Authorities have adequate powers, structures, staffing and resources to investigate and prosecute ML/TF, but legal measures are not fully effective in practice because investigators generally do not investigate and refer money laundering as a separate charge and prosecutions are low. ### Preventive measures for financial institutions (scope, CDD, reporting, recordkeeping) - Coverage and scope - Obligations under the FTR Act apply to “cash dealers”; does not yet cover the full range of financial institutions as defined in the FATF Recommendations (e.g., certain financial leasing companies, debit and credit card schemes). - Securitisation firms, electronic payment system providers, and certain managed investment schemes are covered only where they also hold a financial services licence covering dealing in securities or derivatives. - Particular obligations (reporting, record-keeping) may vary between types of cash dealers. - Customer due diligence (CDD) - Most CDD obligations date to the Financial Transactions Reports Act 1988 and do not meet current standards. - Complex and indirect obligation to identify and verify customer identity limited to the context of “account” facilities with cash dealers; does not cover all situations where business relationships are established. - Accounts below prescribed low value thresholds can operate indefinitely without customer identification: - AUD 1,000 per day or AUD 2,000 in a month thresholds permit accounts to operate without identification until triggered. - Identification is required when reporting cash transactions over AUD 10,000, but there is no reporting or identification requirement for other non-cash occasional transactions of USD/ EUR 15,000 or more. - No general obligation under the FTR Act to identify and verify beneficial owners. - No specific obligations regarding politically exposed persons (PEPs), correspondent banking, or measures to prevent misuse of technological developments in ML/FT; no specific and effective CDD procedures for non-face-to-face customers. - Reliance on third parties - FTR Act allows reliance on an “acceptable referee”; current list of acceptable referees is overly broad and includes many unregulated entities. - Financial institutions relying on third parties are ultimately responsible for compliance, but other provisions of FATF Recommendation 9 are not required. - Reporting and recordkeeping - Under sections 20, 23, 27C and 27D of the FTR Act, reporting entities have direct and implied recordkeeping and record accessibility obligations. - Certain cash dealers (“financial institutions” as defined under section 3 of the FTR Act) have broad record-keeping obligations relating to identity verification, operation of “accounts” and individual transaction activity. - FTR Act obligations do not include records of transactions from securities and insurance institutions, or foreign exchange dealers or money remitters, if they are not “financial institutions” or do not hold “accounts” as defined. - All information kept is readily accessible by competent authorities. - Reporting thresholds and cross-border - Reporting of cross-border movements of currency above AUD 10,000 to AUSTRAC is in place. - No corresponding system for declaration or disclosure of bearer negotiable instruments. ### Designated non-financial businesses and professions (DNFBPs) and supervision - DNFBPs present: casinos, dealers in precious metals and stones, lawyers, notaries, real estate agents, accountants, trust and company service providers (professional company incorporation providers). - Coverage - Casinos, bullion sellers and to some extent solicitors are covered by the FTR Act. - Other DNFBPs are not covered. - Supervision and monitoring - Lack of effective regulatory and monitoring systems to ensure compliance with AML/CFT requirements for many DNFBPs. - Australia is in process of introducing new legislation to address many deficiencies. ### Money laundering typologies and sectors targeted - Principal sources of proceeds - While narcotics offences provide a substantial source, the majority of illegal proceeds are derived from fraud-related offences. - One Australian Government estimate suggested amount of money laundering in Australia ranges between AUD 2—3 billion per year. - Common laundering methods - Exploitation of mainstream retail banking and larger financial service and gaming providers. - Use of false identities and false name bank accounts facilitated by forged documents to structure and transact funds. - International funds transfers to move funds offshore. - Use of smaller or informal service providers such as alternative remittance dealers. - Cash smuggling into and out of Australia. - Use of legitimate businesses to mix proceeds of crime with legitimately earned income/profits. - Growing trend in use of professional launderers and other third parties to launder criminal proceeds. ### Implementation gaps, effectiveness, and priority reforms identified - Implementation gaps and effectiveness issues - Low number of money laundering prosecutions at the Commonwealth level suggests the regime is not being effectively implemented. - Investigators generally do not investigate money laundering as a separate charge. - Preventative and supervisory AML/CFT system not effective to meet revised FATF 40 Recommendations; significant changes needed. - Methods of verifying customer identification are inadequate; beneficial ownership, PEPs, correspondent banking and non-face-to-face CDD shortcomings. - Coverage gaps in the FTR Act for certain financial institutions and many DNFBPs. - Acceptable referee list is overly broad and includes unregulated entities. - Priority reforms and recommendations - Broaden terrorist financing offence wording to specifically cover collection/provision of funds for terrorist organisations and individual terrorists. - Tighten methods of verifying customer identification and address CDD deficiencies (beneficial ownership, PEPs, correspondent banking, non-face-to-face customers). - Extend FTR Act coverage to the full range of financial institutions as defined in the FATF Recommendations. - Strengthen regulatory and monitoring systems for DNFBPs. - Restrict reliance on overly broad categories of acceptable referees; align third-party reliance with Recommendation 9 provisions. - Improve statistics and reporting of State and Territory prosecutions and convictions for ML to enable assessment of effectiveness. - Continue legislative updates to implement requirements of the revised 40 Recommendations. ### Reporting of international funds transfer instructions and originator information (section 28) - Mandatory reporting system for all international funds transfer instructions to AUSTRAC; reports contain ordering customer’s name, location (full business or residential address) and customer’s account number. - Reports maintained in AUSTRAC’s database and are a useful source of intelligence information. - Gaps relative to SR VII main elements: - No requirement to include the originator information as part of the funds transfer instruction itself. - No requirement that similar obligations apply to domestic transfers. - No requirement for intermediary financial institutions to maintain all required originator information with the accompanying wire transfer. - No requirement for beneficiary financial institutions to have risk-based procedures for incoming transfers that lack adequate originator information. ### Suspicious transaction reporting (STR) and monitoring obligations (section 28) - No specific requirements for cash dealers to pay special attention to complex, unusual large transactions, or unusual patterns of transactions that have no apparent economic or lawful purpose, or set out findings in writing. - Cash dealers (but not the full scope of financial institutions required in FATF Recommendations) must report transactions suspected of being relevant to investigation of an offence. - Indirect obligation to monitor transactions does not cover: - all complex, unusual large transactions; - unusual patterns of transactions; or - transactions with no visible economic purpose. - AUSTRAC provides general feedback: statistics on disclosures, information on results, some typologies in quarterly newsletters. - AUSTRAC encouraged to provide more sanitised examples of actual money laundering cases and/or information on decision or result of an STR filed. - Regime for reporting suspicious transactions is overall effective and comprehensive except for scope limitation on “cash dealers” and concern that scope of FT offence could slightly limit reporting. - In 2004, AUSTRAC received over 12,000 STRs from a wide range of cash dealers; numbers have been steadily increasing for banks, credit unions, casinos, and finance corporations. ### Large cash transaction reporting and database access - AUSTRAC receives reports of significant cash transactions equal to or greater then AUD 10,000. - Reports stored on AUSTRAC database and accessible by authorised staff within its 28 Partner Agencies. ### AML/CFT policies, internal controls, and extraterritorial application - Requirement for cash dealers to have AML/CFT policies and internal controls is implicit within the FTR Act. - No specific requirement obliging financial institutions to have institutionalised AML/CFT internal controls, policies and procedures, or to assess AML/CFT risk or communicate procedures to employees. - FTR Act applies outside Australia; foreign branches and subsidiaries of Australian banks required to comply to extent host country laws permit. - No requirement that branches and subsidiaries apply higher standard where home and host minimum AML/CFT requirements differ, or to inform home supervisor if compliance is not possible because of local law. ### Shell banks and correspondent relationships - Banking authorisation process effectively precludes establishment and operation of “shell banks” within the jurisdiction. - Recommendation: prohibit financial institutions from entering into, or continuing, correspondent banking relationships with shell banks and require financial institutions to satisfy themselves that respondent financial institutions in a foreign country do not permit their accounts to be used by shell banks. ### Supervisory framework, powers, and enforcement - Functional supervisory approach - AUSTRAC is the AML/CFT regulator with an ongoing monitoring program to ensure cash dealer compliance with the FTR Act. - APRA is the prudential supervisor and regulator of the Australian financial services sector. - ASIC enforces and regulates company and financial services laws to protect consumers, investors, shareholders and creditors. - AUSTRAC’s powers include criminal sanctions for non-compliance and an injunctive power (used in limited circumstances). - Lack of administrative sanctions means formal sanctions are generally not applied in practice; agreed remedial action with the cash dealer successfully encourages improvements. - APRA and ASIC powers include: - compel specific remedial actions; - disqualify persons for management or directorship functions; - revoke a license or authorisation to operate. - Uncertainties and limitations - Unclear how APRA/ASIC powers would be applied in practice for AML/CFT non-compliance; no express powers to remove management or revoke a license for AML/CFT breaches. - No sanctions have yet been applied by APRA or ASIC for AML/CFT failings. - Licensing gaps - Entities must be authorised or licensed by APRA to carry out banking, general insurance, life insurance or superannuation business. - Some remittance services or bureaux de change are licensed under AFSL requirements. - No general obligation to license or register all money/value transfer (MVT) services operators and bureaux de change. - Recommendation: extend licensing or registration requirements to remaining financial institutions not covered by current arrangements. - MVT services operators - Subject to FTR Act requirements; AUSTRAC has identified and brought many into the reporting regime and maintains a current list of names and addresses of operators it has identified. - MVT service operators are not required to maintain a current list of their agents. ### Effectiveness of AML/CFT supervision and AUSTRAC operational capacity - AML/CFT supervisory system implementation not effective to meet revised 40 Recommendations. - Need for improved coordination on AML/CFT matters between relevant authorities and greater formal cooperation among financial sector supervisors and regulators. - AUSTRAC’s on-site supervision - Does not cover full range of compliance tools under FTR Act. - Focuses on education visits and has conducted only two compliance inspections of banks in the last two years. - Education visits include inspections of records to ascertain whether an entity is a cash dealer and whether it has reporting obligations and is complying with them; can result in agreed remedial action. - Recommendation: develop an on-going and comprehensive system of on-site AML/CFT compliance inspections across full range of financial institutions. - Recommendation: introduce measures enabling regulator to disqualify management or directors or revoke a license to operate for specific AML/CFT failings. - Recommendation: introduce a comprehensive administrative penalty regime for AML/CFT failings. - Resource needs - AUSTRAC’s current resources for AML/CFT compliance appear limited. - Recommendation: substantial dedicated financial resources should be directed toward the Reporting and Compliance section to increase staff numbers and train existing staff. - Supervisory skills and training for on-site inspections and enforcement-related activities should be enhanced. ### Designated Non-Financial Businesses and Professions (DNFBPs) (expanded) - Some DNFBPs have CDD and record-keeping obligations: - Casinos and bullion sellers are “cash dealers” and subject to customer identification requirements and record-keeping requirements generally pertaining to account opening or significant cash transactions (i.e., those over AUD 10,000; approximately USD 7,500). - Solicitors must identify customers when reporting significant cash transactions. - Trustees and managers of unit trusts, as financial institutions, are covered as reporting entities under section 3(g) of the FTR Act; trust and company service providers (TCSPs) generally do not fall within this definition. - Effectiveness limitations: provisions lack effectiveness due to inherent problems in identification and verification processes. - Under present legal regime, most DNFBPs in Australia do not have mandatory CDD, record keeping and other obligations as required under Recommendation 12. - Casinos and bullion sellers required to report STRs to AUSTRAC; other DNFBPs do not have similar obligations nor are they required to develop internal policies, procedures, internal controls, ongoing employee training and compliance programs. - No adequate, enforceable measures for DNFBPs to: - pay special attention to transactions involving certain countries; - make findings available in writing; or - apply appropriate counter-measures. - Criminal sanctions of the FTR Act would apply; lack of administrative sanctions and absence of criminal prosecutions of DNFBPs suggest sanctions are generally not applied. - Australia has extended AML coverage to other businesses and professions identified as greater vulnerability areas (e.g., bookmakers and Totalisator Betting Service Providers). - Australia has encouraged development and use of modern and secure techniques for conducting financial transactions that are less vulnerable to money laundering. ### Legal persons, arrangements, and non-profit organisations (NPOs) - Corporations - National system to record and make available useful information on ownership and control of corporations. - No requirement to disclose beneficial ownership. - Information on companies is publicly available. - Additional requirements for publicly listed companies ensure relevant information on beneficial ownership and control is accessible. - Law enforcement authorities and ASIC have powers to obtain information on ownership and control, and beneficial ownership where it exists. - Recommendation: consider broadening requirements on beneficial ownership so information on ownership/control is more readily available in a more timely manner. - Trusts and legal arrangements - Tax information from certain trusts and law enforcement powers provide means to access certain information on beneficial ownership and control of certain trusts. - Overall mechanisms to obtain timely access to beneficial ownership and control of legal arrangements, in particular settlor, trustee, and beneficiaries of express trusts, are not sufficient. - Non-profit organisations - Australia has reviewed its non-profit organisation sector and taken some measures to ensure these entities are not used to facilitate the financing of terrorism; reviews have not resulted in actual implementation of additional measures. - Recommendation: consider more thoroughly reviewing adequacy of laws and regulations to ensure terrorist organisations cannot pose as legitimate non-profit organisations. - Recommendation: give further consideration to implementing specific measures from the Best Practices Paper to SR VIII or other measures to ensure funds or other assets collected by or transferred through non-profit organisations are not diverted to support terrorist organisations. ### National and international co-operation - Coordination mechanisms exist within Federal government and between Federal and State Governments; scope exists to improve cooperation/coordination between AUSTRAC, ASIC and APRA and to enhance cooperation at the policy level. - Australia appears to have fully implemented measures required in S/RES/1267 (and successors) and S/RES/1373; these measures appear effective. - Australia has implemented the vast majority of the relevant sections of the Vienna, Palermo, and CFT Conventions. - Mutual legal assistance - Comprehensive system for providing mutual legal assistance and cooperating fully with other jurisdictions. - Mechanism set out in the Mutual Assistance in Criminal Matters Act 1987; provides for production, search and seizure of information, documents or evidence (including financial records) from financial institutions or other natural or legal persons, and for taking evidence and statements from persons. - Assistance is not prohibited or subject to unreasonable, disproportionate or unduly restrictive conditions. - System enables Australia to provide legal assistance without a treaty; Australia has entered into 24 bi-lateral agreements to accommodate countries requiring a treaty. - Dual criminality is not required but is a discretionary ground for refusing assistance; it would only apply to use of coercive powers and not to less intrusive and non-compulsory measures. - Foreign orders that can be enforced include: forfeiture orders (including laundered property and proceeds), pecuniary penalty orders, restraining orders, production orders, monitoring orders, and search warrants to identify and seize property. - Statistics and timeliness - Attorney-General’s Department received 179 new requests for legal assistance in 2003-2004; 10 involved money laundering and 8 involved terrorism. - CDPP received a total of 41 requests in same period, including 3 for money laundering, and 4 for Proceeds of Crime Act offences. - Both departments have adequately responded in a timely manner to the vast majority of requests. ### Extradition framework and international cooperation (section 57) - Extradition Act 1988 does not include money laundering or terrorist financing as extradition offences per se. - “Extradition offence” defined as one for which maximum penalty is imprisonment for not less than 12 months. - This covers all Commonwealth money laundering offences from Division 400 of the Criminal Code, apart from most minor offences concerning recklessly or negligently dealing in proceeds of crime of less than AUD1000. - For extradition to Commonwealth countries except Canada and the United Kingdom, an offence with a penalty of not less than two years is required; scheme currently applies to 64 countries and territories. - Dual criminality is a requirement for extradition from Australia. - Because the terrorist financing offence does not specifically cover collection of funds for terrorist organisations or provision/collection of funds for individual terrorists, dual criminality requirement for extradition could preclude extradition for these acts and should be rectified. - International cooperation and information exchange - AUSTRAC has exchange instruments with 37 counterpart FIUs. - AFP has 63 federal agents in 30 offices in 25 countries. - AFP negotiating in excess of 30 international agreements with partner law enforcement agencies. - APRA and ASIC also exchange information with overseas counterparts. ### Recommended Action Plan — Legal system and related institutional measures (priority items) - Criminalisation of Money Laundering (R.1 & 2) - Improve implementation of money laundering offence: provide incentive to investigators and prosecutors to prosecute money laundering cases as separate and serious offences. - States and Territories should all adopt the national model to allow broader ability to prosecute and convict for money laundering. - Criminalisation of Terrorist Financing (SR.II) - Criminalise the collection or provision of funds for an individual terrorist, as well as the collection of funds for a terrorist organisation. - Confiscation, freezing and seizing of proceeds of crime (R.3) - Other States and Territories that have not yet adopted similar civil forfeiture schemes should consider doing so. - Consider civil forfeiture for instrumentalities of crime. - Freezing of funds used for terrorist financing (SR.III) - Amend regulations to cover where obligations of SRIII exceed requirements of the Resolutions—specifying obligations apply to funds of terrorists and those who finance terrorism, outside context of specific terrorist acts. - Outreach to DNFBPs to ensure sectors are aware of obligations and procedures for complying. - The Financial Intelligence Unit and its functions (R.26, 30 & 32) - AUSTRAC encouraged to seek direct access to additional law enforcement data sources. - AUSTRAC encouraged to expand their team of financial analysts. - AUSTRAC should seek regular feedback from partner agencies on performance and benefits/results achieved by partner agencies through use of FTR information. - AUSTRAC and APRA should negotiate a formal information sharing arrangement. - Law enforcement, prosecution and other competent authorities (R.27, 28, 30 & 32) - Investigative and prosecutorial authorities need to focus more on investigating and prosecuting ML and not just predicate offences. - Need for clearer statistics for investigations and prosecutions of the ML offence at the commonwealth level. - Ensure adequate statistics are maintained with respect to money laundering at State/territory level. - Consider establishing an AML working group with State, Territory and federal representatives to discuss issues such as statistic gathering and emerging issues. ### Recommended Action Plan — Preventive measures: Financial institutions (highlights) - CDD, enhanced/reduced measures (R.5 to 8) - Simplify regime and create a more direct obligation to identify and verify customers. - Loans should not be excluded from CDD requirements. - Extend definition of “cash dealer” to include full range of financial institutions as defined in FATF recommendations. - Extend scope of “account” to capture wider range of products/services so CDD applies when establishing business relations. - Remove possibility of accounts operating below thresholds of AUD 1,000/ 2,000 without verification. - Repeal Regulation 4(1)(i) of the FTR Act that exempts re-examination of existing clients over 36 months. - Require financial institutions to apply CDD to existing customers on basis of materiality and risk. - Amend legislation to require identification for occasional non-cash transactions that exceed USD/EUR 15,000. - Require identification of occasional customers as contemplated in SRVII for domestic transfers and where suspicion of ML/TF exists. - Tighten or remove acceptable referee method except in exceptional cases. - Strengthen the 100-point check by relying on identification documents or methods of proven acceptability, excluding identification references. - Create general obligation to identify and verify beneficial owner details for all customers. - Require measures to understand ownership and control structure for legal persons and gather information on directors and powers to bind the entity. - Require ongoing due diligence, updated CDD data, and consideration of filing an STR where adequate CDD data is not obtained. - Adopt enhanced due diligence for higher risk categories and requirements for PEPs and correspondent relationships. - Require policies to prevent misuse of technological developments and clear procedures for non-face-to-face customers. - Third parties and introduced business (R.9) - Require immediate obtaining of identification data from referees and assurance that documentation will be made available on request without delay. - Require financial institutions to satisfy themselves that third party is regulated and supervised and has measures in place to comply with CDD requirements. - Record keeping and wire transfer rules (R.10 & SR.VII) - Broaden record-keeping to include all financial institutions as defined in FATF Recommendations. - Require that full originator information be included in the wire transfer instruction itself and apply similar obligations to domestic transfers. - Require intermediary financial institutions to maintain all required originator information with accompanying wire transfer. - Require beneficiary financial institutions to have risk-based procedures for incoming transfers missing adequate originator information. - Ensure 'non-routine transactions are not batched where this would increase the risk of money laundering or terrorist financing'. - Monitoring of transactions and relationships (R.11 & 21) - Adopt legally enforceable regulations/guidelines establishing explicit obligation for all financial institutions to perform elements required by Recommendation 11. - Clarify obligations under Recommendation 21 and make measures legally enforceable. - Suspicious transaction reports and other reporting (R.13-14, 19, 25 & SR.IV) - Amend FTR Act to apply to all financial institutions as defined in FATF Recommendations. - Expand FT offence to include provision/collection of funds for an individual terrorist and collection of funds for a terrorist organisation so related transactions are reportable. - AUSTRAC could provide more sanitised examples of actual money laundering cases and/or information on decision/result of an STR filed. - Cross-border declaration or disclosure (SR.IX) - Amend legislation to cover incoming and outgoing cross-border transportations of bearer negotiable instruments. - Internal controls, compliance, audit and foreign branches (R.15 & 22) - Impose obligations for all cash dealers to ensure controls cover CDD obligations, detection of unusual/suspicious transactions, reporting obligations, designation of AML/CFT compliance officer, independent audit function, ongoing employee training, and screening procedures. - Require branches and subsidiaries to apply higher AML/CFT standard to the extent host country laws allow and to inform Australian authorities if unable to observe appropriate measures. - Require financial institutions to pay particular attention to branches/subs in countries which do not or insufficiently apply FATF Recommendations. - Shell banks (R.18) - Prohibit financial institutions from correspondent relationships with shell banks and require satisfaction that respondent institutions do not permit accounts to be used by shell banks. - Supervisory and oversight system (R.23, 30, 29, 17, 32, & 25) - Foster greater formal co-operation amongst financial sector supervisors and regulators on AML/CFT. - Develop on-going comprehensive on-site AML/CFT compliance inspections across full range of financial institutions. - Institute administrative penalty regime for material non-compliance with FTR Act. - Provide that failure or wilful disregard of FTR Act obligations could be ground for declaring a director, manager or employee in breach of fit and proper norms. - Amend inspection powers in FTR Act to expressly include standard inspection powers such as checking policies and procedures, sample testing. - Clarify that offences by a cash dealer can result in cancellation of a licence or revocation of authorisation. - Remedy AUSTRAC’s limitation to share information with APRA. - Direct substantial dedicated financial resources toward AUSTRAC’s Reporting and Compliance section to increase staff, train staff, and embark on targeted compliance drive with audit inspections. - Enhance supervisory skills and training for on-site inspections and enforcement. - Develop system to license and/or register all remittance dealers and bureaux de change and extend licensing requirements to remaining financial institutions. - AUSTRAC should issue further guidance on other AML/CFT preventative measures. - Money value transfer services (SR.VI) - Require all MVT service operators to be licensed or registered, and AUSTRAC to maintain comprehensive list of such service providers and their details. - Revise the FTR Act and subject MVT service operators to comprehensive AML/CFT requirements (full scope of Recommendations 4-11, 13-15, 21-23, and SR VII). - Require MVT service operators to maintain a current list of their agents and make these available to AUSTRAC. - AUSTRAC or another competent authority needs to go beyond education visits and fully supervise these entities, including full on-site inspections. ### Recommended Action Plan — Preventive measures: DNFBPs - Customer due diligence and record-keeping (R.12) - Bring legislative changes to ensure all DNFBPs have adequate CDD and record-keeping, and transaction monitoring obligations as required by Recommendation 12. - Adopt appropriate sanctions for non-compliance, including a regime of administrative sanctions. - Suspicious transaction reporting (R.16) - Enhance scope of FTR Act to bring all types of DNFBPs under STR regime; consider administrative sanctions for DNFBPs for non-compliance. - Require DNFBPs to establish and maintain internal procedures, policies and controls covering CDD, record retention, detection of unusual and suspicious transactions and reporting obligations; maintain independent audit function and ongoing employee training. - Compel DNFBPs to pay special attention to transactions involving certain countries, make findings available in writing, and apply appropriate counter-measures. Transform Information Circulars for DNFBPs into legally enforceable circulars. - Regulation, supervision and monitoring (R.17, 24-25) - Introduce administrative sanctions for breaches by DNFBPs once subject to FTR Act or other AML/CFT requirements. - Enhance scope and coverage of reporting entities to include DNFBPs enabling AUSTRAC or SROs to regulate and supervise them. - Competent authorities such as AUSTRAC or SROs should establish guidelines covering full range of DNFBP to assist implementation and compliance. ### Legal Persons and Arrangements & Non-Profit Organisations (R.33, R.34, SR.VIII) - Legal persons (R.33) - Consider broadening beneficial ownership requirements so information on ownership/control is more readily available in a more timely fashion (e.g., restrict nominee directors/shareholders or oblige legal persons to record beneficial ownership in registers). - Legal arrangements (R.34) - Improve processes to enable competent authorities to obtain timely access to adequate, accurate and current information on beneficial ownership and control of legal arrangements, in particular settlor, trustee and beneficiaries of express trusts. - Enact more comprehensive measures to require collection or availability of such data. - Non-profit organisations (SR.VIII) - Consider more thorough review of adequacy of laws/regulations to ensure terrorist organisations cannot pose as legitimate non-profit organisations. - Give further consideration to implementing specific measures from the Best Practices Paper to SR VIII or other measures to ensure funds or assets collected/transferred through NPOs are not diverted to support terrorist organisations. ### Authorities response to the evaluation - Australian Government welcomes FATF evaluation and is committed to reforming AML/CTF regime; will consider recommendations with regard to Australia’s domestic context. - Released on 16 December 2005 a legislative package for public consultation consisting of an exposure AML/CTF Bill and draft AML/CTF Rules and Guidelines. - Passed Anti-Terrorism Bill (No 2) 2005 on 9 December 2005 including reforms to Criminal Code Act 1995 and Financial Transaction Reports Act 1988 to better implement Special Recommendations II, VI, VII and IX. - Australia among first countries assessed against revised standards. - Affirms robust, functionally organised financial regulatory framework: APRA responsible for prudential regulation of ADI’s, life and general insurance companies and superannuation entities; ASIC responsible for consumer protection and market integrity and broader companies regulation. - Notes financial sector committed to reform process; government will consider improving formal coordination between AUSTRAC, APRA and ASIC. *Source: FATF Mutual Evaluation summary of AML/CFT measures in Australia (on-site visit March 2005).* ### 1. This Report on the Observance of Standards and Codes for the FATF 40 Recommendations for ### Report on the Observance of Standards and Codes for the FATF 40 Recommendations for Anti-Money Laundering and 9 Special Recommendations Combating the Financing of Terrorism (Australia) — March 2005 on-site visit ### Executive summary and overall assessment - Report prepared by the Financial Action Task Force; provides a summary of AML/CFT measures in place in Australia as at March 2005 (the date of the on-site visit). - Views in the document agreed by FATF and Australia; do not necessarily reflect the views of the Boards of the IMF or World Bank. - Australian Government is updating its legislation to implement the revised FATF Recommendations. - Overall findings: - Legal regime to combat money laundering and terrorist financing is generally comprehensive. - Further action needed to enhance effective implementation of the money laundering offence. - Terrorist financing offences are broadly satisfactory but wording should be broadened to specifically cover collection/provision of funds for terrorist organisations and individual terrorists. - Confiscation and freezing systems appear comprehensive and in line with international standards. - AUSTRAC is an effective FIU; preventive and supervisory implementation of AML/CFT requirements is not effective to meet revised FATF 40 Recommendations—significant changes needed. - New legislation is in process to rectify many deficiencies. ### Legal framework, offences, and institutional responsibilities - Money laundering: - Criminalised under revised Division 400 of the Criminal Code Act 1995 (came into effect in January 2003). - Division 400 creates penalties depending on level of knowledge (knowing and wilful, recklessness, negligence) and value of property. - Predicate offences include all indictable offences—i.e., those with a minimum penalty of 12 months imprisonment. - Commonwealth-level prosecutions: ten dealt with summarily and three on indictment since 2003, with five convictions. - Money laundering also criminalised at State and Territory level; lack of statistics on State/Territory prosecutions and convictions prevents evaluation of their effectiveness. - Terrorist financing: - Suppression of the Financing of Terrorism Act 2002 (SoFTA) came into force in July 2002; amended Criminal Code Act 1995 to include offences: receiving funds from or making funds available to a terrorist organisation; providing or collecting funds to facilitate a terrorist act. - Identified deficiency: offence does not specifically cover collection of funds for a terrorist organisation or provision/collection of funds for an individual terrorist—this should be rectified. - There have not been any prosecutions for terrorist financing. - Confiscation and freezing: - Proceeds of Crime Act 2002 (POCA) provides for both conviction- and civil-based forfeiture. - Commonwealth-level forfeitures for 2003-2004: 70 confiscations with a total value of AUD 10 million. - Authorities indicated approximately 10—20% of these cases involved money laundering or offences against the Financial Transactions Reports Act 1988 (FTR Act); none involved financing of terrorism. - United Nations Security Council Resolutions 1267 and 1373 implemented through revised Charter of the United Nations Act 1945 (CoTUNA) and its Regulations of 2002. - DFAT consolidated list contains over 540 names, including all 443 names from the S/RES/1267 list plus approximately 89 other names; two freezings from the consolidated list (one freezing remains in place) of approximately $2,000. ### AUSTRAC (Financial Intelligence Unit) and law enforcement powers - AUSTRAC: - Australia’s FIU and AML/CFT regulator; established in 1989 within Attorney-General’s portfolio. - Collects financial transaction reports from prescribed cash dealers including financial services, gaming sectors, solicitors, and members of the public. - Reported reporting volumes in 2004: approximately 9 million IFTIs, 2 million SCTRs, 12,000 SUSTRs, and 25,000 ICTRs. - AUSTRAC staffing: 154 AUSTRAC personnel. - Active Egmont Group member since 1995; utilises sophisticated technologies for analysis. - Information made available on-line to AUSTRAC's 28 partner agencies. - Law enforcement and investigative powers: - Commonwealth, State and Territory authorities have adequate powers for gathering evidence, compelling production of documents, and special investigative techniques (controlled deliveries, undercover officers, electronic interception, surveillance, search powers). - AFP enforces most Commonwealth criminal law; CDPP prosecutes offences against Commonwealth law. - Authorities have adequate powers, structures, staffing and resources to investigate and prosecute ML/TF, but legal measures are not fully effective in practice because investigators generally do not investigate and refer money laundering as a separate charge and prosecutions are low. ### Preventive measures for financial institutions (scope, CDD, reporting, recordkeeping) - Coverage and scope: - Obligations under the FTR Act apply to “cash dealers”; this covers a broad range but does not yet cover the full range of financial institutions as defined in the FATF Recommendations (e.g., certain financial leasing companies, debit and credit card schemes). - Securitisation firms, electronic payment system providers, and certain managed investment schemes are covered only where they also hold a financial services licence covering dealing in securities or derivatives. - Particular obligations (reporting, record-keeping) may vary between types of cash dealers. - Customer due diligence (CDD): - Most CDD obligations date to the Financial Transactions Reports Act 1988 and do not meet current standards. - Current legislation provides a complex and indirect obligation to identify and verify customer identity limited to the context of “account” facilities with cash dealers; does not cover all situations where business relationships are established. - Accounts below prescribed low value thresholds can operate indefinitely without customer identification: - AUD 1,000 per day or AUD 2,000 in a month thresholds permit accounts to operate without identification until triggered. - Identification is required when reporting cash transactions over AUD 10,000, but there is no reporting or identification requirement for other non-cash occasional transactions of USD/ EUR 15,000 or more. - Methods of verifying customer identification are inadequate and should be tightened. - No general obligation under the FTR Act to identify and verify beneficial owners. - No specific obligations regarding politically exposed persons (PEPs), correspondent banking, or measures to prevent misuse of technological developments in ML/FT; no specific and effective CDD procedures for non-face-to-face customers. - Reliance on third parties: - FTR Act allows reliance on an “acceptable referee”; current list of acceptable referees is overly broad and includes many unregulated entities. - Financial institutions relying on third parties are ultimately responsible for compliance, but other provisions of FATF Recommendation 9 are not required. - Reporting and recordkeeping: - Under sections 20, 23, 27C and 27D of the FTR Act, reporting entities have direct and implied recordkeeping and record accessibility obligations. - Certain cash dealers (“financial institutions” as defined under section 3 of the FTR Act) have broad record-keeping obligations relating to identity verification, operation of “accounts” and individual transaction activity. - FTR Act obligations do not include records of transactions from securities and insurance institutions, or foreign exchange dealers or money remitters, if they are not “financial institutions” or do not hold “accounts” as defined. - All information kept is readily accessible by competent authorities. - Reporting thresholds and cross-border: - Reporting of cross-border movements of currency above AUD 10,000 to AUSTRAC is in place. - No corresponding system for declaration or disclosure of bearer negotiable instruments. ### Designated non-financial businesses and professions (DNFBPs) and supervision - DNFBPs present in Australia: casinos, dealers in precious metals and stones, lawyers, notaries, real estate agents, accountants, trust and company service providers (professional company incorporation providers). - Coverage: - Casinos, bullion sellers and to some extent solicitors are covered by the FTR Act. - Other DNFBPs are not covered. - Supervision and monitoring: - Lack of effective regulatory and monitoring systems to ensure compliance with AML/CFT requirements for many DNFBPs. - Australia is in process of introducing new legislation to address many deficiencies. ### Money laundering typologies and sectors targeted - Principal sources of proceeds: - While narcotics offences provide a substantial source, the majority of illegal proceeds are derived from fraud-related offences. - One Australian Government estimate suggested amount of money laundering in Australia ranges between AUD 2—3 billion per year. - Common laundering methods: - Exploitation of mainstream retail banking and larger financial service and gaming providers. - Use of false identities and false name bank accounts facilitated by forged documents to structure and transact funds. - International funds transfers to move funds offshore. - Use of smaller or informal service providers such as alternative remittance dealers. - Cash smuggling into and out of Australia. - Use of legitimate businesses to mix proceeds of crime with legitimately earned income/profits. - Growing trend in use of professional launderers and other third parties to launder criminal proceeds. ### Implementation gaps, effectiveness, and priority reforms identified - Implementation gaps and effectiveness issues: - Low number of money laundering prosecutions at the Commonwealth level suggests the regime is not being effectively implemented. - Investigators generally do not investigate money laundering as a separate charge. - Preventative and supervisory AML/CFT system not effective to meet revised FATF 40 Recommendations; significant changes needed. - Methods of verifying customer identification are inadequate; beneficial ownership, PEPs, correspondent banking and non-face-to-face CDD shortcomings. - Coverage gaps in the FTR Act for certain financial institutions and many DNFBPs. - Acceptable referee list is overly broad and includes unregulated entities. - Priority reforms and recommendations noted: - Broaden terrorist financing offence wording to specifically cover collection/provision of funds for terrorist organisations and individual terrorists. - Tighten methods of verifying customer identification and address CDD deficiencies (beneficial ownership, PEPs, correspondent banking, non-face-to-face customers). - Extend FTR Act coverage to the full range of financial institutions as defined in the FATF Recommendations. - Strengthen regulatory and monitoring systems for DNFBPs. - Restrict reliance on overly broad categories of acceptable referees; align third-party reliance with Recommendation 9 provisions. - Improve statistics and reporting of State and Territory prosecutions and convictions for ML to enable assessment of effectiveness. - Continue legislative updates to implement requirements of the revised 40 Recommendations. *Source: FATF Mutual Evaluation summary of AML/CFT measures in Australia (on-site visit March 2005).* ### 28. Australia has a mandatory system for reporting all international funds transfer instructions to ### _cr06409 - 28. Australia has a mandatory system for reporting all international funds transfer instructions to ### Reporting of international funds transfer instructions and originator information - Australia has a mandatory system for reporting all international funds transfer instructions to AUSTRAC. Reports contain the ordering customer’s name, location (i.e. full business or residential address) and customer’s account number. - Reports are maintained in AUSTRAC’s database and are a useful source of intelligence information. - Gaps relative to the main elements of SR VII: - There is no requirement to include the originator information as part of the funds transfer instruction itself. - There is no requirement that similar obligations apply to domestic transfers. - There is no requirement for intermediary financial institutions to maintain all the required originator information with the accompanying wire transfer. - There is no requirement for beneficiary financial institutions to have risk-based procedures in place for dealing with incoming transfers that do not have adequate originator information. ### Suspicious transaction reporting (STR) and monitoring obligations - There are no specific requirements for cash dealers to pay special attention to complex, unusual large transactions, or unusual patterns of transactions that have no apparent or visible economic or lawful purpose, or set out their findings in writing. - As part of the obligation to report suspicious transactions, cash dealers (but not the full scope of financial institutions as required in the FATF Recommendations) are required to recognize and report transactions suspected of being relevant to the investigation of an offence. - The indirect obligation to monitor transactions does not cover the full monitoring obligation for: - all complex, unusual large transactions; - unusual patterns of transactions; or - transactions with no visible economic purpose. - AUSTRAC provides general feedback: - statistics on the number of disclosures with appropriate breakdowns; - information on the results of the disclosures; - some typologies in quarterly newsletters. - AUSTRAC is encouraged to provide more sanitised examples of actual money laundering cases and/or information on the decision or result of an STR filed. - The regime for reporting suspicious transactions is overall effective and comprehensive except for: - the current limitation on the scope of “cash dealers”; - concern that the scope of the terrorist financing offence could slightly limit reporting. - In 2004, AUSTRAC received over 12,000 STRs from a wide range of cash dealers. The number of STRs filed over the past several years and the range of entities reporting is positive; numbers of reports have been steadily increasing for several types of cash dealers, notably banks, credit unions, casinos, and finance corporations. ### Large cash transaction reporting and database access - AUSTRAC receives reports of significant cash transactions equal to or greater then AUD 10,000. - Reports of large cash transactions are stored on the AUSTRAC database and can be accessed by authorised staff within its 28 Partner Agencies. ### AML/CFT policies, internal controls, and extraterritorial application - The requirement for cash dealers to have AML/CFT policies and internal controls is implicit within the FTR Act as part of obligations to identify account signatories and report potentially suspicious activity. - Some sectors have voluntarily introduced AML/CFT policies and internal controls commensurate with their size and exposure to AML/CFT risk. - There are no specific requirements obliging financial institutions to have institutionalised AML/CFT internal controls, policies and procedures, to assess AML/CFT risk, or to communicate these procedures to employees. - The FTR Act applies outside Australia; foreign branches and subsidiaries of Australian banks are required to comply with the FTR Act’s provisions to the extent host country laws and regulations permit. - There is no requirement that branches and subsidiaries in host countries apply the higher standard where home and host minimum AML/CFT requirements differ, or to inform the home country supervisory if compliance is not possible because of local law. ### Shell banks and correspondent relationships - Australia’s banking authorisation process effectively precludes the establishment and operation of “shell banks” within the jurisdiction. - Recommendation: Australia should prohibit financial institutions from entering into, or continuing, correspondent banking relationships with shell banks and require financial institutions to satisfy themselves that respondent financial institutions in a foreign country do not permit their accounts to be used by shell banks. ### Supervisory framework, powers, and enforcement - Functional supervisory approach: - AUSTRAC is the AML/CFT regulator with an ongoing monitoring program to ensure cash dealer compliance with the FTR Act. - APRA is the prudential supervisor and regulator of the Australian financial services sector. - ASIC enforces and regulates company and financial services laws to protect consumers, investors, shareholders and creditors. - AUSTRAC’s powers include criminal sanctions for non-compliance and an injunctive power (used in limited circumstances). - The lack of administrative sanctions means formal sanctions are generally not applied in practice; agreed remedial action with the cash dealer, while not a formal sanction, successfully encourages improvements. - APRA and ASIC have wide-ranging powers to remedy breaches of their relevant legislation, applying to entities and their directors and officers (e.g. senior management). Powers include: - compel specific remedial actions; - disqualify persons for management or directorship functions; - revoke a license or authorisation to operate. - Uncertainties and limitations: - It was unclear how APRA/ASIC powers would be applied in practice for AML/CFT non-compliance, as there are no express powers to remove management or revoke a license for a breach of AML/CFT requirements. - No sanctions have yet been applied by APRA or ASIC for AML/CFT failings. - Licensing gaps: - Entities must be authorised or licensed by APRA to carry out banking, general insurance, life insurance or superannuation business. - Some remittance services or bureaux de change are licensed under AFSL requirements. - There is no general obligation to license or register all money/value transfer (MVT) services operators and bureaux de change. - Recommendation: Australia needs to extend licensing or registration requirements to the remaining financial institutions not covered by current arrangements. - MVT services operators: - Subject to FTRA requirements; AUSTRAC has identified and brought many into the reporting regime and maintains a current list of the names and addresses of operators it has identified. - MVT service operators are not required to maintain a current list of their agents. ### Effectiveness of AML/CFT supervision and AUSTRAC operational capacity - The evaluation team did not find the implementation of the AML/CFT supervisory system to be effective in terms of the standards required by the revised 40 Recommendations. - Need for improved coordination on AML/CFT matters between relevant authorities and greater formal cooperation among financial sector supervisors and regulators. - AUSTRAC’s on-site supervision: - Does not cover the full range of compliance tools under the FTR Act. - AUSTRAC focuses on education visits and has conducted only two compliance inspections of banks in the last two years. - Education visits include inspections of records to ascertain whether an entity is a cash dealer and whether it has reporting obligations and is complying with them; they can result in agreed remedial action. - Recommendation: develop an on-going and comprehensive system of on-site AML/CFT compliance inspections across the full range of financial institutions. - Recommendation: introduce specific measures enabling the regulator to disqualify management or directors or revoke a license to operate for specific AML/CFT failings. - Recommendation: introduce a comprehensive administrative penalty regime for AML/CFT failings. - Resource needs: - AUSTRAC’s current resources for AML/CFT compliance appear limited. - Recommendation: substantial dedicated financial resources should be directed toward the Reporting and Compliance section to increase staff numbers and train existing staff. - Supervisory skills and training for on-site inspections and enforcement-related activities should be enhanced. ### Designated Non-Financial Businesses and Professions (DNFBPs) - Some DNFBPs have some CDD and record-keeping obligations under the FTR Act: - Casinos and bullion sellers are “cash dealers” and subject to customer identification requirements and record-keeping requirements, generally pertaining to account opening or significant cash transactions (i.e., those over AUD 10,000; approximately USD 7,500). - Solicitors must identify customers when reporting significant cash transactions. - Trustees and managers of unit trusts, as financial institutions, are covered as reporting entities under section 3(g) of the FTR Act; trust and company service providers (TCSPs) generally do not fall within this definition. - Effectiveness limitations: provisions lack effectiveness due to inherent problems in identification and verification processes (discussed in Section 3 of the report). - Under the present legal regime, most DNFBPs in Australia do not have mandatory CDD, record keeping and other obligations as required under Recommendation 12. - Casinos and bullion sellers (as cash dealers) are required to report STRs to AUSTRAC; other DNFBPs do not have similar obligations nor are they required to develop internal policies, procedures, internal controls, ongoing employee training and compliance programs for AML/CFT. - There are not adequate, enforceable measures for DNFBPs to: - pay special attention to transactions involving certain countries; - make their findings available in writing; or - apply appropriate counter-measures. - Casinos have comprehensive licensing and satisfactory regulation by State and Territory authorities. AUSTRAC has issued Guidelines that cover these cash dealers. - Most other DNFBPs lack effective regulatory and monitoring systems to ensure AML/CFT compliance. - Criminal sanctions of the FTR Act would apply; however, lack of administrative sanctions and absence of criminal prosecutions of DNFBPs suggest sanctions are generally not applied for AML/CFT breaches. - Australia has extended AML coverage to other businesses and professions identified as greater money laundering vulnerability areas (e.g., bookmakers and Totalisator Betting Service Providers as part of the broader gambling industry). - Australia has encouraged development and use of modern and secure techniques for conducting financial transactions that are less vulnerable to money laundering. ### Legal persons, arrangements, and non-profit organisations (NPOs) - Corporations: - Australia has a national system to record and make available useful information on the ownership and control of its corporations, which constitute the vast majority of legal persons in Australia. - There is no requirement to disclose beneficial ownership. - Information on companies is publicly available. - Additional requirements for publicly listed companies ensure relevant information on beneficial ownership and control of these entities is accessible. - Law enforcement authorities and ASIC have powers to obtain information on ownership and control, and beneficial ownership where it exists. - Recommendation: consider broadening requirements on beneficial ownership so information on ownership/control is more readily available in a more timely manner. - Trusts and legal arrangements: - Tax information from certain trusts and law enforcement powers provide means to access certain information on beneficial ownership and control of certain trusts. - Overall mechanisms to obtain timely access to beneficial ownership and control of legal arrangements, in particular settlor, trustee, and beneficiaries of express trusts, are not sufficient. - Non-profit organisations: - Australia has reviewed its non-profit organisation sector and taken some measures to ensure these entities are not used to facilitate the financing of terrorism; reviews have not resulted in actual implementation of additional measures. - Recommendation: consider more thoroughly reviewing adequacy of laws and regulations to ensure terrorist organisations cannot pose as legitimate non-profit organisations. - Recommendation: give further consideration to implementing specific measures from the Best Practices Paper to SR VIII or other measures to ensure funds or other assets collected by or transferred through non-profit organisations are not diverted to support terrorist organisations. ### National and international co-operation - Coordination mechanisms exist within Federal government and between Federal and State Governments; scope exists to improve cooperation/coordination between AUSTRAC, ASIC and APRA and to enhance cooperation at the policy level. - Australia appears to have fully implemented measures required in S/RES/1267 (and successors) and S/RES/1373; these measures appear effective. - Australia has implemented the vast majority of the relevant sections of the Vienna, Palermo, and CFT Conventions. - Mutual legal assistance: - Australia has a comprehensive system for providing mutual legal assistance and cooperating fully with other jurisdictions. - Obligations for mutual assistance apply to terrorist financing and terrorist acts as they apply to other offences. - Mechanism set out in the Mutual Assistance in Criminal Matters Act 1987; provides for production, search and seizure of information, documents or evidence (including financial records) from financial institutions or other natural or legal persons, and for taking evidence and statements from persons. - Assistance is not prohibited or subject to unreasonable, disproportionate or unduly restrictive conditions. - The system enables Australia to provide legal assistance without a treaty; Australia has entered into 24 bi-lateral agreements to accommodate countries requiring a treaty. - Dual criminality is not required but is a discretionary ground for refusing assistance; it would only apply to use of coercive powers and not to less intrusive and non-compulsory measures. - Foreign orders that can be enforced include: forfeiture orders (including laundered property and proceeds), pecuniary penalty orders, restraining orders, production orders, monitoring orders, and search warrants to identify and seize property. - Statistics and timeliness: - The Attorney-General’s Department receives all incoming requests for mutual legal assistance and refers them to the necessary State or Territory authority, or to the CDPP for those involving the Commonwealth. - Both agencies keep comprehensive statistics on requests received and answered, including nature of the case and offences. - In 2003-2004, the Attorney-General’s Department received 179 new requests for legal assistance; 10 involved money laundering and 8 involved terrorism. - In the same period, the CDPP received a total of 41 requests, including 3 for money laundering, and 4 for Proceeds of Crime Act offences. - Both departments have adequately responded in a timely manner to the vast majority of requests. *Source: Excerpt from the provided IMF evaluation content.* ### 57. Australia has a generally comprehensive system for extradition. The Extradition Act 1988 does ### _cr06409 - 57. Australia has a generally comprehensive system for extradition. The Extradition Act 1988 does ### Extradition framework and dual criminality - The Extradition Act 1988 does not include money laundering or terrorist financing as extradition offences per se. - “Extradition offence” is defined as one for which the maximum penalty is a period of imprisonment for not less than 12 months. - This would cover all Commonwealth money laundering offences from Division 400 of the Criminal Code, apart from the most minor offences which concern recklessly or negligently dealing in the proceeds of crime of less than AUD1000. - For extradition to Commonwealth countries except Canada and the United Kingdom, an offence with a penalty of not less than two years is required. This scheme currently applies to 64 countries and territories. - Dual criminality is a requirement for extradition from Australia. - Because the terrorist financing offence in Australia does not specifically cover collection of funds for terrorist organisations or the provision/collection of funds for individual terrorists, there is a concern that the dual criminality requirement for extradition could preclude extradition for these acts, and this should be rectified. ### International cooperation and information exchange - The capacity for and extent of information exchange at the FIU, law enforcement, prudential and corporate levels is significant and seems to be working well. - AUSTRAC currently has exchange instruments with 37 counterpart FIUs. - The AFP has 63 federal agents in 30 offices in 25 countries to exchange information as required. - The AFP is presently negotiating in excess of 30 international agreements with partner law enforcement agencies. - APRA and ASIC also exchange information with their overseas counterparts. ### Recommended Action Plan — Legal system and related institutional measures (priority items) - Criminalisation of Money Laundering (R.1 & 2) - Improve implementation of the money laundering offence: provide incentive to its investigators and prosecutors to prosecute money laundering cases as separate and serious offences. - States and Territories should all adopt the national model) to allow them a broader ability to prosecute and convict for money laundering. - Criminalisation of Terrorist Financing (SR.II) - Criminalise the collection or provision of funds for an individual terrorist, as well as the collection of funds for a terrorist organisation. - Confiscation, freezing and seizing of proceeds of crime (R.3) - Other States and Territories that have not yet adopted similar civil forfeiture schemes should consider doing so. - Consider civil forfeiture for instrumentalities of crime. - Freezing of funds used for terrorist financing (SR.III) - Amend regulations to cover where the obligations of SRIII exceed the requirements of the Resolutions—i.e., specifying that obligations apply to funds of terrorists and those who finance terrorism, outside of the context of specific terrorist acts. - Outreach further to DNFBPs to ensure that those sectors are aware of their obligations and procedures for complying. - The Financial Intelligence Unit and its functions (R.26, 30 & 32) - AUSTRAC is encouraged to seek direct access to additional law enforcement data sources as this non-financial data will also enhance their intelligence analysis capability. - AUSTRAC is encouraged to expand their team of financial analysts. - AUSTRAC should continue to seek and encourage regular feedback from partner agencies on their performance and on the benefits and results achieved by partner agencies through use of the FTR information. - AUSTRAC in consultation with partner agencies should consider how to share information/results more effectively with reporting entities. - AUSTRAC and APRA should negotiate a formal information sharing arrangement similar to those memorandums of understanding with other government agencies under which each organization is required to use its best endeavours to provide information which is likely to assist the other agency in carrying out its particular regulatory function. - Law enforcement, prosecution and other competent authorities (R.27, 28, 30 & 32) - The investigative and prosecutorial authorities need to focus more on investigating and prosecuting ML and not just predicate offences. Australian authorities are encouraged to continue to make this a priority. - There is also a need for Australian authorities to keep clearer statistics for investigations and prosecutions of the ML offence at the commonwealth level. - There is also a need for Australian authorities to ensure adequate statistics are maintained with respect to money laundering (investigations, prosecutions, convictions, property seized, etc.) at the State/territory level. - Consider establishing an AML working group with State, Territory and federal representatives from government to regularly discuss issues of common interest such as statistic gathering and develop approaches for dealing with emerging issues. ### Recommended Action Plan — Preventive measures: Financial institutions - Risk of money laundering or terrorist financing / Customer due diligence, including enhanced or reduced measures (R.5 to 8) - In general, the regime could be made simpler and contain a more direct obligation to identify and verify customers. - Loans should not be excluded from CDD requirements. - The definition of “cash dealer” or otherwise obliged reporting entities should be extended to include the full range of financial institutions as defined in the FATF recommendations. - The scope of “account” should be extended to capture a wider range of products, services or business activity so that CDD applies for all cases of establishing business relations. - Australia should amend its legislation to remove the possibility of accounts operating below the threshold of AUD 1,000/ 2,000 without any verification requirements. - The Regulation 4(1)(i) of the FTR Act not requiring existing clients of over 36 months to be re-examined for identity and verification purposes should be repealed. - Financial institutions should be required to apply CDD requirements to existing customers on the basis of materiality and risk. - While Australia has a system to identify customers (but not beneficial owners) of occasional cash transactions above AUD 10,000, verification requirements should be clearer. - Australian legislation should be amended to require identification of those occasional transactions that exceed the USD/EUR 15,000 which are not cash transactions. - Australia needs to require financial institutions to identify occasional customers as contemplated in SRVII for domestic transfers and in the cases where there is a suspicion of money laundering or terrorist financing. - The acceptable referee method should be substantially tightened or even removed except for exceptional cases where reliance on other identification methods is not possible. - The 100-point check should be strengthened by placing reliance on identification documents or methods of proven acceptability, which should exclude identification references, for example. - Create a general obligation to identify and verify the details of the beneficial owner, in respect of all customers; oblige financial institutions to determine whether the customer is acting on behalf of another person, and if so, take reasonable steps to verify the identity of that other person. - For customers that are legal persons, financial institutions should be required to take reasonable measures to understand the ownership and control structure and determine who are the natural persons that ultimately own or control the customer and gather information on the directors and the provisions regulating the power to bind the entity. - Tighten the use of third parties to complete verification of signatories as currently contained in Regulation 5. - Require financial institutions to: obtain information on the purpose and intended nature of the business relationship, obtain information on the purpose and intended nature of the business relationship, conduct on-going due diligence of the business relationship, and keep CDD data up-to-date. - In the cases where adequate CDD data is not obtained, financial institutions should be required to consider filing a suspicious transaction report. - Adopt requirements for financial institutions to perform enhanced due diligence for higher risk categories of customers, business relationships, and transactions. - Adopt requirements for PEPs as contemplated in Recommendation 6. - Adopt measures for correspondent relationships as contemplated in Recommendation 7. - Require financial institutions to have policies in place or take such measures as may be needed to prevent the misuse of technological developments in money laundering or terrorist financing. - The FTR Act should be amended to provide specific, clear and effective CDD procedures that apply to non-face to face customers. - Third parties and introduced business (R.9) - Financial institutions should be required to: immediately obtain the identification data from referees; take adequate steps to satisfy themselves that copies of identification data and other relevant documentation relating to CDD requirements will be made available from the third party upon request without delay. - Financial institutions should be required to satisfy themselves that the third party is regulated and supervised (in accordance with Recommendation 23, 24 and 29), and has measures in place to comply with, the CDD requirements set out in R.5 and R.10. - Record keeping and wire transfer rules (R.10 & SR.VII) - Broaden the scope of record-keeping requirements to include all financial institutions as defined in the FATF Recommendations. Clarify provisions to ensure that requirements apply to all account files and records of business correspondence. - Australia should adjust its legislation and implement measures of SR VII to require that: - financial institutions verify that the sender’s information is accurate and meaningful and include the account number; - full originator information, in addition to being sent to AUSTRAC, also be included in the wire transfer instruction itself, and that similar obligations also apply to domestic transfers. - intermediary financial institutions maintain all the required originator information with the accompanying wire transfer. - beneficiary financial institutions have risk-based procedures in place for dealing with incoming transfers that do not have adequate originator information. - 'non-routine transactions are not batched where this would increase the risk of money laundering or terrorist financing'. - Monitoring of transactions and relationships (R.11 & 21) - Adopt legally enforceable regulations or guidelines establishing an explicit obligation for all financial institutions to perform the elements required by Recommendation 11. - Adjust legislation to clarify obligations under Recommendation 21 in its Guidelines and Information Circulars and making these measures legally enforceable. - Suspicious transaction reports and other reporting (R.13-14, 19, 25 & SR.IV) - Amend the FTR Act to apply to all financial institutions as defined in the FATF Recommendations. - Expand the definition of the FT offence (to include the provision/collection of funds for an individual terrorist and the collection of funds for a terrorist organisation) so as to ensure that transactions related to these activities is reportable. - AUSTRAC could provide more sanitised examples of actual money laundering cases and/or information on that decision or result of an STR filed. - Cross-border declaration or disclosure (SR.IX) - Amend legislation to cover incoming and outgoing cross-border transportations of bearer negotiable instruments. - Internal controls, compliance, audit and foreign branches (R.15 & 22) - Impose obligations for all cash dealers to ensure that the proposed controls, policies and procedures cover, inter alia, CDD obligations, record detection, the detection of unusual and suspicious transactions, and the reporting obligations, designation of a AML/CFT compliance officer at the management level; an adequately resourced and independent audit function, ongoing employee training, and adequate screening procedures. - Require branches and subsidiaries to apply the higher AML/CFT standard, to the extent that the laws of the host country allows. - In the event where a foreign branch or subsidiary is unable to observe appropriate AML/CFT measures because this is prohibited by local (i.e. host country) laws, regulations or other measures, those financial institutions should be required to inform Australian authorities. - Require financial institutions to pay particular attention that the principle is observed wherewith to branches and subsidiaries in countries which do not or insufficiently apply the FATF Recommendations. - Shell banks (R.18) - Prohibit financial institutions from entering into, or continuing, correspondent banking relationships with shell banks and require financial institutions to satisfy themselves that respondent financial institutions in a foreign country do not permit their accounts to be used by shell banks. - The supervisory and oversight system - competent authorities and SROs (Role, functions, duties and powers) (R. 23, 30, 29, 17, 32, & 25) - Foster greater formal co-operation amongst relevant financial sector supervisors and regulators on AML/CFT issues and operational developments going forward. - Develop an on-going and comprehensive system of on-site AML/CFT compliance inspections across the full range of financial institutions. - Institute an administrative penalty regime under which administrative penalties can be imposed on regulated entities and persons who are materially non-compliant in respect of their obligations under the FTR Act. - It should also be provided that a failure or wilful disregard of FTR Act obligations would constitute a ground for declaring a director, manager or employee of a cash dealer to be in breach of fit and proper norms, with the resultant consequences. - Inspections powers in the FTR Act should also be amended to expressly include such generally accepted standard inspection powers such as checking policies and procedures, sample testing, or the investigation of any other issue required by the FTR Act. - There should also be a provision clarifying that offences by a cash dealer in specific contravention of Australia’s AML/CFT legislation can result in the cancellation of a licence or revocation of authorisation held by that person or body corporate cash dealer. - Remedy the current limitation on AUSTRAC’s ability to share information with APRA. - For AUSTRAC to be an effective AML/CFT regulator under the current FATF standards, substantial dedicated financial resources must be directed toward the Reporting and Compliance section to increase staff numbers, to train existing staff and to embark on a targeted compliance drive amongst cash dealers through actual audit inspections in increased numbers. - There remains a distinct need for an enhancement of supervisory skills and training pertaining to the conduct of on-site inspections and enforcement-related activities. - Australia needs to develop a system to license and/or register all remittance dealers and bureaux de change. Australia also needs to extend licensing requirements to the remaining financial institutions not covered by current arrangements. - AUSTRAC should issue further guidance on the other AML/CFT preventative measures. - Money value transfer services (SR.VI) - Australia should require all MVT service operators to be licensed or registered, and AUSTRAC should maintain a comprehensive list of such service providers and their details; - Australia should therefore revise the FTR Act accordingly and subject MVT service operators to comprehensive AML/CFT requirements (the full scope of Recommendations 4-11, 13-15, 21-23, and SR VII). - Australia should also require MVT service operators to maintain a current list of their agents and make these available to AUSTRAC. - While AUSTRAC has invested considerable effort to locate and educate MVT operators so as to bring them into the reporting regime, AUSTRAC or another competent authority needs to go beyond education visits and fully supervise these entities, including full on-site inspections. ### Recommended Action Plan — Preventive measures: Non-Financial Businesses and Professions (DNFBPs) - Customer due diligence and record-keeping (R.12) (Applying R.5, 6, 8-11, 17) - Australia should bring in legislative changes to ensure that all DNFBPs have adequate CDD and record-keeping, and transaction monitoring obligations in the situations required by Recommendation 12. - Appropriate sanctions should be adopted for non-compliance, including a regime of administrative sanctions. - Suspicious transaction reporting (R.16) (Applying R. 13-15, 17, 21) - The scope of FTR Act needs to be enhanced so as to bring all types of DNFBPs under the STR regime. A regime of administrative sanctions should also be considered for DNFBPs for non-compliance with reporting obligations. - DNFBPs should be required to establish and maintain internal procedures, policies and controls to prevent ML and FT, and to communicate these to their employees. These procedures, policies and controls should cover, inter alia, CDD, record retention, the detection of unusual and suspicious transactions and the reporting obligation. DNFBPs should be required to maintain an independent audit function, establish ongoing employee training. - Australia should compel DNFBPs to pay special attention to transaction involving certain countries, make their findings available in writing, and apply appropriate counter-measures. Information Circulars issued for DNFBPs in this area would need to be transformed into legally enforceable circulars. - Regulation, supervision and monitoring (R.17, 24-25) - Australia should introduce administrative sanctions for breaches of AML/CFT requirements by all DNFBPs, once they are made subject to the FTR Act or other AML/CFT requirements. - The scope and coverage of reporting entities should be enhanced to include DNFBPs enabling AUSTRAC or SROs to regulate and supervise such entities from AML/CFT perspective. - Competent authorities such as AUSTRAC or SROs should establish guidelines that would cover the full range of DNFBP and assist them to implement and comply with their respective AML/CFT requirements. *Source: Provided content from the IMF assessment document.* ### 5. Legal Persons and Arrangements & Non-Profit Organisations ### 5. Legal Persons and Arrangements & Non-Profit Organisations ### Legal Persons – Access to beneficial ownership and control information (R.33) - Australia should consider broadening its requirements on beneficial ownership so that information on ownership/control is more readily available in a more timely fashion. - This could include, for example, restricting the use of nominee directors and shareholders, or obliging legal persons to record the information on beneficial ownership in its register. ### Legal Arrangements – Access to beneficial ownership and control information (R.34) - Improve the processes in place to enable competent authorities to obtain or have access in a timely fashion to adequate, accurate and current information on the beneficial ownership and control of legal arrangements, and in particular the settlor, the trustee and the beneficiaries of express trusts. - Australia should enact more comprehensive measures to require that this data be collected or otherwise ensure that it can be made available. ### Non-profit organisations (SR.VIII) - Australia should consider more thoroughly reviewing the adequacy of laws and regulations in place to ensure that terrorist organisations cannot pose as legitimate non-profit organisations. - Australia should give further consideration to implementing specific measures from the Best Practices Paper to SR VIII or other measures to ensure that funds or other assets collected by or transferred through non-profit organisations are not diverted to support the activities of terrorist organisations. ### 6. National and International Co-operation ### National co-operation and coordination (R.31) - Improve the level of co-operation and co-ordination between AUSTRAC, ASIC, and APRA, and also to enhance co-ordination at the policy level, possibly through the establishment of a formal national co-ordination mechanism. ### The Conventions and UN Special Resolutions (R.35 & SR.I) - Impose stricter customer identification (beneficial ownership) requirements for accounts and transactions in financial institutions as stipulated in Article 18 of the CFT Convention. ### Mutual Legal Assistance (R.32, 36-38, SR.V) - Consider, on a timely basis, entering into further agreements for co-ordination of asset sharing, as this may be needed by other countries in order to share and receive proceeds from confiscated property. - Specifically criminalise the collection of funds for terrorist organisations and the provision/collection of funds involving individual terrorists, to ensure that the discretionary grounds of dual criminality is not used in the future to refuse legal assistance requests involving these crimes. ### Extradition (R.32, 37 & 39, & SR.V) - Specifically criminalise the collection of funds for terrorist organisations and the provision/collection of funds involving individual terrorists, to ensure that the dual criminality requirement in current law could not prevent the extradition of those who have engaged in these acts. ### Other Forms of Co-operation (R.32 & 40, & SR.V) - Australia is compliant with Recommendation 40. - Although AUSTRAC does not need an agreement to share information, AUSTRAC should consider initiating exchange instruments to formalise exchange of AML/CFT regulatory information with foreign supervisors. ### Authorities response to the evaluation - The Australian Government welcomes the evaluation by the Financial Action Task Force on Money Laundering (FATF) of Australia’s anti-money laundering (AML) and counter-terrorism financing (CTF) measures. The Australian Government is committed to reforming its AML/CTF regime and will consider the recommendations of the evaluation with regard to what is appropriate for Australia’s domestic context. - As part of its commitment the Australian Government released on 16 December 2005 a legislative package for public consultation consisting of an exposure AML/CTF Bill and draft AML/CTF Rules and Guidelines (http://www.ag.gov.au/aml). - Australia has also taken immediate steps to implement FATF’s Special Recommendations by passing the Anti-Terrorism Bill (No 2) 2005 on 9 December 2005 which included a range of reforms to the Criminal Code Act 1995 and the Financial Transaction Reports Act 1988 that will better implement Special Recommendations II, VI, VII and IX. - Australia is one of the first countries to be assessed against the revised standards which are widely acknowledged amongst FATF members as being tougher standards. In meeting our international commitments, Australia is mindful of the need to ensure that the reforms are workable and do not impose an unreasonable burden on business. - Australia has implemented a comprehensive, rigorous and effective financial system regulatory framework that is organised along functional lines. Under the framework, APRA is responsible for prudential regulation of ADI’s, life and general insurance companies and superannuation entities while ASIC is responsible for consumer protection and market integrity regulation across the financial system. ASIC is also responsible for broader companies regulation. - Australia’s overall financial sector regulatory framework is robust, well resourced and underpinned by a strong culture of enforcement and compliance. - The Australian financial sector is committed to the reform process and is working closely with the Australian Government to ensure sensible reforms that will maintain its reputation internationally as safe and robust. - The success of the Australian Government’s approach to financial sector regulation is evident in Australia’s vibrant and responsible financial sector, and in the contribution it has made to Australia’s overall economic performance. - Australia has consistently been one of the best performing OECD economies over the last decade, with GDP growth consistently well above the OECD average. Fourteen consecutive years of growth have lifted Australia’s GDP per capita from the 18th highest in the OECD in 1990, to 8th currently. Unemployment, at 5 per cent, is at a thirty year low. - Within the Australian functional regulatory framework, AUSTRAC is responsible for AML/CTF, and will ensure financial institutions, and others covered by the FATF revised recommendations, adequately comply with the AML/CTF requirements. - AUSTRAC is, and will continue to be, supported by the complementary and broad ranging powers available to the Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investments Commission (ASIC). - The Australian Government acknowledges and will give careful consideration to the evaluation’s suggestions regarding the scope to improve formal coordination between AUSTRAC, APRA and ASIC – there is always room for improvement in such areas and the extension of AUSTRAC’s role in terms of the revised FATF recommendations will pose new coordination challenges. However, overall, the Australian Government considers current coordination arrangements to be effective. *Source: _cr06409 - 5. Legal Persons and Arrangements & Non-Profit Organisations* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2006/_cr06409.pdf_