Australia
Mutual Evaluation Report: FATF Recommendations for Anti-Money Laundering and Combating the Financing of Terrorism

The evaluation of the anti-money laundering (AML) and combating the financing of terrorism (CFT) regime of Australia was based on the Forty Recommendations 2003 and the Eight Special Recommendations on Terrorist Financing 2001 of the Financial Action Task Force (FATF), and was prepared using the AML/CFT Methodology 2004. It describes and analyses those measures and provides recommendations on how certain aspects of the system could be strengthened. It also sets out Australia’s levels of compliance with the FATF 40+8 Recommendations.

Abstract

The evaluation of the anti-money laundering (AML) and combating the financing of terrorism (CFT) regime of Australia was based on the Forty Recommendations 2003 and the Eight Special Recommendations on Terrorist Financing 2001 of the Financial Action Task Force (FATF), and was prepared using the AML/CFT Methodology 2004. It describes and analyses those measures and provides recommendations on how certain aspects of the system could be strengthened. It also sets out Australia’s levels of compliance with the FATF 40+8 Recommendations.

1. ..... Overview

1.1 General information on the country and its economy

1. Australia occupies a land area of about 7.7 million square kilometres, making it the 6th largest country in the world and roughly the size of the 48 contiguous states of the United States. Australia’s population is currently just over 20 million.

2. 2004-05 is Australia’s fourteenth consecutive year of economic growth. Australia has averaged growth of 3.0 per cent per annum over the last five years. In June 2005, Australia’s unemployment rate was 5.0 per cent, its lowest level since November 1976. Inflation is currently low, at 2.5 per cent through the year to the June quarter 2005. Australia’s recent economic growth has been driven by strong domestic demand, while net exports have subtracted from growth

3. The services sector accounts for around 70 percent of Australian industry, with the largest service-based industries being property and business services, finance and insurance and health. Of the non-services sector, the largest industry is manufacturing. Australia’s exports are dominated by goods exports, in particular resources (around 30 per cent of total exports), and rural commodities and manufactures (around 20 per cent each).

4. Australia is one of the major centres of capital market activity in the Asia-Pacific region. Annual turnover across Australia’s over-the-counter (OTC) and exchange-traded financial markets was AUD2 69 trillion in the year to June 2004. Australia’s total stock market capitalisation is almost USD 500 billion, making it the eighth largest market in the world, and the second largest in the Asia-Pacific region behind Japan.3 Australia’s foreign exchange market is ranked seventh in the world by turnover, with the USD/AUD the fourth most activity traded currency pair in the world. Australia’s current account deficit was AUD 15.6 billion in the March quarter 2005 (7.2 per cent of GDP).

5. Australian has a federal system of government that consists of the Federal government, six State governments and two Territory governments. The main criminal law powers rest with the States and Territories. Commonwealth legislation is generally restricted to criminal activity against Commonwealth interests, Commonwealth officers or Commonwealth property (wherever located within Australia). The Australian Parliament’s role in making legislation is therefore limited to specific “heads of power” issues including, trade and commerce with other countries, and among the States; taxation; currency, banking, other than State banking; external affairs; and other matters referred to the Australian Parliament by the States. State and Territory legislation relates to criminal activity against any non-Commonwealth interests located within the geographical area of the particular State or Territory. Accordingly, the majority of criminal law proceedings in Australia are State or Territory proceedings. There are ongoing efforts by the Commonwealth, State and Territory governments to ‘harmonise’ their respective criminal laws as far as possible.

6. Australia’s Federal Parliament consists of two houses, a Senate and a House of Representatives. The Australian Constitution also established a High Court of Australia, which can decide cases in first instance and on appeal from other federal courts or State or Territory courts. There is also a system of federal courts below the High Court, established by legislation. The establishment of a federal judiciary did not affect the State judiciaries; each State continues to have its own Supreme Court and inferior courts.

1.2 General Situation of Money Laundering and Financing of Terrorism

7. Drug importation/trafficking, tax fraud, corporate fraud and bank fraud are the major sources of illegal proceeds within Australia. While narcotics offences provide a substantial source of proceeds of crime, the majority of illegal proceeds are derived from fraud-related offences. As in other developed economies, money laundering in Australia is a significant, widespread and ongoing activity fuelled by, and reflective of, the amount of profit generated by crime. While the full extent of money laundering is difficult to quantify, one Australian government estimate suggested that the amount of money laundering in Australia ranges between AUD 2—3 billion per year.

8. Indications are that the majority of illegally obtained funds are obtained through crimes committed within Australia, but there is also evidence of overseas crime groups transferring the proceeds derived from crimes committed overseas to Australia. The majority of overseas matters are connected to frauds where money has either been laundered into Australia for the purpose of acquiring assets or has been laundered through Australia to overseas countries.

9. As in other developed economies, money laundering in Australia covers a broad range of activity ranging from small scale laundering of stolen goods and money through to highly sophisticated schemes to conceal and exploit the proceeds of drug trafficking, people smuggling and other organised transnational criminal activity. Australia recognises and is responding to the continuing challenges posed by increasingly well resourced and well organised transnational crime networks.

10. Criminals use a range of techniques to launder money in Australia. Generally, money launderers seek to exploit the services offered by mainstream retail banking and larger financial service and gaming providers. Visible money laundering is predominantly carried out using the regulated financial sector, particularly through the use of false identities and false name bank accounts facilitated by forged documents to structure and transact funds. Money launderers often move funds offshore by using international funds transfers. Money launderers also move funds through smaller or informal service providers such as alternative remittance dealers. Australian authorities also identified other methods that served as money laundering vehicles: cash smuggling into and out of Australia, gaming and gambling activity, and the use of legitimate businesses to mix proceeds of crime with legitimately earned income/profits. Law enforcement has also recognised a growing trend in the use of professional launderers and other third parties to launder criminal proceeds.

11. While the essential features of money laundering activity have not changed, Australia’s implementation of global E-commerce and other technological developments have increased the money laundering opportunities available to criminal groups. A number of emerging trends have been identified within Australia as potentially affecting the risk of money laundering/terrorist financing. These include: the increased use of accounts or credit/debit card or stored value facilities available from other jurisdictions; and the increased use of alternative payment systems via the internet that provide the possibility of converting funds into a virtual currency such as e-credits and e-gold that disburse funds overseas without any reporting obligations.

12. The types of groups involved in laundering operations range from highly organised established criminal networks to smaller opportunistic criminal groups. Established criminal networks are often ‘entrepreneurial’ and involve a core group or key individuals. Such groups often combine expertise and resources to commit crimes, most usually drug trafficking, and maintain a range of strategic relationships to facilitate their illicit activities.

13. To date no links have been identified between known money laundering syndicates within Australia and terrorist organisations, although the potential for the use of some money laundering methodologies (cash smuggling, structuring, gambling, business interests, remittance services) to finance terrorist groups remains and is being closely monitored. Recent and ongoing investigations of terrorist activity conducted by national security and law enforcement agencies have been facilitated by Australia’s transaction reporting regime. As these matters have yet to come to trial, details of the techniques used cannot be made public.

14. It is likely that terrorist networks in the region will explore other options for financing their activities to avoid existing legislative controls. For example, the misuse of legal arrangements, commercial vehicles or non-profit organisations is a recognised method by which to funnel terrorist financing, especially into less regulated jurisdictions. However, Australia is monitoring developments closely in cooperation with regional and international intelligence and law enforcement agencies and will take appropriate steps to address emerging threats.

1.3 Overview of the Financial Sector and DNFBPs

a. Overview of Australia’s financial sector4

15. The financial sector is Australia’s third largest industry sector, contributing around AUD$60 billion to the Australian economy in 2003-04 (or 7.7 per cent of GDP). This was more than twice that of the agricultural sector and around 80 per cent greater than the mining sector, two traditionally strong contributors to Australia’s economic wellbeing.

16. Australia has a sophisticated modern financial system. The financial system is in a sound condition, is generally well regulated, and exhibits a strong risk management culture. The regulatory framework for the Australian financial system was substantially reformed in 1998 in response to the recommendations of the 1997 report of the Financial System Inquiry (FSI, also known as the ‘Wallis Report’). The FSI made a series of recommendations designed to promote an efficient, responsive, competitive and flexible financial system that would underpin stronger economic performance, consistent with financial stability, prudence, integrity and fairness. In addition the authorities have undertaken measures to strengthen financial supervision and have implemented key recommendations of the 2003 Royal Commission that investigated the collapse of HIH Insurance Group of companies. The banks, as important financial intermediaries, are sound, well capitalised, well managed and highly profitable with low credit losses. The financial environment remains favourable from a financial stability outlook

17. A wide range of financial institutions exists in Australia. These include depository corporations (such as banks, building societies and credit co-operatives); financial markets; insurance corporations and pension funds (life insurance, general insurance, superannuation funds); other financial corporations, including financial intermediaries (such as financial unit trusts and investment companies); financial auxiliaries (such as securities brokers, insurance brokers and flotation corporations); foreign exchange instrument dealers, money remittance dealers and bureaux de change. The following chart sets out the types of financial institutions that carry out the financial activities listed in the Glossary of the FATF 40 Recommendations.

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18. Australia has a functional, as opposed to an institutional, approach to financial sector regulation. Accountability for the operational or day-to-day supervision of financial institutions and markets lies with the regulators. The functional approach assigns the main AML/CFT responsibility to AUSTRAC and other related agencies such as the AFP. The financial sector regulators may indirectly assist these agencies in the performance of their functions through the sharing of relevant information that is collected in the course of exercising their supervision, monitoring and investigation and data collection powers.

b. Overview of designated non-financial businesses and professions (DNFPBs)

19. Casinos: Australia has 13 casinos that directly and indirectly contributed $5.9 billion in GDP to the Australian economy in 2003 and generated $8.6 billion in industry sales.7 While internet gambling is prohibited in Australia under national gambling legislation, there remains one State approved internet gambling casino, which was established before national gambling legislation came into operation.8 Licensing and supervision of casinos is conducted at the State and Territory level; however, casinos have certain national AML obligations under the Financial Transactions Reports Act 1988 (FTR Act). In addition to casinos, Australia also has a number of bookmakers, gambling houses, and totalisator agency boards.

20. Real estate agents: There are approximately 10,000 real estate businesses in Australia employing about 77,000 people. The number of persons employed as real estate agents at 30 June 2003 was about 68,000, of which 53% were franchised real estate agents and 47% were non-franchised real estate agents.9 Most real estate businesses have less than 20 people, and the majority are those are businesses with 4 people or less. The real estate sector is regulated at the State and Territory level.

21. Dealers in precious metals and dealers in precious stones: Includes gold bullion sellers, which are subject to certain AML obligations under the FTR Act.

22. Lawyers, notaries and other independent legal professionals: There are approximately 40–45,000 practicing lawyers (solicitors and barristers) in Australia. Barristers present cases before the courts or provide more complicated legal advice, while solicitors engage in all other legal business with clients. The nine largest firms each have 100–200 partners and over 1,000 employees overall. Barrristers must be independent from partnership firms and generally only accept business from solicitors. The regulation of the legal profession in Australia is conducted at the State and Territory level, although solicitors have cash transaction reporting obligations under the FTR Act.

23. Accountants: During 2001-2002, accounting practices in Australia employed 81,000 people and earned $7,700 million in income. The number of accounting practices has grown by 17 per cent since 1995-96 to over 9,800 practices. In 2001-02, over two thirds of accounting practices were sole proprietor/principal businesses, employed 29 per cent of all accounting practices workers, and accounted for 19 per cent of the total income earned. The largest practices (those with 20 or more principals or partners) employed an average of 1,824 people each. Accountants’ main sources of income included business taxation (37 per cent of all income), personal accounting and taxation work (18 per cent) and auditing and assurance work (17 per cent). Accountants are subject to the codes of practice and guidelines of their respective professional bodies such as the ICAA and CPA Australia

24. Trust and company service providers: Trust and company services providers are not identified or regulated as a specific industry sector in Australia. However, approximately 121,000 companies are registered each year of which around 80% are registered electronically. Of those registered electronically the majority would have been registered by company service providers (called professional company incorporation providers in Australia). The balance of companies registered would have been in paper format and again the majority would have been by company service providers. These businesses generally do not deal directly with the public; rather, their direct clients tend to be intermediaries (lawyers, accountants, as well as financial planners and public companies) that are forming businesses on behalf of their clients.

25. Services such as establishing new companies, superannuation funds, unit trusts through company incorporation and registration services, and trust documentation, offering ongoing compliance and maintenance services for the life of a company or a trust are also done through existing law firms and accounting practices.

1.4 Overview of commercial laws and mechanisms governing legal persons and arrangements

26. The types of legal persons and legal arrangements that exist in Australia include companies, partnerships, incorporated associations, co-operatives and trusts.10

27. Companies: There are two basic types of companies in Australia: public companies and proprietary limited companies. All prospective companies must apply to register with the Australian Securities and Investment Commission (ASIC). The company must submit details of: the proposed company name, the class and type of company; the registered and principal business office; director and secretary; share structure; and members’ share. Companies are owned by one or more shareholders (which may be legal or natural persons). Proprietary companies must have at least one director, while public companies must have at least three directors and one company secretary. Directors must be natural persons but may be nominees. There is only a nominal minimum capital required for start up. There are also public listed companies, which have further identification and disclosure requirements.

28. Partnerships, limited partnerships, incorporated associations, co-operatives, etc, are regulated by State and Territory Governments. While regulatory structures differ from State to State, certain common characteristics are evident:

  • Partnerships: A partnership is an association formed to carry on business with a view to profit to members. Partnerships are not separate legal entities and hence not a legal person. The partners are jointly and severally liable for the obligations incurred in the name of the partnership. Partnerships are not subject to registration requirements. In a limited partnership, the limited partner has limited liability and it is limited to the amount the partner contributes to the capital of the firm as appears on the register. Limited partnerships must register with the State or Territory and provide information on the nature and identity of the partners and the nature of their liability; State regulatory offices are required to keep a register of limited partnerships that is available for inspection by the public.

  • Unincorporated Associations: The term ‘unincorporated association’ is commonly applied in Australia in relation to a society, chamber, institute, union, club, federation, council, league or guild which is essentially voluntary in nature and which exists for the purpose of giving expression to the desire of a group of persons to further a common interest or purpose. There is no statutory law governing their operation. Unincorporated associations are not subject to registration or ongoing compliance requirements.

  • Incorporated Associations: State and Territory legislation allows for incorporation of associations, societies, clubs, institutions or bodies formed or carried on for any lawful purpose that have no less than five members. Incorporated associations are immune from personal liability at the suit of third parties in their capacity as members. All incorporated associations must hold an annual general meeting and submit financial statements to members, which must give a true and fair view of the financial position of the association. The public officer must lodge an annual statement with the regulator within one month after the annual general meeting.

  • Co-operatives: Co-operatives are considered to be separate legal entities and are subject to annual reporting requirement. Their members co-operate for a common purpose, for instance, running a kindergarten. Co-operatives are usually non-profit associations, although co-operatives are run as a business. There are various types: non-trading co-operatives (non-profit); trading co-operatives (commercial enterprises, often in the agricultural sector); and financial services co-operatives that generally engage in deposit taking and lending to individuals, and are commonly referred to as Non Bank Financial Institutions. These co-operatives include building societies, credit unions, co-operative housing societies and friendly societies. These entities are subject to prudential supervision by APRA.

  • Trusts: Aspects of trusts are governed by statute; States and Territories have passed laws setting out the rights and duties of trustees generally. Express trusts are created by a declaration of trust and the terms of trusts are usually set out in a written trust instrument. Specific types of trusts relevant to the financial system are subject to federal regulation, including managed investment schemes (public unit trusts and cash management trusts) regulated by ASIC and superannuation trusts regulated by APRA.

1.5 Overview of strategy to prevent money laundering and terrorist financing

a. AML/CFT Strategies and Priorities

29. The objective of the Australian Government is to create a financial environment hostile to money laundering, terrorist financing, tax evasion and other serious crimes. The Australian system places a priority on the ability of competent authorities to actively monitor suspicious activity and identify money trails. High priority is given to the continued fine-tuning of Australia’s system for analysing and targeting financial intelligence information that will lead to the detection and prosecution of money laundering, terrorist financing, tax fraud and evasion and other criminal activity.

30. The Australian Government is committed to ensuring that AUSTRAC and law enforcement agencies make the best possible use of technological developments in combating increasingly sophisticated money laundering techniques. The Australian government indicates that intelligence-led policing has proven to be effective in the fight against money laundering, terrorist financing, and associated criminal activity, and will continue to form the basis of our AML/CFT program.

31. A recent priority of Australia’s AML/CFT program has been the enhancement of its capacity to detect, prevent and prosecute terrorist financing through the introduction of anti-terrorism laws in 2002 including provisions to ensure the freezing of potential terrorist assets. Major initiatives have been undertaken in the Asia/Pacific region to enhance regional capacity to fight terrorism and the financing of terrorism, including the establishment of the Jakarta Centre for Law Enforcement Cooperation in Indonesia and initiatives in the Solomon Islands, Papua New Guinea and other Pacific jurisdictions to strengthen regional capacity against terrorism.

32. Within Australia, significant additional funding has been provided to intelligence and law enforcement agencies to enhance counter terrorist capacity. The AFP has dedicated Financial Investigation Teams in all regional offices throughout Australia. These teams work closely with Joint Counter Terrorist Teams (made up of Federal and State police) in providing specialist investigation support to assist in the location and analysis of financial records. These new teams are being established out of direct Government Funding and are a high priority.

33. The Australian Government has committed to a process for reforming Australia’s AML/CFT system to implement the revised FATF 40 + 9 Recommendations. The Attorney-General’s Department (AGD) is co-ordinating this process, which will significantly re-shape Australia’s current AML/CFT program in line with contemporary international best practice. A draft exposure bill is expected to be released for public comment in late 2005. As part of this process, the Australian Government is consulting a range of non-financial businesses and professions such as real estate agents, jewellers, and the legal and accountancy professions on measures to ensure that they are able to contribute to Australia’s AML/CFT programs. The Australian Government is also consulting the financial sector on proposed enhancements to current customer due diligence, reporting and record keeping obligations.

b. The institutional framework for combating money laundering and terrorist financing

(i) Ministries

34. The Attorney-General’s Department (AGD) coordinates the development of Australia’s AML/CFT program including legislative initiatives to improve its effectiveness. The AGD participates in international efforts to combat money laundering and organised crime and has a particular role in assisting the development of anti-money laundering legislation in the Asia/Pacific region. The AGD has carriage of Civil Justice, Criminal Justice, Courts Administration and National Security issues and is the central authority administering international mutual assistance and extradition programs.

35. The Treasury provides advice on government budget policy issues and taxation arrangements, the formulation and implementation of effective macroeconomic policy and on policy processes and reforms that promote a secure financial system and sound corporate practices. The Treasury oversees a number of portfolio agencies including APRA and ASIC and has policy responsibility for Australia’s financial sector regulatory framework. Treasury has no direct portfolio responsibility for combating money laundering or terrorist financing.

36. The Department of Foreign Affairs and Trade facilitates and oversees Australia’s contribution to issues of international concern, such as treaties and conventions. The Department of Foreign Affairs administers the Charter of the United Nations Act 1945 and its supporting Charter of the United Nations (Terrorism and Dealings with Assets) Regulations 2002 which implement United Nations Security Council Resolutions (UNSCR) 1373 and 1267.

(ii) Criminal Justice and Operational Agencies

37. Commonwealth Director of Public Prosecutions (CDPP): The primary role of the CDPP’s office is to prosecute offences against Commonwealth law and to recover proceeds of Commonwealth crime. The main cases prosecuted by the CDPP involve drug importation and money laundering, offences against the Corporations Act, fraud on the Commonwealth (including tax fraud, medifraud and social security fraud), terrorism offences and people smuggling.

38. Australian Transaction Reports and Analysis Centre (AUSTRAC): AUSTRAC is Australia’s Financial Intelligence Unit and performs the dual roles of both an intelligence unit and an AML regulator. In its intelligence role AUSTRAC plays a central role in the collection and development of financial intelligence, providing analytical support to the financial investigations of its partner agencies and providing financial intelligence to overseas counterparts. AUSTRAC is also the AML regulator.

39. Australian Federal Police (AFP): At the Federal level, most money laundering investigations are conducted by the AFP, the agency tasked with the primary investigation of breaches of Commonwealth law. In April 2003 the AFP established a Counter Terrorism Division to undertake intelligence-led investigations to prevent and disrupt terrorist acts. Joint Counter Terrorism Teams, comprising AFP members and State and Territory police, are now in place.

40. Australian Crime Commission (ACC): The ACC is Australia’s only national (multi-jurisdictional) law enforcement agency. Its powers cover Commonwealth, State and Territory jurisdictions and include coercive powers that strengthen its ability to counteract organised crime of national significance. The ACC also maintains a national criminal intelligence database and provides strategic advice to its Board in the form of national criminal threat assessments and national law enforcement priorities. The ACC hosts the Proceeds of Crime Case Studies Desk, which was established in August 1999, to share information between Australian law enforcement agencies on money laundering and tax evasion methodologies and investigative techniques. The Proceeds of Crime Desk contains a number of case studies in relation to money laundering matters as well as a contact list to encourage contact and cooperation between Australian law enforcement agencies. The ACC Board is made up of all Commonwealth, State and Territory police commissioners, the Director General of Security, the Chair of the Australian Securities and Investment Commission, the CEO of the Australian Customs Service and the Secretary of the Attorney General’s Department. The ACC’s overarching role is to strengthen law enforcement nationally. It does this by working collaboratively with all other Commonwealth, State and Territory law enforcement and regulatory agencies to enhance their intelligence and enforcement capabilities in relation to nationally significant organised crime. Consequently, the ACC has a strong focus on large scale money laundering, organised tax evasion and FTR offences.

41. Australian Customs Service (ACS): The ACS is responsible for the collection of reports relating to the inbound or outbound cross-border carriage of currency, the detection of unreported currency movements and the seizure of funds. Offences detected by the ACS are referred to the AFP for investigation, prosecution and forfeiture action.

42. Australian Taxation Office (ATO): The ATO is the Australian Government’s principal revenue collection agency, and is part of the Treasury portfolio. Its role is to manage and shape tax, excise (excluding customs duty) and superannuation systems that fund services for Australians. The ATO works in close co-operation with law enforcement agencies such as the AFP, ACC and the FIU and AML/CFT regulator AUSTRAC, where their interests and activities overlap.

43. State and Territory police forces identify and prosecute State level money laundering offences. Higher level law enforcement bodies such as the New South Wales Crime Commission are also tasked with the investigation and prosecution of serious criminal offences and the restraint and seizure of criminal proceeds. These agencies regularly coordinate their criminal intelligence and investigations through the ACC where criminal matters extend beyond State/Territory jurisdictions.

(iii) Financial sector bodies—government

44. The financial sector regulators are not specifically tasked with regulatory responsibilities for combating money laundering and terrorist financing. The regulatory objectives are providing prudential supervision, market integrity, investor protection, sound corporate governance and financial system stability.

45. Australian Prudential Regulatory Authority (APRA): APRA is responsible for the prudential regulation of all deposit-taking institutions (both Commonwealth and State), general insurance, life insurance (including friendly societies) and superannuation. APRA seeks to ensure that entities are prudently managed so that they are able to meet their financial promises to depositors and policy holders.

46. Australian Securities and Investments Commission (ASIC): ASIC is an independent statutory agency responsible for promoting market integrity and consumer protection in financial services and corporate regulation. It regulates Australian corporations, financial markets (including stock exchanges), and financial service providers (including investment advisors, securities dealers, general and life insurance brokers, and foreign exchange dealers).

47. Reserve Bank of Australia (RBA): RBA is Australia’s central bank and has responsibility for developing and implementing monetary policy, for the safety and efficiency of the payments system, and for the overall stability of the financial system. However, it does not supervise or regulate any individual financial institutions.

(iv) Financial sector bodies—associations

48. Australian Bankers’ Association (ABA): Twenty-five banks are members of the ABA, which works to provide analysis, advice and advocacy and contributes to the development of public policy on banking and other financial services. One key elements of the ABA’s work is the ongoing development of industry codes and standards.

49. Insurance Council of Australia (ICA): The ICA represents the interests of the Australian general insurance industry. The ICA was established to act as the peak body for general insurance companies in Australia licensed under the Insurance Act 1973.

50. Investment and Financial Service Association (IFSA): IFSA represents the interests of its members who are Australian organisations whose activities involve life insurance, retail investment management, wholesale investment management (including superannuation), or reinsurance. IFSA also plays a role in industry self-regulation. All IFSA members are required to adhere to IFSA’s Code of Ethics, and a range of Standards & Guidance Notes. These Standards and Guidance Notes are designed assist and inform investors.

51. Credit Union Services Corporation Australia Ltd. (CUSCAL): CUSCAL represents 85% of credit unions in Australia. As an industry body it supports and promotes credit unions as competitive and successful providers of financial services. It is focused on developing and implementing industry strategy and representing credit unions on industry issues.

52. Australian Association of Permanent Building Societies (AAPBS): The AAPBS represents the interests of its members who are Building Societies. They monitor, analyse and advise Societies on policy and regulatory developments and assist Societies in the implementation of regulatory requirements.

53. Financial Planning Association of Australia (FPA): The FPA is the professional association of qualified financial planners in Australia, playing a role its self regulation. The FPA administers the financial planners’ professional code of ethics, which is of a mandatory and enforceable nature. The FPA represents the interests of its members and provides education, training and information.

54. Securities and Derivatives Industry Association (SDIA): The SDIA is the peak industry body representing 65 stockbroking firms and over 1300 practitioners across Australia, representing over 98 per cent of the market. The SDIA represents the stockbroking industry on industry issues and provides professional education and training.

55. International Banks and Securities Association of Australia (IBSA): The IBSA represents international and investment banks in Australia. The IBSA aims to promote Government policies and business conditions that support a strong financial sector and works actively with the Australian Government in developing and promoting standards of high conduct by participants.

56. Securities Institute of Australia (SIA): The SIA represents individuals in the securities and financial services industry and has more than 11,000 members and 14,000 students in 59 countries. Its plays an educational role in promoting a code of ethics and code of conduct.

(v) Regulatory bodies, SROs, and Associations for DNFBPs

57. Casinos: Casino regulations are administered by State and Territory gaming authorities, which oversee the fitness and propriety of licensees and exercise scrutiny of casino operations on a day to day basis. This is often conducted by a State Casino Control Authority working on-site in coordination with State or Territory police. AUSTRAC oversees AML compliance for casinos under the FTR Act and the Financial Transaction Reports Regulations 1990.

58. Australian Casino Association (ACA): All 13 Australian casinos are representatives of ACA, which represents the interests of the Australian casino industry at a government and community level and assists the casino industry in its development as an industry that is both economically sustainable and socially responsible. The ACA provides advice and responses to Federal, State, and Territory governments on a range of issues as well as developing industry wide frameworks.

59. Law Council of Australia (LCA): The LCA is comprised of all 14 law societies and bar associations of the States and Territories; LCA therefore represents 40,000 legal practitioners across the country. LCA represents the legal profession at the national level, speaks on behalf of its constituent bodies on national issues affecting the legal profession, and promotes the administration of justice, access to justice and general improvement of the law. LCA is not a self-regulatory organisation (SRO), but it has issued policy guidelines such as its “Blueprint for the Structure of the Legal Profession” and “Model Rules for Professional Conduct & Practice.” The LCA has also worked with the Commonwealth and State Governments to draft a model bill harmonising requirements of the legal profession across the country.

60. State and Territory Law Societies: Legal professionals are bound by their professional obligations and State legislation governing their practice. Supervision arrangements for legal professionals in most States are undertaken by the State Law Societies who acts as self-regulatory organisations (SROs) to monitor adherence with these statutory obligations. These consist of ACT Bar Association, Law Society of the Australian Capital Territory, New South Wales Bar Association, Law Society of New South Wales Law Society of the Northern Territory, Northern Territory Bar Association, Bar Association of Queensland Inc, Queensland Law Society, Law Society of South Australia, Law Society of Tasmania, The Victorian Bar Inc, Law Institute of Victoria, Law Society of Western Australia, and Western Australian Bar Association.

61. Accountants: Accountants are subject to the codes of practice and guidelines of their respective professional bodies. The principal professional bodies are the CPAA and the ICAA.

62. CPA Australia (CPAA): CPA Australia (CPAA) is an association of 105,000 finance, accounting and business professionals. CPAA plays a self-regulatory role for its members. All members are required to comply with a Code of Professional Conduct and undertake continuing professional development. CPAA has internal disciplinary procedures to handle complaints about members.

63. Institute of Chartered Accountants in Australia (ICAA): The ICAA represents 40,000 members who work mainly in chartered accounting firms that offer their services to the public. The ICAA plays a self-regulatory role for its members. All members are required to comply with a Code of Professional Conduct and complete continuing professional education. The ICAA has internal disciplinary procedures to handle complaints about members.

64. The National Institute of Accountants (NIA): The National Institute of Accountants (NIA) represents around 13,000 members working in industry, commerce, government, academia and private practice. NIA plays a self-regulatory role for its members. All members are required to comply with a Code of Ethics and take part in continuing education. NIA has an internal disciplinary process to handle complaints about members

65. Real Estate Institute of Australia (REIA): The REIA is the national professional association for the real estate industry in Australia. REIA provides advice to the Federal Government, Opposition, media, and the public on a range of issues affecting the property market. The Real Estate Institute of Australia (REIA) has eight members, comprised of the State and Territory Institutes Real Estate Institutes (REIs), and through them approximately 6,500 real estate firms and licensed agents (about 70 per cent of the industry nationally) are collectively represented. Neither REIA nor the State and Territory REIs are self-regulatory organisations.

c. Approach concerning risk

66. On a general level, the Australian Government’s priorities for its AML/CFT program are based on its considered assessment of identified risks. Within the context of agreed AML/CFT priorities, AUSTRAC and Australian Government law enforcement agencies structure their operations to enable them to respond rapidly to emerging AML/CFT threats and opportunities. Areas of particular focus have included alternative remittance and underground banking systems, the role of accounting and legal service professionals in money laundering and the use of identity fraud to facilitate money laundering. However, preventative measures do not incorporate or differentiate specific risked-based approaches within requirements for financial institutions.

d. Progress since the last mutual evaluation or assessment

67. The Second mutual evaluation report of Australia (of December 1996) identified the following deficiencies and recommendations that are addressed as described below.

68. The need for greater international administrative co-operation between AUSTRAC and other financial investigation units. Australia has made impressive progress in this area. Amendments to the FTR Act in 2002 improved AUSTRAC’s authority to exchange financial intelligence. Australia sped up its negotiation of Exchange Instruments (EIs) and now has 37 EIs in place with counterparts, and is using them effectively.

69. Deficiency of clear and comprehensive statistical data on the performance of the system to measure effectiveness. AUSTRAC has taken measures to improve the systems through which feedback from domestic agencies, both in terms of the number of investigations value added, and the value of tax assessments assisted, by AUSTRAC information. Partner agencies have indicated that since 1995 FTR data have assisted 1,109 investigations, with ATO assessments assisted by FTR information totalling over AUD 501 million. Australia has also kept comprehensive statistics on international co-operation as well as money laundering investigations, prosecutions, and convictions at the Commonwealth level. However, better statistics are still needed at the State and Territory levels.

70. Recommendation for greater attention by the Reserve Bank and Treasury to anti-money laundering policies to further emphasise the necessity of banks to adhere strictly to anti-money laundering measures. The regulatory framework for the Australian financial system was substantially reformed in 1998 in response to the recommendations of the 1997 report of the Financial System Inquiry (FSI, also known as the ‘Wallis Report’). The FSI made a series of recommendations designed to promote an efficient, responsive, competitive and flexible financial system that would underpin stronger economic performance, consistent with financial stability, prudence, integrity and fairness. The Government accepted the majority of the FSI recommendations, including replacing the existing industry based approach to financial system regulation with a functional and objectives based approach. As a result, the framework for Australian financial sector regulation is now organised on functional lines incorporating prudential regulation through APRA, market integrity and consumer protection through ASIC and broader financial system stability through the RBA. AUSTRAC complements this broader framework through its role as Australia’s AML/CFT regulator.

71. As part of the restructuring of financial sector regulation, supervision and regulation of banks and other deposit-taking institutions was passed from the RBA to a new institution, APRA, in July 1998. The RBA, therefore, no longer has a direct role in the supervision or regulation of individual financial institutions.

72. The use of alternate banking system by criminal groups. AUSTRAC has made important progress in the past two years in seeking out alternative remittance systems, educating them on AML requirements, and incorporating them into the existing AML framework.

73. The FTR Act should address solicitors who are allowed to open trust accounts or confidential accounts on behalf of their clients. At the time of the evaluation, the Attorney General’s Office indicated that amendments will be made to the FTR Act to include an obligation on solicitors to report suspicious transactions in relation to their trust accounts. While the FTR Act has been amended to provide for an obligation on solicitors to report SCTRs in relation to their trust accounts under section 15A of the FTR Act, there remains a need to legislate for the more general obligation on solicitors to report any suspicious transaction pertaining to money laundering activity concerning their clients. Australia plans to incorporate solicitors into the overall AML/CFT framework with its new legislation incorporating the revised FATF Recommendations.

74. It is unclear how the FTR Act requirements are applied to bureaux de change and to other nonbank financial institutions (e.g. remittance dealers). A strict system of registration and enhanced supervision should be considered. FTR Act requirements apply to bureaux de change and remittance dealers and Australia has made efforts to bring alternative remittance dealers and bureaux de change into the previously existing compliance regime under the FTR Act; however, there is no requirement that all of these entities be licensed or registered. Australian authorities advise that an alternative policy on the registration of ARS is being developed which seeks to avoid the imposition of rigid standards or an onerous licensing regime that would negatively affect the current level of compliance reporting under the FTR Act or run the risk of driving the informal remittance sector underground.

2. Legal System and Related Institutional Measures

Laws and Regulations

2.1 Criminalisation of Money Laundering (r.1 and 2)

2.1.1 Description and Analysis

Recommendation 1

75. Money laundering is criminalised under the revised Division 400 of the Criminal Code Act 1995, which went into effect in January 2003.11 Division 400 creates a range of penalties for offences depending on the level of knowledge (wilful and intent, recklessness, negligence) and the value of the property involved. Predicate offences are all indictable offences as set out under the Act’s proceeds of crime definition section 400.1. Under Commonwealth law, an indictable offence is one whose penalty is a minimum of 12 months imprisonment. Division 400 replaced the money laundering offence previously contained in section 81 of the Proceeds of Crime Act (POCA) 1987.

76. Division 400 of the Code prohibits receiving, possessing, concealing or disposing of property, importing or engaging in banking transactions involving the proceeds of federal or foreign offences or property intended to be used as an instrumentality of such an offence.

77. The definitions of proceeds of crime and property set out under section 400.1 are expansive, extending to money or other property of “every description”, whether located in Australia or overseas, that has been realised directly or indirectly from the commission of an indictable offence.

78. Offences in Division 400 of the Criminal Code extend to proceeds of any foreign offences that, if they had occurred in Australia, would have been an offence under Commonwealth, State or Territory law. Under section 400.1, property “situated in Australia or anywhere else” may be the proceeds of crime. Dealing with assets located outside Australia would still constitute an offence.

79. According to Sections 400.1 and 400.2, offences in Division 400 of the Criminal Code apply to anyone who deals with the proceeds of crime, regardless of whether that person committed the predicate offence. The Criminal Code also makes clear that the prosecution does not need to establish that an offence has been committed in relation to the money or property in order for those assets to be considered proceeds of crime. Section 400.13 indicates that “To avoid doubt, it is not necessary, in order to prove for the purposes of this Division that money or property is proceeds of crime, to establish: (a) a particular offence was committed in relation to the money or property; or (b) a particular person committed an offence in relation to the money or property.” However, even under the new regime, the prosecution must still prove beyond a reasonable doubt that the proceeds are the proceeds of a crime, even if it is not necessary to establish proof of any particular crime.

80. Part 2.4 of the Criminal Code Act 1995 deals with extensions of criminal responsibility and outlines the ancillary offences that apply to all Commonwealth offences, including those in Division 400. These include attempting, aiding, abetting, counselling or procuring, incitement and conspiracy.

Additional Elements

81. In certain circumstance the offences in Division 400 will apply to conduct that occurs outside Australia, even where that conduct is not an offence in the other country, because the offences carry category B extended geographical jurisdiction. Section 15.2 of the Criminal Code Act 1995 outlines the extent of category B extended geographical jurisdiction, which includes offences committed outside of its Territory where the result of the conduct occurs in Australia or the natural person committing the offence is an Australian citizen or resident or the legal person is incorporated under Australian law, and the following conditions are met: 1) the offence is an ancillary offence; 2) the offence occurs wholly outside Australia; and 3) the primary offence occurs or is intended by the person committing the crime to occur wholly or partly in Australia. Australian law also provides for unconditional extraterritorial jurisdiction in some instances

82. The offences contained in Division 400 are well drafted and very flexible (given the matrix of punishment depending up on the threshold of the crime and level of knowledge as described under Recommendation 2), presenting the most appealing set of options for successful prosecution possible. However, the Commonwealth’s statistics displayed above call attention to an issue of concern—a dearth of money laundering prosecutions and convictions.

83. Conversation with Australian authorities led to the following explanation of the reason for the absence of prosecutions for money laundering: almost all the money laundering cases that could be brought involved self money laundering, that is, the dealing of proceeds of crime by the perpetrator of that crime him or herself. In such cases, Australian judges invariably sentence the predicate crime and the money laundering offences concurrently. Since Money laundering requires proof of additional elements, prosecutors eschew these charges because bringing them does not lead to additional benefit. An additional reason cited for the lack of prosecutions is the difficulty in proving that the predicate offence was a violation of Commonwealth law, as opposed to State or Territory law. This element is required for federal jurisdiction to exist.

84. Authorities from the State of New South Wales also pointed to the fact of concurrent sentences as the reason for a similar lack of prosecutions at the State level. In addition, some States suffer from inferior money laundering statutes.

85. In addition, the current Division 400 of the Criminal Code, with its broad sentencing structure, has only been in effect since January 2003. Australian authorities indicated that, although a relatively small number of prosecutions against this Division have been completed, there were an increasing number of matters progressing through the court system, and they expect this trend to continue.

Recommendation 2

86. The offences contained in sections 400.3 to 400.8 of the Criminal Code apply to natural and legal persons who knowingly, recklessly or negligently engage in money laundering activity. The fault element of intention can be satisfied from inferences drawn from evidence of objective factual circumstances.

87. There are numerous levels of punishment set out in the statute. Each level is based upon a matrix of the amount of property in which the accused was dealing, and the degree of intent or knowledge he or she possessed. The statute provides for differing charges for five thresholds and cross referencing these amounts with three different levels of intent: knowing and wilful, reckless, and negligent. (These terms are defined in Section 5 of the Criminal Code.) Each of the levels of offence is subject to a different level of punishment. For instance, a person who deals in property valued at over one million Australian dollars can be sentenced to 25 years imprisonment if the money or property is, and the person believes it to be, proceeds of crime, or the person intends that the money or property will become an instrument of crime.

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88. Such a broad range of available penalties based upon amounts involved (which is an indicator of the harm to society) and upon level of knowledge and intent, provides a complex but effective legal tool to ensure that the sanctions for money laundering are adequate and proportionate. The statute allows the charging authority maximum flexibility in ensuring that the charges brought and the punishment faced is appropriate to the level of the crime.

89. Section 400.9 of the Criminal Code also contains a money laundering offence for persons who possess or deal with property that is reasonably suspected of being the proceeds of crime. There is a defence if the person can show that he or she had no reasonable grounds to suspect that the property was derived from some form of unlawful activity. The maximum penalty for an offence against section 400.9 is imprisonment for two years, irrespective of the value of property involved in the offence.

90. However, the offence has been used very little. And in the five prosecutions that have taken place, sentences have been low: two received sentences of up to two years, two received suspended sentences (with probation) of up to two years, and one received a bond. This may be the result of low amounts of proceeds being involved, and/or from a temptation for prosecutors to undercharge offences in order to ensure convictions more readily. In particular instances the prosecution might decide to proceed with these lower penalty offences where the available evidence would not satisfy the higher level fault element of intention but could satisfy the lower level fault elements of recklessness or negligence.

Legal persons

91. The criminal sanctions for money laundering apply to legal as well as natural persons. Part 2.5 of the Criminal Code sets out the general principles, physical and fault elements of corporate criminal responsibility. The Code applies to bodies corporate in the same way as it does to individuals. Section 12.1 indicates that a body corporate may be found guilty of an offence punishable by imprisonment by imposing a fine instead. According to section 12.3, to prove intention, knowledge or recklessness, that fault element must be attributed to a body corporate that expressly, tacitly or impliedly authorised or permitted the commission of the offence. This could be done by proving that the body corporate’s board of directors intentionally, knowingly or recklessly carried out the relevant conduct, or expressly, tacitly or impliedly authorised or permitted the commission of the offence; proving that a corporate culture existed within the body corporate that directed, encouraged, tolerated or led to non-compliance with the relevant provision; or proving that the body corporate failed to create and maintain a corporate culture that required compliance with the relevant provision.

92. Prosecution of such legal persons does not bar or otherwise affect any parallel proceedings, whether judicial or administrative. As indicated in section 400.16 “This Division is not intended to exclude or limit the operation of any other law of the Commonwealth or any law of a State or Territory.”

Statistics

93. At the Federal level, since 2000 there have been 51 charges under the POCA and the money laundering offence of the Commonwealth Criminal Code (which came into effect in January 2003)—The following table sets summarises the legislation that applies and charges dealt with summarily and on indictment and according to the legislation used.

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from 1 July 2004—25 May 2005

94. The following table summarises information on the number of defendants whose charges were proven, acquitted, discontinued or other for the period 1 January 2000 to 7 March 2005:

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95. For the defendants prosecuted under Division 400 of the Criminal Code, Australia indicated that the following convictions and penalties were received.

  • 4 received a sentence involving imprisonment and:

    • all of these received a sentence including imprisonment for a period of up to or including 2 years and;

    • 2 were released forthwith and received a recognizance release order on condition that they be of good behaviour for a specified period.

  • 1, a juvenile, received a bond

96. For the defendants prosecuted under the POCA, for the period of 1 January 2000 to 4 March 2005, that the following convictions and penalties were received.

  • 19 received a sentence involving imprisonment. Of these:

    • 13 received a sentence including imprisonment for a period of up to or including 2 years;

    • 4 received a sentence including imprisonment for a period of more than 2 years up to or including 5 years;

    • 2 received a sentence of greater than 5 years; and

    • 3 were released forthwith and received a recognizance release order on condition that they be of good behaviour for a specified period;

  • 3 received bonds under section 20(1)(a) of the Crimes Act 1914; and

  • 10 received bonds under section 20(1)(b) of the Crimes Act 1914.

State and Territory offences
New South Wales

97. As mentioned above, the States and Territories are the primary enforcers of criminal law. While statistics from these jurisdictions were generally unavailable, the assessors surveyed laws in the various States, concentrating on the most populous State, New South Wales. In New South Wales, the Confiscation of Proceeds of Crime Act 1989, Section 73 sets out the offence of money laundering:

“The person engages, directly or indirectly, in a transaction that involves money, or other property, knowing that the money or property is proceeds of a serious offence, or the person receives, possesses, conceals, disposes of or brings into New South Wales any money, or other property, knowing that the money or property is proceeds of a serious offence. A person shall not be convicted of an offence under this section unless the prosecution proves beyond reasonable doubt that, at the time the person: (a) engaged in a transaction involving money or property, or (b) received, possessed, concealed, disposed of or brought into New South Wales money or property, and (c) the person knew the money or property was proceeds of unlawful activity.”

98. New South Wales officials indicated that this was one of the most difficult money laundering offences to prove in Australia, because it essentially required proof of the predicate offence. As a result, successful prosecutors were limited to self-laundering cases, with only five successful prosecutions for the money laundering offence from July 1997 to January 2005.

99. New South Wales officials indicated that a total of 7,686 persons were charged for receiving or handling proceeds of crime in 2003. A range of penalties were issued including 386 imprisonments, 823 fines, and 362 bonds without supervision, while 60 persons charged in 2003 had no conviction recorded. These cases include the five money laundering charges in addition to numerous other charges of possession of stolen goods and possession of money from the sale of illicit drugs.

Victoria

100. In Victoria, model money laundering legislation was recently enacted that follows the Commonwealth statute in that it prohibits all types of dealing with the proceeds of crime and attaches differing levels of punishment based upon the knowledge and intent of the person so dealing. The statute similarly prohibits dealing in property which is to become the instrumentality of an offence. Unlike the Commonwealth statute, the Victoria law does not vary punishment based upon the value of the property involved.

2.1.2 Recommendations and Comments

101. The Australian Commonwealth statutory scheme addressing money laundering is robust and well drafted, and broadly meets all the essential criteria. What is missing is a record of effective implementation and use of the money laundering offence, particularly at the Commonwealth level, to show that that the laws are fully effective. The number of money laundering prosecutions appears to be low. While proceeds of crime action is pursued by Australian agencies routinely in criminal investigations involving money laundering, Australia’s record of prosecutions indicates that money laundering is not yet dealt with as a separate and serious offence. Police generally do not investigate or refer money laundering as a separate charge. Prosecutors indicate that in practice cases were generally brought under the predicate offences only.12

102. Commonwealth officials indicated that the same issues arise on the State level, resulting in very few prosecutions for money laundering. The NSW Crime Commission and DPP indicated that the predicate offence had to be proved for a money laundering conviction, and even if this difficulty could be overcome, it was unlikely that a conviction for money laundering would have any consequence in terms of the defendant’s sentence due in part to concurrent sentencing. Cases are only brought when there appear to be broader, more sophisticated money laundering schemes. Since 1997 there have only been 5 successful prosecutions for money laundering.

103. State statutes vary in their comprehensiveness, and there were no comprehensive statistics available with which to examine their use and effectiveness.

104. Australia needs to improve the implementation of its money laundering offence. Within its traditions and fundamental legal principles, Australia needs to find a way to provide incentive to its investigators and prosecutors to prosecute money laundering cases as separate and serious offences. Only through increased use of its robust statutory scheme can Australia demonstrate that it recognises that money laundering must be dealt with as a separate and serious offence, not merely as an ancillary to the predicate offence.

105. States and Territories should all adopt the national model contained in Division 400 of the Criminal Code (including the mental elements of knowledge, recklessness, negligence) to allow them a broader ability to prosecute and convict for money laundering.

2.1.3 Compliance with Recommendations 1 & 2

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2.2 Criminalisation of Terrorist Financing (SR.II)

2.2.1 Description and Analysis

106. The Suppression of the Financing of Terrorism Act 2002, which came into force in July 2002, amended a number of existing Acts to implement Australia’s obligations under the UN Suppression of the Financing of Terrorism Convention, and relevant UN Security Council Resolutions. The amended acts include the Criminal Code Act 1995, the FTR Act, the Mutual Assistance in Criminal Matters Act, and the Charter of the United Nations Act.

107. As amended, The Criminal Code Act 1995 now contains several offences related to the financing of terrorism. Section 102.6 criminalises “Getting funds to or from a Terrorist Organisation.” A penalty of 25 years imprisonment applies if: (a) a person intentionally receives funds from, or makes funds available to, an organisation (whether directly or indirectly); and the organisation is a terrorist organisation; and (b) the person knows the organisation is a terrorist organisation. A penalty of 15 years applies if, rather than “knowing,” the person is “reckless” as to whether the organisation is a terrorist organisation. This offence does not specifically cover the collection of funds for a terrorist organisation.

108. Section 102.1 of the Criminal Code defines “terrorist organisation.” Certain specific organisations are listed, and the Minister can designate additional terrorist organisations through regulations.

109. Section 103.1 (“Financing Terrorism”) of the Criminal Code also creates other terrorist financing offences. A penalty of life imprisonment applies if: (a) a person intentionally provides or collects funds; and (b) the person is reckless as to whether the funds will be used to facilitate or engage in a terrorist act. Although the range of offences is generally broad, the regime currently does not specifically criminalise the collection or provision of funds for an individual terrorist.

110. Australian authorities have noted that Section 103.1 of the Criminal Code refers not only to recklessness to funds being used to engage in a terrorist act, but also to facilitate a terrorist act. Therefore, according to Australian authorities, providing or collecting funds where the person is reckless as to whether they will be used to facilitate a terrorist act would cover the “collection of funds for a terrorist organisation” and “the collection or provision of funds for an individual terrorist.” However, the evaluation team did not find this sufficiently covers the provisions in SR II.

111. These offences do not require that the funds are actually used to carry out or attempt a terrorist act—under section 103.1(2), the offence is committed even if the terrorist act does not occur. Under sections 102.9 and 15.4 of the Criminal Code, all terrorist financing offences apply whether or not the conduct or the result of the conduct occurs in Australia.

112. The definition of funds under section 100.1 of the Criminal Code is an expansive definition which matches the definition found at Article 1(1) of the UN Terrorist Financing Convention 1999. As described under Recommendation 1, Part 2.4 of the Criminal Code extends criminal responsibility to the attempting, aiding or abetting of, the incitement of, or conspiracy to commit any offence.

113. All terrorist financing offences that exist in Australia are Commonwealth indictable offences. As all Commonwealth indictable offences are predicate offences for money laundering; terrorist financing offences are also money laundering predicates. It is also an offence to engage in any of the types of conduct set out in Article 2(5) of the Terrorist Financing Convention.

114. The same principles and provisions that apply to the offence of money laundering (as described in above), dealing with inference, criminal responsibility for legal persons, and the ability to hold parallel criminal and civil proceedings, also apply to the current terrorist financing offences in Australia.

2.2.2 Recommendations and Comments

115. Legal provisions criminalising the financing of terrorism are generally broad. However, Australia should specifically criminalise the collection or provision of funds for an individual terrorist, as well as the collection of funds for a terrorist organisation.

116. There have not yet been any prosecutions under the terrorist financing statues. Therefore, the effectiveness of these measures cannot be determined.

2.2.3 Compliance with Special Recommendation II

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2.3 Confiscation, freezing and seizing of proceeds of crime (R.3)

2.3.1 Description and Analysis

117. The forfeiture, freezing and seizure of criminal proceeds is primarily covered by proceeds of crime legislation. The Proceeds of Crime Act 1987 (POCA 1987) provides for a conviction based forfeiture of proceeds of crime scheme. The 1987 Act only applies to cases begun before 1 January 2003 and will be repealed once all cases under the Act are completed. The Proceeds of Crime Act 2002 (POCA 2002) provides for both conviction and civil based forfeiture of proceeds and extends and strengthens the conviction based forfeiture scheme of the 1987 Act.

118. The POCA 2002 provides a scheme to trace, restrain and confiscate the proceeds of crime against Commonwealth law. In some circumstances it can also be used to confiscate the proceeds of a crime against foreign law or the proceeds of a crime against State law, if those proceeds have been used in a manner that violates Commonwealth law.

119. Property is defined broadly in the POCA 2002. Section 329 indicates that “property is the proceeds of an offence if it is wholly derived or realised, whether directly or indirectly, from the commission of the offence; or it is partly derived or realised, whether directly or indirectly, from the commission of the offence.” This includes property which may be held indirectly by another person. The property of a third party can be restrained if it is suspected that the property is either the proceeds or an instrument of the offence or is under the effective control of the suspect (sections 17 and 18).

120. The Act provides for two streams of recovery action: a conviction based stream, which is based on the provisions of the 1987 Act, and a civil based stream under which recovery action can be taken independently of prosecution.

121. Under the conviction based system, the Commonwealth may obtain:

  • a) a conviction based forfeiture order;

  • b) a conviction based pecuniary penalty order or

  • c) automatic forfeiture following a conviction.

122. Under a conviction based forfeiture order, the proceeds of, or instrumentalities used or intended for use in the commission of an offence can be forfeited as part of the sentence (sections 48 and 329(2) of the POCA 2002). Under the pecuniary penalty order, the defendant is ordered to pay a penalty equal to the benefit he or she derived from the crime.

123. Automatic forfeiture, which can take place in cases where a person has been convicted of a serious offence, creates a rebuttable presumption that any property the person owns or controls is the proceeds of crime. Upon conviction, the defender is required to demonstrate the lawful origin of the property. If no evidence is given that tends to show that the property was not used in, or in connection with, the commission of the offence—the court must presume that the property was used in, or in connection with, the commission of the offence and forfeiture occurs (section 92). Serious offences include drug crimes, money laundering, terrorism, people smuggling, and fraud where the crime is punishable by at least three years imprisonment and the offence involves at least $10,000 AUD.

124. Restraining orders under the POCA 2002 can be granted upon an affidavit of a law enforcement officer’s reasonable suspicion, provided he details the reasons for that suspicion. A restraining order is not required for all types of forfeiture under the act, but must be obtained before automatic forfeiture in conviction based proceedings, or person directed and asset directed forfeiture orders in civil actions.

125. The POCA legislation allows property to be restrained where it is proposed that a person be charged with an indictable offence, or where a person is suspected of committing an indictable offence (sections 17, 18 and 19 of the POCA 2002). The Director of Public Prosecutions can request a court to consider a restraining order application without notice being given to the owner of the property (sections 26(4) and 33).

126. The POCA 2002 provides a wide range of powers to allow authorities to identify and trace property, including examination orders, production orders, notices to financial institutions, and search and seizure provisions (Chapter 3, POCA 2002). Bona fide third parties can apply to have property excluded from a restraining or forfeiture order, and the court can order that items such as reasonable living expenses for dependents be paid out of restrained or forfeited property (sections 24, 29, 72 and 73). The court may also set aside a disposition of property that contravenes a restraining order (section 36).

Additional Elements

127. The property of a terrorist organisation can be forfeited under the Charter of the United Nations Act 1945. There are no other provisions for the confiscation of property of organisations that are primarily criminal in nature.

128. In addition to updating the POCA 1987, the 2002 Act added a civil forfeiture scheme. Under this scheme, the court can order forfeiture if it is satisfied, to the civil standard of proof (basically the balance of probabilities), that a crime has been committed irrespective of whether any person has been prosecuted for that crime or convicted of it. A court will issue:

  • a) a person directed forfeiture order: if property of a person is under restraint and a court finds, to the civil standard, that the person has committed a serious offence, and the person does not satisfy the court that the property was derived from a lawful source;

  • b) an asset directed forfeiture order: if the property is under restraint and the court finds, to the civil standard that the property is the proceeds of a commonwealth offence, a foreign offence, or a State offence “of Commonwealth concern” (the proceeds of the offence are dealt with in a way that contravenes a Commonwealth law dealing with import/export, communications or banking), or if the court finds that the property is an instrument of a terrorism offence;

  • c) a person directed pecuniary penalty order: if it finds, to the civil standard, that the person has committed a serious offence, and will do so in an amount equal to the proceeds of the particular offence and the proceeds of any other identified unlawful activity;

  • d) a literary proceeds order: if it finds that a person has committed a crime against Commonwealth law and sold his or her story to the media. The final provision also applies to persons who have committed crimes against foreign law and sold their story in Australia.

129. This civil stream is intended to enhance the Commonwealth’s ability to forfeit criminal proceeds, particularly in cases where the perpetrator is a fugitive.

130. The following statistics relate to action taken by the CDPP under Commonwealth law (including the POCA 1987 and the POCA 2002).

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forfeiture orders, pecuniary penalty orders, and automatic forfeiture following conviction

131. Australian authorities indicated that approximately 10% to 20% of these cases involved money laundering or offences against the Financial Transactions Reports Act 1988. None involved the financing of terrorism.

State and Territory Situation

132. All States and Territories have their own confiscation legislation, which seeks to retrain and confiscate proceeds of State/territory offences.

New South Wales

133. In New South Wales, the New South Wales Crime Commission (NSWCC), a multi-agency investigative and prosecutive body with broad powers, is active in forfeiture, and there is a robust civil forfeiture statute in place. The NSWCC administers the Criminal Assets Recovery Act 1990 (CAR Act); forfeiture of criminal assets also takes place through the NSW Confiscation of Proceeds of Crime Act 1989 and the Proceeds of Crime Act 2002. Under New South Wales definitions, a proceeds assessment order is directed at recovering monies that can be shown to have been generated by illegal activity, whereas an assets forfeiture order attaches to the amount of the person’s property that cannot be shown to have been lawfully acquired.

134. The 2003/2004 figures show 129 restraining orders (up from 105 for the previous year) resulting in 64 completed applications for forfeiture orders, most by way of negotiated settlement, in an amount in excess of approximately AUD 10 million. An additional 42 applications for proceeds assessment orders were obtained by way of negotiated settlement, resulting in orders that total AUD 7.6 million for 2003/2004.

South Australia

135. Restraining orders granted in relation to defendants charged with a serious drug offence automatically convert into a forfeiture order 6 months after a conviction (or appeal), unless the defendant can show that the property comes within the specific exceptions outlined in the Act. Therefore, there is often a significant delay between the restraint of property under the Act and the conviction of a defendant and subsequent forfeiture of that property.

136. During the year 2003-2004, revenue deposited into the Victims of Crime Fund amounted to AUD 1.5 million, which represents an increase of 125% on the revenue collected in the previous year. These resulted from restraining orders for 25 defendants and forfeiture orders for 68 defendants.

Western Australia

137. In Western Australia, the majority of property confiscated follows a conviction and declaration that the convicted person is a drug trafficker, at which point all of the property of that person is confiscated to the State. While many individuals declared as drug traffickers have no assets, proceedings have been commenced against many declared drug traffickers during 2003/04. During 2003/2004, 71 people were declared drug traffickers. The proceeds of confiscated assets are paid into the Confiscation Proceeds Account and the Attorney General has the power to make grants from the account for a range of purposes. A total of $719,815 was paid into the Confiscation Proceeds Account from property of declared drug traffickers. Western Australia’s legislation also provides for confiscation from “illicit enrichment.” This was viewed by Commonwealth and other State officials as the strongest in Australia.

Victoria

138. Victoria has an extensive confiscation statute. Before 2004, it was based primarily upon restraining orders and conviction-based forfeiture. Amendments to the Confiscation Act 1997, which came into force on 1 December 2003, expanded the number and type of offences which could be ‘automatic forfeiture’ offences as defined in Schedule 2 of the Act. To date these changes do not appear to have been reflected in the nature or number of Restraining Orders being obtained. In 2003-2004 there was a 47% increase in Restraining Orders granted over the previous year - from 128 to 188. The Act was also amended in 2004 to include civil forfeiture.

Queensland

139. In January 2003, the Criminal Proceeds Confiscation Act 2002 commenced. This act strengthened the existing Crimes (Confiscation) Act 1989 and implemented a civil confiscation scheme. Under this new legislation assets worth approximately AUD 6.5 million are subject to pending forfeiture applications. Between 1 July 2003 and 30 June 2004, assets restrained amounted to AUD 10.5 million.

Australian Capital Territory (ACT)

140. The Confiscation of Criminal Assets Act 2003 came into effect on 15 August 2003, replacing the Proceeds of Crime Act 1991. The new Act contains a conviction based recovery scheme but also provides for assets to be restrained where no charges are laid or where charges are yet to be laid. Assets can be restrained through civil recovery and by application of penalty orders. During the reporting period $68,995 was forfeited to the Territory and placed under the control of the Public Trustee.

2.3.2 Recommendations and Comments

141. The Commonwealth and New South Wales, Western Australia, and Victoria have extensive, and apparently effective, confiscation schemes involving a mixture of criminal and civil confiscation. Amounts forfeited at the Commonwealth level may be somewhat low, but this could be attributable to the federal nature of the government. Other States and Territories that have not yet adopted similar civil forfeiture schemes should consider doing so. Civil forfeiture for instrumentalities of crime could be considered.

2.3.3 Compliance with Recommendations 3

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2.4 Freezing of funds used for terrorist financing (SR.III)

2.4.1 Description and Analysis

Special Recommendation III

142. Terrorist asset freezing measures in Australia were updated by the POCA 2002 and the Suppression of the Financing of Terrorism Act 2002 (SoFTA) which were enacted to implement Australia’s commitments under the UN International Convention for the Suppression of the Financing of Terrorism, S/RES/1267, S/RES/1373, and other UN Security Council resolutions addressing the freezing of terrorism-related property. The SoFTA amended the Financial Transaction Reports Act 1988, the Charter of the United Nations Act 1945 (COTUNA), the Criminal Code Act 1995 and the Extradition Act 1988 and provided mechanisms to facilitate the rapid dissemination of financial data and intelligence. The Charter of the United Nations (Terrorism and Dealings with Assets) Regulations 2002 (“the Regulations”) give effect to asset freezing requirements.

Freezing actions under S/RES/1267 and S/RES/1373

143. Regulation 6A of the Regulations designates “proscribed persons” (the Taliban, Usama bin Laden, a member of Al Qaida or any other person designated by the UN 1267 Committee) and indicates that the assets of these persons and of entities directly or indirectly controlled by them must be frozen in accordance with the relevant provisions of S/RES/1267, S/RES/1333 and S/RES/1390. These provisions require that the freezing occur without delay. As it is an offence under section 20 of COTUNA to allow the asset to be dealt with or facilitate the use of freezable assets, this indirectly requires that freezings occur without prior notification to the persons involved, as such notifications could allow the assets to be used or facilitate the use of the assets.

144. Section 15 of COTUNA also authorises the Minister of Foreign Affairs to list assets, class of assets, or person of entities through regulations and publication in the Gazette. Under Regulation 6, the Minister for Foreign Affairs (the Minister) “must list a person or entity if the Minister is satisfied that the person or entity is a person or entity mentioned in paragraph 1 (c) of Resolution 1373.” The Minister may also “list an asset, or class of asset, if the Minister is satisfied that the asset, or class of asset, is owned or controlled by a person or entity mentioned in paragraph 1 (c) of Resolution 1373.” (Resolution 1373 requires freezing of assets without delay.) This can occur without prior notification to the persons involved, but this does not appear to be a requirement.

145. This mechanism is enforced through sections 20 and 21 of COTUNA. Section 20 creates an offence for dealing in “freezable assets”, which are defined as those assets owned and controlled by “proscribed persons or entities” or other “listed persons” as well as other “listed assets” as designated by COTUNA’s regulations or by the Minister. The person commits an offence (5 year penalty) if it holds the asset and uses or deals with the asset, allows the asset to be used or dealt with, or facilitates the use of the asset or dealing with the asset. Section 21 creates an additional offence (5 year penalty) for a person who directly or indirectly makes an asset available to a proscribed person or entity.

146. Section 24 of COTUNA indemnifies asset holders against claims by asset owners where they take action in good faith and without negligence in purported compliance with the Act.

147. When Australia is notified by another jurisdiction that it has designated a person or entity as a terrorist, prompt consideration is given to whether the person or entity should be designated under Australia law. Australian authorities indicated that they liaise with intelligence officials from other countries in making these determinations. The cases are assessed drawing on various types of information, including supporting information provided by the other jurisdiction.

148. COTUNA (s. 14) defines “freezable asset” to mean an asset that is “owned or controlled” by a proscribed person or entity. The text of paragraph 1(c) of SC/RES 1373 is directly included in the COTUNA Regulation 6. Freezing actions extend to: “funds and other financial assets or economic resources of persons who commit, or attempt to commit, terrorist acts or participate in or facilitate the commission of terrorist acts; of entities owned or controlled directly or indirectly by such persons; and of persons and entities acting on behalf of, or at the direction of such persons and entities, including funds derived or generated from property owned or controlled directly or indirectly by such persons and associated persons and entities.” The regulation is broad enough to cover both wholly and jointly owned assets. Persons mentioned in paragraph 1(c) of S/RES/1373 are listed, and their assets frozen.

149. The regulation inherently covers funds of designated entities and those involved in the commission of terrorist acts but does not explicitly cover those who finance terrorism or terrorist organisations (outside of the context of specific terrorist acts). While Australian authorities have indicated that the wording is sufficiently broad to cover these latter categories, the evaluation team was not convinced that it fully covers these provisions of SR III. In any case, the final decision of whether to list a person, entity or asset is up to the Minister, and this decision is not subject to parliamentary review.

Communication to financial institutions and procedures

150. In accordance with COTUNA’s Regulation 8, Australia’s Department of Foreign Affairs and Trade (DFAT) maintains one consolidated list of individuals and entities to which the asset freezing sanctions apply. The list contains over 540 names, including all 443 names from the S/RES/1267 list plus approximately 89 other names designated under the regulations implementing S/RES/1373 and designated by the Minister. The 89 names include names of persons or entities linked to terrorism in the region as well as certain Middle Eastern and Latin American organisations. The list is publicly available on DFAT’s website at www.dfat.gov.au/icat/freezing_terrorist_assets.html.

151. Financial institutions and other organisations that deal with assets can register to receive email updates whenever the list is updated. List-matching software has been developed and made available (through the DFAT website) to these organisations to facilitate cross-checking of databases with the consolidated list.

152. DFAT’s website also provides guidance on asset freezing laws and procedures, including a referral process to the AFP developed in consultation with the financial sector. Procedures for asset holders and the police to follow are also outlined in the Regulations 9 and 10.

153. In practice, the procedures and guidance appear to be well communicated to the financial sector; the financial industry was well aware of its obligations and procedures and expressed a clear commitment to complying with them although it did indicate that additional guidance (such as more details or identifying information for listed names) would be helpful. The situation was not as clear for the non-financial sector, as the representative of the real estate industry, which could be at risk for holding and dealing in terrorist-financing related assets, was not aware of all the CFT obligations and procedures.

154. Authorities indicated that they generally receive about five inquiries a week from financial institutions inquiring about possible matches with the DFAT list, although after consultation it is usually the case that there was not enough corroborating information to confirm a match. There have been two freezings of funds from the consolidated list. One was a false name match from a legitimate business and was thereafter unfrozen. The second involved the freezing of funds, of approximately $2,000 of an entity named to the consolidated list by the Minister. The funds remain frozen, although the entity is still challenging the freezing by challenging its listing (as described below).

Process for de-listing and unfreezing

155. Where the 1267 Committee removes a name from its list, it is automatically de-listed under Australian law. Under sections 16 and 17 of COTUNA, the Minister may also revoke the listing of a person or entity that he has previously listed if they are no longer associated with terrorism as provided in paragraph 1(c) of UNSCR 1373.

156. Under section 17 of COTUNA, a listed entity may apply to have the listing revoked. If after the review it is determined that they are not associated with terrorism as provided in paragraph 1(c) of S/RES/1373, the listing is revoked. Australian authorities indicated that the Minister has received three requests to have listings removed, two from listed entities and one from an NGO on behalf of a listed entity. Under section 25 of COTUNA, compensation is also available to asset owners whose assets are wrongly frozen. The procedure is outlined on DFAT’s website.

157. Section 22 of COTUNA allows the Minister for Foreign Affairs to authorise the holder or owner of an asset to use or deal with assets in a “specific way.” Although it does not specify on what grounds such permission should be granted, the general nature of the provision would allow for the purposes laid out in S/RES/1452, such as payments for basic expenses, the payment of certain types of fees, expenses and service charges or for extraordinary expenses.

158. In addition to seeking a review of the listing under section 17, a person or entity that has had its funds frozen can make an application to the Federal Court for a review of the decision under the Administrative Decisions (Judicial Review) Act 1977. If the Court finds that the decision was made incorrectly (on procedural grounds—not on the merits)—it can set aside the decision and return the matter to the Minister for a new decision.

Freezing actions other than S/RES/1267 and S/RES/1373

159. In addition to the obligations COTUNA and its regulations, the POCA 2002 terrorist related funds or assets, including instruments (defined as used in or intended for use) are also subject to civil forfeiture measures. These measures include restraining orders and forfeiture orders. The CDPP has yet to use this authority in terrorist financing cases, however.

Sanctions for non-compliance and monitoring mechanisms

160. As indicated above, criminal sanctions of up to five years imprisonment apply for failure to comply with the obligations to freeze CFT related assets. In addition, s.26 of COTUNA also allows a court to issue an injunction restraining a person from engaging in any specific conduct if it has engaged, is engaging, or proposing to engage in conduct contravening the Act.

161. All major financial institutions run all transactions and accounts against the DFAT consolidated list to help ensure compliance with the provisions. AUSTRAC also runs its whole database against the DFAT list.

2.4.2 Recommendations and Comments

162. Australia’s mechanisms to freeze and seize terrorist financing-related assets are comprehensive and appear to be effective. Australia especially appears to be comprehensively implementing its specific obligations under S/RES/1267 and S/RES/1373. However, Australia should consider specifying that obligations apply to funds of terrorists and those who finance terrorism, outside of the context of specific terrorist acts. .

163. Australia procedures for communicating terrorist-related freezing obligations are public and generally comprehensive; outreach and co-operation with the financial sector is especially effective. However, Australia should outreach further to DNFBP’s to ensure that those sectors are aware of their obligations and procedures for complying.

2.4.3 Compliance with Special Recommendation III

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Authorities

2.5 The Financial Intelligence Unit and its functions (R.26, 30 and 32)

2.5.1 Description and Analysis

Recommendation 26

164. The Australian Transaction Reports and Analysis Centre (AUSTRAC) is Australia’s Financial Intelligence Unit (FIU) and has a dual role as both an FIU and anti-money laundering regulator. AUSTRAC falls within the portfolio of the Attorney General’s office but is an independent and autonomous statutory agency. AUSTRAC is not an investigative agency and it fulfils its functions under the independently of law enforcement, revenue, national security and social justice agencies, providing support, without constraint or influence, to all agencies.

165. AUSTRAC was established in 1989 under section 35 of the Financial Transaction Reports Act 1988 (FTR Act) as an independent authority within the Australian Government’s Attorney General’s portfolio. AUSTRAC collects financial transaction reports information from a range of prescribed cash dealers, including the financial services and gaming sectors, as well as solicitors and members of the public. This information is made available on-line to AUSTRAC’s 28 partner agencies. In addition, AUSTRAC analyses this information and disseminates it in the form of financial intelligence to 28 partner agencies, comprising Federal, State and Territory law enforcement, social justice and revenue collection agencies, as well as AUSTRAC’s international counterpart FIUs. It should be noted that each State has a separate Financial Transactions Reports Act with the object of the Act being to facilitate the enforcement of the laws of the State and to provide for the giving of further information in relation to suspect transactions reported under the Financial Transaction Reports Act 1988 of the Commonwealth. AUSTRAC also maintains an ongoing education program as part of its broader regulatory compliance mission.

166. The FTR Act requires cash dealers to submit a range of financial transaction reports to AUSTRAC. The reportable transactions are:

  • Suspect Transactions - any transaction, or attempted transaction, where the cash dealer has reasonable grounds to suspect that the transaction may be relevant to an offence against any Commonwealth or Territorial law or may assist the enforcement of concerns about the entities, monies, or circumstances of the transaction. This includes transactions that may be preparatory to the commission of a financing of terrorism offence; or may be relevant to investigation of, or prosecution of a person for, a financing of terrorism offence;

  • Significant Cash Transactions - any transaction with a cash component of AUD $10,000 or more, or its equivalent in foreign currency;

  • International Funds Transfer Instructions - any instruction for the transfer of funds that is transmitted electronically either into, or out of, Australia;

  • Solicitors Reports and Casino Betting Reports - significant cash transactions from solicitors and casinos;

  • International Currency Transfers - persons are required to report international currency transfers, which include the shipping, mailing or carrying of AUD $10,000 cash or its equivalent in foreign currency, either into, or out of Australia.

Guidelines

167. Section 38 of the FTR Act requires the Director of AUSTRAC, “to issue guidelines to cash dealers about their obligations under this Act and the regulations” and “consult with cash dealers, or the representatives of cash dealers, and take into account any comments made in the course of consultations”. Industry guidance is provided via AUSTRAC Industry Guidelines, Information Circulars, AUSTRAC Help Desk and eLearning program.

168. The list of AUSTRAC Guidelines and Circulars is quite extensive including seven Guidelines with numerous addendums and 39 Information Circulars. These set out advice regarding various reporting and account opening obligations under the FTR Act and other developments relevant to reporting entities’ obligations. Suspect Transactions are covered by Guideline #1, Significant Cash Transactions are covered by Guideline #2, Account Signatory Verification by Guideline #3, Merchant Banks and Stock Brokers by Guideline #4, Casinos by Guideline #5, Solicitors by Guideline #6 and Bullion Sellers by Guideline #7. Each guideline provides the necessary information with respect to a description, onus to report, where to report, exemptions, contact information and several links which includes the forms.

169. The guidelines encourage all reporting entities to submit all FTR reports to AUSTRAC by means of electronic transmission through AUSTRAC’s EDDSWeb system (Electronic Data Delivery System). The guidelines also provide information to reach the AUSTRAC Help Desk for assistance with respect to this.

170. Two-way feedback is facilitated through consultative fora with industry representatives and law enforcement agencies such as the Provider Advisory Group (PAG which include representatives from major cash dealers, industry bodies, AUSTRAC and other partner agencies) and the Gaming Provider Advisory Group (GPAG which include AUSTRAC, law enforcement agencies, the Australian Tax Office and gaming sector organizations).

171. There are estimated to be over 4,500 cash dealers in Australia and AUSTRAC works with as many as possible to ensure that the FTR information is consistent, within the requirements of the legislation, and of value to their partner agencies. During 2004, AUSTRAC received a total of 11,417,933 reports from cash dealers, solicitors and members of the general public. On average, AUSTRAC receives approximately 60,000 FTR reports per day. Although there is still some reporting on paper forms, over 99.9% of the reports were submitted electronically.

Access to information

172. AUSTRAC’s intelligence analysts have access to information sources to undertake analysis of SUSTRs and other financial reports. These include Customs intelligence, public record information such as motor vehicle and drivers licence data, land titles, and other open source information. AUSTRAC also accesses several government databases:

  • ALEIN (Australian Law Enforcement Intelligence Net - provides criminal intelligence assessments);

  • ASCOT (Australian Securities and Investment Commission - contains ASIC’s company and person details about current and former companies and limited business name information);

  • CITEC (contains the national list of business names).

173. AUSTRAC works in conjunction with its partner agencies both in supporting and developing their investigations. It thereby benefits from financial, administrative or law enforcement information of other financial sector regulators such as ASIC or law enforcement bodies such as the Crime Commissions and State and Federal police. AUSTRAC is currently negotiating direct access to additional data sources in order to enhance its intelligence capability. AUSTRAC as the FIU functions collectively with its 28 partner agencies. Because of its partnership with these agencies, AUSTRAC believes it does not require direct access to all law enforcement data sources. As well as bilateral work with each of its 28 partner agencies, AUSTRAC participates in a number of joint agency and multilateral taskforces. In particular, the Financial Intelligence Assessment Team (FIAT) is a multi-agency group, the members of which have direct access to a number of law enforcement databases, as well as other law enforcement tools and powers. Nearly 2,500 partner agency staff have on-line access to AUSTRAC data as well as their own and other agencies’ data.

Obtaining additional information

174. AUSTRAC and specified partner agencies are authorized to obtain from reporting parties, additional information to undertake its functions properly. The FTRA allows AUSTRAC and specified partner agencies to request further information from a cash dealer in relation to a Suspect Transaction Report previously submitted by that cash dealer. This ensures that further information relevant to a transaction, such as primary documents or additional information not originally included in the initial SUSTR, can be obtained. Section 16 (4) of the Financial Transaction Reports Act states:

  • “Where a cash dealer communicates information to the Director under subsection (1) or (1A), the cash dealer shall, if requested to do so by:

  • (a) the Director;

  • (b) a relevant authority; or

  • (c) an investigating officer who is carrying out an investigation arising from, or relating to the matters referred to in, the information contained in the report;

  • give such further information as is specified in the request to the extent to which the cash dealer has that information.”

175. AUSTRAC indicated that it has an excellent relationship with most of the reporting parties and, thus, the STR is generally accompanied by most of the documentation needed to assist in its analysis. If the FIU or law enforcement does require further information they will approach the reporting parties directly and generally receive the information on a timely basis.

176. Under the FTR Act, AUSTRAC is authorized to disseminate financial transaction reports information both on a proactive and reactive basis to a number of domestic partner agencies and to international counterparts. AUSTRAC is authorised to provide access to its database of financial transaction reports data, and disseminate this information to prescribed bodies under sections 27 and 27AA of the FTR Act. Such bodies include national security, law enforcement and revenue agencies. AUSTRAC assists these agencies to identify and investigate money laundering, people smuggling, drug trafficking, terrorist financing, major fraud and other major crime as well as serious tax evasion. An important tool in establishing effective relationships between AUSTRAC and domestic partner agencies is the establishment of a Memoranda of Understanding (MOU) with each agency. These agreements provide the framework within which the Director of AUSTRAC grants agencies access to FTR information and financial intelligence developed from that information. Online access was provided to 2,423 partner agency officers during the 2003–04 fiscal year. The Australian Taxation Office is entitled to all FTR information. Other specific agencies are granted access to, and use of FTR information include;:

  • Australian Crime Commission

  • Australian Customs Service

  • Australian Federal Police

  • Australian Securities and Investments Commission

  • Australian Security Intelligence Organisation

  • Centrelink

  • Child Support Agency

  • Crime and Misconduct Commission (Queensland)

  • Corruption and Crime Commission (Western Australia)

  • Independent Commission Against Corruption (New South Wales)

  • New South Wales Crime Commission

  • Police Integrity Commission (New South Wales)

  • State and Territory Police Services (7)

  • State and Territory Revenue Authorities (8)

177. There are presently no formal sharing arrangements currently in place between AUSTRAC and APRA (Australian Prudential Regulation Authority). However, section 56(5) of the APRA Act and APRA regulation number 5 allow APRA to share otherwise protected information with designated entities including AUSTRAC. Similarly, aside from financial transaction report information protected under section 27 of FTR Act, there is no impediment to AUSTRAC sharing information with APRA for the purposes of the FTR Act or the performance or exercise of the functions or power of the AUSTRAC director under that Act. APRA currently has in place memorandums of understanding with government agencies including ASIC, the ATO, and the RBA 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.

Protection of information

178. Information held by AUSTRAC is securely protected and disseminated only in accordance with the law. The official information AUSTRAC holds is protected according to the requirements of the Privacy Act 1988 and the Commonwealth Protective Security Manual. AUSTRAC continues to maintain the integrity of its information by conducting regular audits and inspections of all classified information to ensure that current standards are maintained and that any improper use or disclosure of information is readily identified. A Protective Security Risk Review (PSRR) was undertaken in 2004 to identify risks facing AUSTRAC and to ensure that AUSTRAC met the security requirements specified by the Australian Government. The PSRR concluded that AUSTRAC had adequate strategies and procedures in place and is well placed to counter potential risks. Security and privacy awareness training continues to be a priority for AUSTRAC as they have introduced procedures to measure the level of staff understanding of their security and privacy responsibilities through a security and privacy questionnaire. There are also a number of safeguards and measures in place under legislation to protect official information held by AUSTRAC employees. These include:

  • Section 25 of the FTR Act: AUSTRAC employees shall not, except for the purposes of the FTR Act, make a record of any information or divulge or communicate to any person any information obtained in the course of performing their duties under the FTR Act.

  • Section 70 of the Crimes Act 1914: When applied to AUSTRAC, provides that an officer of AUSTRAC who publishes or communicates any fact or document which comes to their knowledge, and which is their duty not to disclose, shall be guilty of an offence.

  • Section 10 of the Public Service Act 1999: When applied to AUSTRAC, requires that AUSTRAC employees must not make improper use of inside information or the employee’s duties, status, power or authority, in order to gain, or seek to gain, a benefit or advantage for the employee or for any other person.

  • Section 2.1 of the Public Service Regulations 1999: When applied to AUSTRAC, requires that an AUSTRAC employee must not, except in the course of his or her duties as an APS employee or with the Director’s express authority, give or disclose, directly or indirectly, to any person any information about public business or anything of which the employee has official knowledge.

179. Protecting the privacy and security of individuals whose details are contained within FTR information becomes more difficult and vulnerable to breaches once it is disseminated. With online access provided to 2,423 partner agency officers from 28 agencies and a growing number of exchange instruments with international counterpart FIUs, the potential for privacy breaches appears inevitable. To guard against this, AUSTRAC clearly addresses privacy and security within the Memorandum of Understanding (MOU) between AUSTRAC and the Partner Agency. The MOU refers to section 27 of the FTR Act which reads; “Under section 27 of the Act, a member of the staff of the Partner Agency, authorized by the Director to have online access to the AUSTRAC database, may not access, record, divulge or communicate such information except in the performance of the officer’s duties. Under subsection 27(13) of the Act, a person who contravenes section 27 commits an offence punishable, upon conviction, by imprisonment for a period of up to 2 years.” AUSTRAC maintains logs of all access to its data by AUSTRAC staff and by partner agency staff with online access. AUSTRAC also issues guidelines regarding how and when FTR information can be used and offers education programs to ensure that there is awareness of the privacy and security requirements amongst users of the information. To date there have been only minor incidents surrounding the protection of information and these resulted from carelessness.

Annual Reports

180. Section 40B of the FTR Act requires the Director of AUSTRAC to prepare an Annual Report as soon as practicable after 30 June in each year, to be provided to the Minister for Justice and Customs and to be tabled in Parliament. The Annual Report contains information regarding financial transaction reporting statistics, staffing matters, domestic and international trends, agency highlights, future priorities and performance summaries. AUSTRAC also produces a biannual newsletter containing information on typologies and trends and other information relevant to AUSTRAC’s stakeholders and the public.

Egmont Group

181. AUSTRAC is a founding member of the Egmont Group and has been an active member since June 1995. AUSTRAC participates in the Egmont Committee and the Egmont Group’s Outreach, Training, Operational, Information Technology and Legal Working Groups. In addition to attending the Annual Plenary Meeting of the Egmont Group, AUSTRAC participates in the Egmont Working Group meetings three times per year. In 2003 AUSTRAC successfully hosted the 11th Annual Plenary meetings of the Egmont Group in Sydney. AUSTRAC’s Director is currently the co-vice Chair of the Egmont Committee, a sub-group of the heads of FIU, and was re-elected in 2004. The Director was also elected as the Chair of the Training Working Group in 2004.

182. AUSTRAC was involved in the preparation of both the “Statement of Purpose” and “Principles for Information Exchange between FIUs” and has had continued involvement with these documents as an Egmont member. AUSTRAC takes into account both documents in its functions and information exchange on a day-to-day basis.

Statistics

183. AUSTRAC maintains comprehensive statistics on matters relevant to the effectiveness and efficiency of systems for combating money laundering and terrorist financing. These statistics include STRs received by the FIU, a breakdown of the type of financial institution, DNFBP, or other business or person making the STR, and a breakdown of STR analysed and disseminated. (Statistics on STRs received by the FIU, including a breakdown of the type of financial institution, are displayed in the Section 3.7 of this report.) The FTR Act imposes a comprehensive reporting regime upon reporting entities to provide AUSTRAC with details of financial transactions for subsequent analysis and dissemination to AUSTRAC’s partner agencies, including law enforcement, revenue, national security and social justice agencies.

184. The following table shows the number and types of reports received by AUSTRAC from January 2001 to December 2004.

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185. The quantity of financial transaction reports received by AUSTRAC continues to increase significantly. In 2004 more than 11 million financial transaction reports were received by AUSTRAC, an increase of over 13% from the previous year. Suspect transaction reports also increased 27% over this same time period. AUSTRAC retains all reportable data for at least 8 years. This currently includes in excess of 65 million reports and more than 1 billion bits of information. AUSTRAC receives 99.9% of the reports electronically, at the rate of up to 60,000 per day. Automated systems for the collection, maintenance, analysis, dissemination and direct on-line access for partner agencies make this a very effective and efficient program.

186. The following table shows the number of Suspicious Transactions Reports (SUSTRs) disseminated to AUSTRAC’s Partner Agencies over the period January 2001 to December 2004.

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NB: A SUSTR may be disseminated to more than one partner agency

187. The table below details detections by AUSTRAC’s automated money laundering monitoring system, TargIT, relating to patterns of financial activity related to SUSTRs. Such financial patterns are monitored to identify individual suspect reports which are linked to other report types held by AUSTRAC. The networks consequently identified may be linked to multiple suspect reports from a variety of reporting entities.

188. AUSTRAC uses a classification system to set an analysis priority against each case. AUSTRAC also obtains extrinsic data from a variety of sources to add value to and assist the analytical process. As indicated in the table below, suspect networks may be identified on numerous occasions over the course of time. The table represents high priority classifications only. Other classifications of priority that are not represented in the table include matters that have been given a low or medium priority or provide insufficient or non-unique personal details from which to undertake effective analysis.

TargIT automated monitoring detections of networks linked to suspect reports for the calendar years from 1 January 2001 to 31 December 2004.

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189. All SUSTRs received by AUSTRAC are manually evaluated to identify high priority and urgent matters. SUSTRs may be disseminated directly to partner agencies through the Transaction Report Analysis and Query system, by safe hand, facsimile or email. The majority of SUSTRs are disseminated to the ATO as a matter of course. Until 2002, each SUSTR was also evaluated by AUSTRAC to identify reports that may have been of interest to law enforcement or partner agencies other than the ATO. Where such an interest was identified, the SUSTR was also disseminated to that partner agency. During 2002, law enforcement partner agencies were provided with the ability to evaluate on-line each SUSTR and request specific reports directly from AUSTRAC.

190. AUSTRAC has received several hundred SUSTRs with suspected name matches to the DFAT/OFAC lists. These SUSTRs were disseminated to the relevant law enforcement for further investigation. After investigation, none of the names reported were found to be the actual persons whose names appear on the list.

191. The table below provides statistics on the number of individual suspect reports that were, upon analysis and evaluation, deemed to be urgent or of high value to partner agencies and were immediately disseminated. It should be noted that because of AUSTRAC’s expansive database of information, (which contains more than 65 million reports or 1 billion bits of information), reliance on SUSTRs is only one small part of the value of the program.

Individual suspect reports analysed and proactively disseminated to partner agencies in the calendar years from 1 January 2001 to 31 December 2004.

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192. Since the Second Round Mutual Evaluation of Australia, AUSTRAC has taken measures to improve the systems through which feedback is gathered from domestic partner agencies, both in terms of the number of investigations value added, and the value of tax assessments assisted, by AUSTRAC information. As per the MOU between AUSTRAC and the partner agencies, every quarter, cases involving the use of AUSTRAC information are to be reported to AUSTRAC through the formal feedback system agreed between AUSTRAC and the partner agencies that access and use FTR information. Such measures include reinforced MOU requirements, an online feedback screen for the convenience of partner agencies, reminders in all training and awareness sessions as to the importance of feedback and a specific independent study designed to identify and take action in the interests of improving feedback at all levels. The table below details the number of investigations identified by AUSTRAC partner agencies as value added and the value of Australian Tax Office (ATO) assessments which were directly assisted by FTR information. Most of the FTR information used in these assessments was accessed and analysed by ATO staff.

Primary Output Statistics of AUSTRAC FTR Data usage by Partner Agencies

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193. From mid-2002, with each matter disseminated by AUSTRAC to partner agencies, a simple survey was also forwarded, in order to increase the level of feedback received from partner agencies. The statistics in the table below relate to feedback from law enforcement to AUSTRAC from the proactive disseminations of SUSTRS in the table above. In many cases no feedback was provided by partner agencies, or the survey was not returned.

Results of SUSTR feedback surveys attached to all SUSTRs disseminated by AUSTRAC proactively in the calendar years from 2002 to 31 December 2004

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NB: SUSTRS may be disseminated to more than one agency.
Recommendation 30
Structure, funding, staff, technical and other resources for AUSTRAC

194. The Director of AUSTRAC is appointed by the Attorney-General under section 36 of the FTR Act and its staff are employed under the Public Service Act 1999 (PSA). The PSA establishes an apolitical public service that is efficient and effective in serving the Australian Government, the Parliament and the Australian public. AUSTRAC can also engage consultants under written agreements. The FTR Act and the PSA together define the power, functions and responsibilities of the Director of AUSTRAC.

195. As at the time of the onsite visit, AUSTRAC employed 154 total personnel including 127 public service staff, 26 contractors and 1 consultant. All appointment decisions are based on merit whereby the ‘best person for the job’ approach is adopted on all occasions and all candidates are assessed against essential selection criteria which require a minimum level of competency to complete the agreed tasks of each role. The 154 AUSTRAC personnel are assigned to the following priorities:

  • MONEY LAUNDERING TARGETING – 60

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      Partner Liaison and Support – 25

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      Monitoring and Analysis – 19

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      International – 16

  • MONEY LAUNDERING DETERRENCE – 53

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      Reporting and Compliance – 32

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      Corporate Services – 9

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      Strategic Coordination – 6

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      Privacy and Security – 6

  • ANTI MONEY LAUNDERING REFORM – 8

  • INFORMATION TECHNOLOGY – 26

  • EXECUTIVE – 7

196. AUSTRAC is structured in such a way as to address and achieve its agreed objectives. It has a head office in Sydney as well as offices in Melbourne, Adelaide, Brisbane, Perth and Canberra. AUSTRAC has three main branches including, Money Laundering Deterrence, Money Laundering Targeting and Information Technology. A fourth branch, Anti Money Laundering Reform, has recently been developed to assist in the current review of AML/CFT measures in Australia.

197. The efforts of the Money Laundering Deterrence Branch are focused on liaising with those in the financial and gaming sectors to educate cash dealers, solicitors and the public on the financial transaction reporting provisions contained in the FTR Act and evaluating reporting systems. This Branch also works on enhancing the integrity of data they receive and liaison with various government departments and agencies to ensure that Australia’s anti-money laundering regime, AUSTRAC and related legislation continue to be relevant, effective and meet international standards.

198. The Money Laundering Targeting Branch has three main roles which include the analysis and dissemination of financial transaction reports information to the 28 law enforcement, revenue, national security, and social justice agencies and the 37 overseas FIUs with which AUSTRAC has established information exchange agreements with. The international section also falls within this Branch and provides assistance in the international exchange of financial intelligence and technical assistance to counterpart FIUs.

199. AUSTRAC’s Information Technology Branch delivers technological solutions to collect, analyse, store and disseminate financial transaction report data. These include:

  • Providing solutions to reporting entities for the electronic delivery of FTR data;

  • Creating and maintaining internal systems which assist AUSTRAC staff in extracting and analysing data and managing information;

  • The provision of the TRAQ Enquiry System database for the storing and searching of FTR information by AUSTRAC staff; and

  • Safeguarding data and ensuring high levels of IT security to protect AUSTRAC information, coupled with ongoing internal and external reviews and testing of IT security.

AUSTRAC appropriation (Government funding) from 1995–96 to 2007–08 is as follows:

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200. Additional funding was provided to AUSTRAC in the 2003–04 financial year for, inter alia, the provision of additional staff to be employed across AUSTRAC’s core business areas to manage increased workloads and for additional operational work. Additional funding of AUD 10m over 4 years was provided from 2004–05 to enable AUSTRAC to work with counterpart financial intelligence units in the South East Asian region to enhance their counter-terrorism financing activities.

Integrity Standards

201. All AUSTRAC employees are required to abide by mandatory Australian Public Service Values and Code of Conduct. Employees also agree to adhere to a specific set of ‘AUSTRAC values’ and the Privacy Act. As a condition of employment at AUSTRAC, all employees are required to undergo background security checks designed to determine whether employees are eligible for the granting of a full security clearance. These clearances are periodically reviewed to ensure employees can continue to access classified information. In addition to these background checks it is a requirement for all employees to sign privacy and secrecy statements both at the commencement of their tenure at AUSTRAC and at the time of a periodic assessment of their security clearance.

202. AUSTRAC also has in place a fraud control plan to minimise the risk of incidence of fraud through the development, implementation and review of a range of fraud prevention and detection strategies. To protect official information held by AUSTRAC, all staff are required to abide by internal privacy, physical, protective, information and IT security policies and procedures. Access to information is limited to those with appropriate clearance levels and who specifically require the information to perform their duties. All information is appropriately stored and secured through a variety of security measures including security containers, physical access control restrictions and IT access password restrictions

Training

203. AUSTRAC has in place a number of measures for ongoing evaluation and training of staff. This includes performance management, training, and development schemes to ensure that performance is monitored and that all staff seek to continually improve themselves through formal and informal development measures. All relevant AUSTRAC staff are provided with adequate training on the use of the financial intelligence systems and associated tools to perform their day-to-day tasks as part of an induction program at the commencement of employment and at regular intervals throughout the year. On-the-job-training is provided in the interpretation and application of the legislation applicable to AUSTRAC. Staff regularly attend law enforcement training courses as well as international conferences and training activities.

204. In addition to the above, AUSTRAC’s reputation as a leading FIU has enabled AUSTRAC to play a leading role in technical assistance and training and expand its international role. From 2002 to 2004, AUSTRAC was engaged in a long term mentoring project in the Indonesian FIU, Pusat Pelaporan Dan Analisis Transaksi Keuangan (PPATK), with two AUSTRAC officers based in PPATK. In October 2004, AUSTRAC began a four year Counter Terrorism Technical Assistance and Training Program for the South East Asian Region, aimed at assisting the development of operational and IT capacity within 10 ASEAN nations. In November 2004, AUSTRAC began the Pacific Islands FIU Database Project, which will develop and install customized databases within seven Pacific Island FIUs. From early 2005, AUSTRAC will have one officer based within the Jakarta Centre for Law Enforcement Cooperation in Indonesia under a four year cooperative training initiative of the AFP. AUSTRAC has also taken over responsibility for Australia’s involvement in the activities of the Asia Pacific Group on Money Laundering (APG).

Recommendation 32: Statistics gathered by AUSTRAC

205. In addition to the statistics maintained by AUSTRAC, there is also regular reporting to government by law enforcement agencies and prosecutorial bodies in Australia relevant to the effectiveness and efficiency of systems for combating money laundering and terrorist financing. Competent authorities do not maintain formal statistics relating to STRs resulting in prosecution or convictions for ML, FT or an underlying predicate offence as authorities believe the reliance on SUSTRs is only one small part of the value of the ML/FT program.

2.5.2 Recommendations and Comments

206. AUSTRAC is in good organizational shape with respect to its ability to carry out its FIU functions. Although no fundamental changes appear to be required in this area, pressures will continue as the quantity of financial transaction reports received continues to increase significantly. In 2004, more than 11 million financial transaction reports were received by AUSTRAC, an increase of over 13% from the previous year. Suspect transaction reports also increased 27% over this time period. In order to meet these pressures and be more effective, AUSTRAC is encouraged to expand their team of financial analysts. This expansion will allow AUSTRAC to promote further integration of FTR information into their intelligence analysis and enhance their focus on strategic analysis in relation to money laundering and terrorist financing. AUSTRAC is also encouraged to seek direct access to additional law enforcement data sources as this non-financial data will also enhance its intelligence analysis capability.

207. AUSTRAC should continue to be diligent in emphasizing to partner agencies the need to protect the privacy of FTR information once it is disseminated to them. Section 27 of the FTR Act must continue to be stressed as well as the guidelines and education provided by AUSTRAC to ensure that partner agencies are vigilant of privacy and security requirements.

208. As per the MOUs between AUSTRAC and partner agencies, every quarter, cases involving the use of AUSTRAC information are to be reported to AUSTRAC through the formal feedback system agreed between AUSTRAC and the partner agencies that access and use FTR information. Presently, the feedback from partner agencies seems to be inconsistent, with agencies such as the Australia Crime Commission, the Australian Federal Police, Australian, Customs Service, Australian Taxation Office and the NSW Crime Commission providing extensive feedback and others providing limited feedback. 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. Feedback is essential to AUSTRAC as this will allow them to assess their effectiveness.

209. Cash dealers were very positive regarding the guidance provided by AUSTRAC about their obligations under the FTR Act and the regulations. Cash dealers receive regular guidance and advice from AUSTRAC either personally or via AUSTRAC Industry Guidelines and Information Circulars regarding various reporting and account opening obligations under the FTR Act and other developments relevant to reporting entities’ obligations. One area concerning almost all cash dealers was the lack of feedback with respect to results (investigations, charges, seizures, etc.) relating to the financial transaction reports forwarded to AUSTRAC. Cash dealers did recognize that this type of information is sensitive but would appreciate any feedback possible. Many advised that feedback in this area would keep frontline staff motivated and alert with respect to suspicious transactions and that presently staff feel that financial transaction reports go into a “black hole”. AUSTRAC does provide some feedback on results from FTR information provided by cash dealers via its Annual Report and its Newsletters. Nevertheless, it is recommended that AUSTRAC in consultation with partner agencies consider how to share information/results more effectively with reporting entities.

210. Section 56(5) of the APRA Act and APRA regulation number 5 allow APRA to share otherwise protected information with designated entities including AUSTRAC. Similarly, aside from financial transaction report information protected under section 27 of FTR Act, there is no impediment to AUSTRAC sharing information with APRA for the purposes of the FTR Act or the performance or exercise of the functions or power of the AUSTRAC director under that Act. In practice, however, there has been minimal sharing of information between AUSTRAC and APRA. It is recommended therefore that AUSTRAC and APRA 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.

2.5.3 Compliance with Recommendations 26, 30 & 32
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2.6 Law enforcement, prosecution and other competent authorities - the framework for the investigation and prosecution of offences, and for confiscation and freezing (R.27, 28, 30 and 32).

2.6.1 Description and Analysis

Recommendation 27

211. The federal structure of Australia’s system of government extends to law enforcement and prosecutorial authorities. At a national level the Australia Federal Police (AFP) enforces Commonwealth Criminal Law, and protects Commonwealth and national interests from crime in Australia and overseas. The AFP is also Australia’s international law enforcement and policing representative, and the chief source of advice to the Australian Government on policing issues. Most ordinary criminal law is State and Territory law and each State and the Northern Territory has its own police force and prosecutorial body to enforce and prosecute local laws. Mechanisms, such as the Australian Crime Commission (ACC), exist for coordination on criminal matters of national concern that may be the responsibility of multiple agencies or extend beyond a single jurisdiction. The overlap between federal and State authorities does not appear to cause difficulties in practice.

212. The office of the Commonwealth Director of Public Prosecutions (CDPP) is designated to prosecute offences against Commonwealth law, including prosecution of Commonwealth money laundering offences and terrorism financing offences, and to recover proceeds of Commonwealth crime. The CDPP is also able to prosecute indictable offences against State law where the Director holds an authority to do so under the laws of that State. The CDPP is not an investigating agency; it can only prosecute and take recovery action when there has been an investigation by an investigating agency, such as the AFP. Prosecutions and other legal proceedings involving the CDPP are conducted in accordance with the prosecution policy of the Commonwealth.

213. Prosecution and law enforcement authorities in Australia both at a federal, State and Territory level have usual discretion common in many jurisdictions globally as to whether and when to commence legal proceeding allowing them to waive the arrest of suspected persons and/or the seizure of money for the purpose of identifying persons involved in ML/FT activities or for evidence gathering.

Additional Elements

214. Although these measures fall under different legislation from one jurisdiction to another within Australia, each jurisdiction appears to have an adequate legal basis for the use of a wide range of special investigative techniques at its disposal, including controlled deliveries, undercover police officers, electronic interception and other relevant forms of surveillance and search powers. In general, these investigative techniques are used to target serious criminal offences that are predicate offences of money laundering such as drug trafficking.

215. The AFP has the ability to utilise techniques including controlled operations and covert electronic surveillance in ML/FT investigations when certain circumstances are met. There is provision for the use of controlled operations in the investigation of Commonwealth offences under the Crimes Act 1914. In October 2001, new controlled operations provisions came into effect following legislative amendments to Part IAB of the Crimes Act 1914 (Division 2 - general, sections 15H to 15X refer). This allows the controlled delivery of goods other than narcotics allowing authorities to ‘participate’ in otherwise illicit activities in order to further their money laundering investigations. Prior to this amendment, controlled operations could only be conducted in relation to illicit drug offences. With this amendment, the AFP can now conduct operations in relation to a wide range of serious Commonwealth offences including money laundering, people smuggling, fraud, and child pornography.

216. The use of listening devices and any data surveillance equipment by the AFP falls under the Surveillance Devices Act 2004 and such equipment can be used when a warrant is issued by a judge or an Administrative Appeals Tribunal member. Where special circumstances of urgency exist such as terrorism, espionage or people smuggling, a senior executive officer of the AFP can issue an authorisation for the use of covert electronic surveillance and similar special investigative techniques. The use of telecommunications interception devices is regulated by the Telecommunications (Interception) Act 1979. The AFP has used these techniques in the investigation of ML and FT offences.

217. The ACC extensively uses a wide range of special investigative techniques in its investigation of money laundering (and tax fraud) and predicate offences. These include the use of search warrants, telephone intercepts, listening devices, surveillance, controlled operations, under-cover operatives and registered informants. Amongst other things, it also utilises its special, coercive powers under sections 28 and 29 of the Australian Crime Commission Act 2002. These powers include the power to summons a person to an examination to give evidence under oath, the power to demand the production of documents and the power to demand information from Commonwealth government departments and agencies. These special powers can only be used in an intelligence operation or investigation the ACC Board has specifically determined to be a ‘special intelligence operation’ or a ‘special investigation’.

218. As mentioned, State and Territory authorities also have various investigative tools at their disposal. For example, the New South Wales Police and New South Wales Crime Commission have similar powers to the AFP and ACC under the authority of the Criminal Assets Recovery Act 1990, the Listening Devices Act 1984, the Search Warrants Act 1985, the Telecommunications (Interception) Act 1979, the Law Enforcement (Controlled Operations) Act 1988 and the Law Enforcement and National Security (Assumed Identities) Act 1998. The New South Wales Crime Commission in the 2003–2004 reporting year were issued 69 listening device warrants, 824 telecommunication (interception) warrants and had 12 controlled operations approved. In addition to the tools listed above, the New South Wales Crime Commission has been granted powers greater than normal policing powers under the NSW Crime Commission Act 1985. These powers include:

  • the power to conduct hearings in camera at which witnesses may be compelled to give evidence and produce documents;

  • the power to compel the production of documents and things relevant to an investigation by the Commission; and

  • the power to apply for special search warrants.

Specialised investigative groups and co-operative investigations

219. In addition to the special investigative techniques referred to above, permanent and temporary groups have been established in Australia to focus on the investigation, seizure and confiscation of the proceeds of crime. The AFP has established Financial Investigation Teams (FIT) throughout Australia specialising in investigating the proceeds of crime. The teams are staffed by Federal Agents (authorised officers within the Proceeds of Crime Act 2002 (POCA 2002)), investigative support staff and financial analysts. The FIT partner with the Criminal Asset Branches of the Commonwealth Director of Public Prosecutions to rapidly secure funds reasonably suspected of being the proceeds of crime from Australian and foreign indictable offences.

220. The Commonwealth Government is providing supplementary funding to the Australian Crime Commission that will amount to approximately $30 million over four years from 1 July 2003 to 30 June 2007 to boost the ACC’s capacity to conduct Special Investigations into federally relevant tax fraud, money laundering and related criminal activity. This area of the ACC’s work is code named Operation Midas and follows two similar projects (code named Operation Swordfish I and II) that were also separately funded by the Commonwealth Government and conducted successfully by the ACC’s predecessor, the National Crime Authority, between 1997 and 2003. An important part of their role is focused on the investigation, restraining, seizure and confiscation of proceeds of crime. Midas, like the two Swordfish projects, is expected to be self funding in that amounts recovered under Commonwealth, State and Territory proceeds of crime and tax legislation are expected to exceed the cost of these projects. Both Swordfish projects exceeded cost recovery targets and Midas is on track to do the same over its four year term

221. The ACC’s Midas Special Investigation teams include police investigators, forensic accountants, intelligence analysts and lawyers from the ACC, ACS, AFP, ASIC, ATO, State Police and AUSTRAC working together from ACC offices and from their home agencies throughout Australia. Criminal asset recovery, money laundering, taxation and FTR offences are also taken into account in other investigations and intelligence operations conducted by the ACC

222. Investigations referred to the New South Wales Crime Commission, with few exceptions, are conducted by teams comprising members of the NSW Police, Commission Staff and frequently staff of other agencies such as the ACC, AFP, ACS, ATO and AUSTRAC. The most effective investigative work undertaken by law enforcement agencies in money laundering matters has involved the confiscation of assets under civil-based legislation. The Commission has had the benefit of such legislation since 1990. During the last financial year the Commission using powers granted under the Civil Assets Recovery Act, confiscated in excess of AUD 18m in assets from criminals.

Review of AML/CFT methods and trends

223. The ACC routinely reviews money laundering methods, techniques and trends, with the resulting information, analyses and studies being appropriately and lawfully disseminated to other law enforcement agencies by means such as Criminal Intelligence Reports or Strategic Criminal Intelligence Assessments.

224. AUSTRAC coordinates the Australian agencies’ input to the Asia Pacific Group on Money Laundering’s (APG) typology report on money laundering and financing of terrorism. This process includes the review of ML/FT methods, trends and techniques. AUSTRAC is also a member of the APG Typologies Working Group. AUSTRAC attends both the Typologies Workshops organised by the APG and FATF, contributing Australian experience where appropriate and assisting with APG and FATF projects. As an Egmont member, AUSTRAC participates in the Egmont Operational, Training, Legal, Outreach and IT working groups. AUSTRAC also attends the Egmont Strategic Analysis Workshop.

225. In addition to the normal exchange of information between agencies working with the New South Wales Crime Commission, information such as patterns and trends in the nature and scope of drug trafficking and other organized crimes (money laundering, financial fraud, identity crime, computer crime, terrorism, etc.) is formally disseminated to other law enforcement agencies and relevant bodies. During 2003/04, the Commission disseminated material on 160 occasions relating to a range of suspected criminal activities to other organizations.

Recommendation 28
Powers to compel production of, search, and seize and obtain financial records and files

226. In Australia, law enforcement authorities are able to compel the production of and obtain, bank account records, financial transaction records, customer identification records, and other records maintained by financial institutions and other entities or persons, through lawful process, as necessary, to conduct investigations of ML, FT, and other predicate offences.

227. At the Commonwealth level, the POCA 1987 and the POCA 2002 provide specific legislative powers for compelling the production of financial records to support criminal assets recovery action. Under section 202 of the POCA 2002 a magistrate may make an order requiring a person to produce one or more property-tracking documents to an authorized officer, or make one or more property-tracking documents available for inspection. Section 213 requires a financial institution upon written notice by an authorized officer to provide the officer any information or document determining whether an account is held by a person, whether a person is a signatory, balances, account details for a maximum of 6 months, details of related accounts and any transactions conducted by the financial institution on behalf of the specified person. Section 219 allows a judge of a court of a State or Territory to make an order that a financial institution provide information about transactions conducted during a particular period through an account held by a particular person.

228. A magistrate under section 225 of the POCA 2002 may issue a warrant to search premises if the magistrate is satisfied by information on oath that there are reasonable grounds for suspecting that there is at the premises, or will be in the next 72 hours, tainted property or evidential material. Ordinary search or frisk search of a person at or near the premises are allowed if authorities suspect the person has any tainted property or evidential material on their person. Search warrants can also be obtained via section 3E of the Crimes Act 1914 to search persons and premises for evidence of offences. The majority of searches are conducted by general AFP investigators under the Crimes Act 1914 when the documents sought are to be used as evidence of the offence in criminal matters. In 2003–2004 the AFP made extensive use of the new tools under the POCA 2002 issuing 1,492 notices to financial institutions under section 213, executing 39 search warrants under section 225 and receiving 138 production orders under section 202.

229. The Australian Crime Commission also utilises its special coercive powers under sections 28 and 29 of the Australian Crime Commission Act 2002. These powers include the power to summons a person to an examination to give evidence under oath, the power to demand the production of documents and the power to demand information from Commonwealth government departments and agencies. In 2003-2004 the ACC held 381 examinations under section 28 and issued 453 notices under section 29.

230. State authorities are also able to compel the production of and obtain, bank account records, financial transaction records, customer identification records, and other records maintained by financial institutions and other entities or persons, through lawful process, as necessary, to conduct investigations of ML, FT, and other predicate offences to support criminal assets recovery action. For example, section 33(1) of the Criminal Assets Recovery Act 1990 provides authorized New South Wales authorities who have reasonable grounds for suspecting that a person has possession or control of property-tracking documents the ability to apply, ex parte, to the Supreme Court for an order against that person to produce such documents as are in the person’s possession or control. Pursuant to sections 44 and 45 of the CARA, an authorized officer, may also apply to the Supreme Court for a warrant authorizing the search of premises for property-tracking documents. Section 48 of the CARA provides that an authorized officer may make application to the Supreme Court for a monitoring order. Such orders direct financial institutions to give financial information obtained by the institution about transactions conducted by a particular person with the institution.

231. An authorized NSW officer may apply, in certain circumstances, to an authorized justice for the issue of a warrant pursuant to section 38 of the CAR Act, to search premises for serious crime derived property, illegal acquired property, evidence of a serious crime related activity, evidence of illegal activity of a person reasonably suspected of having been engaged in serious crime related activities and property that is subject to a restraining order. Ordinary search or frisk search of a person at or near the premises are allowed if authorities suspect the person has any evidential material on their person. Search warrants can also be obtained via the Search Warrants Act 1985.

232. As mentioned, the New South Wales Crime Commission has been granted powers greater than normal policing powers under the NSW Crime Commission Act 1985. These powers include:

  • the power to conduct hearings in camera at which witnesses may be compelled to give evidence and produce documents;

  • the power to compel the production of documents and things relevant to an investigation by the Commission; and

  • the power to apply for special search warrants.

233. In addition to these special powers, financial institutions under section 51 of the CAR Act, may give information to the NSW Crime Commission if the financial institution has reasonable grounds for believing that information it has about a transaction with the institution; (a) might be relevant to an investigation of a serious criminal activity or the making of a confiscation order, or (b) might otherwise be of assistance in the enforcement of this Act or the regulations.

234. Under the FTR Act, AUSTRAC and specified partner agencies are authorized to obtain, from reporting parties additional information to properly undertake its functions. The FTR Act allows AUSTRAC and specified partner agencies to request further information from a cash dealer in relation to a Suspect Transaction Report previously submitted by that cash dealer. This ensures that further information relevant to a transaction, such as primary documents or additional information not originally included in the initial SUSTR, can be obtained. Section 16 (4) of the Financial Transaction Reports Act states:

  • “Where a cash dealer communicates information to the Director under subsection (1) or (1A), the cash dealer shall, if requested to do so by:

  • (d) the Director;

  • (e) a relevant authority; or

  • (f) an investigating officer who is carrying out an investigation arising from, or relating to the matters referred to in, the information contained in the report;

  • give such further information as is specified in the request to the extent to which the cash dealer has that information.”

235. Section 3E of the Taxation Administration Act 1953 provides the Commissioner of Taxation with a discretion to disclose taxation information to an authorized law enforcement agency officer (extensive list which includes the AFP, ACC, all State and Territory Police, and State Commissions) or to an authorized Royal Commission Officer. Such disclosure is conditional on the Commissioner being satisfied that the information is relevant to establishing whether a serious offence has been or is being committed or the making, or proposed or possible making, of a proceeds of crime order. This ability to access tax information is extremely critical as it allows law enforcement to conduct a complete financial analysis, including FTR information, of potential money laundering activities.

Obtaining witness statements

236. The AFP and other law enforcement agencies can obtain witness statements in any matter when a witness is prepared to provide a statement but do not have general power to compel a witness to answer questions or provide a statement. There are only a few situations where a police officer can compel a witness to answer questions, although agencies like the ACC and the NSW Crime Commission have special powers to summons people for examination. A witness statement is not admissible as evidence in criminal proceedings in Australia except in some limited situations where a witness has died or is not available to give evidence. In most jurisdictions there are procedures under which a witness statement can be tendered at a preliminary committal hearing, provided it was taken in accordance with formal requirements set out under State legislation. However, even then it is still normally necessary for the prosecution to call the witness to give evidence at the actual trial.

237. The AFP also can utilise the provisions of the Foreign Evidence Act 1994 and the Mutual Assistance in Criminal Matters Act 1987 when obtaining statements for other jurisdictions or attempting to use statements obtained in foreign countries within the Australian legal system.

Recommendation 30: Structure, funding, staff, technical and other resources of LE and prosecution agencies

238. Law enforcement agencies, prosecution agencies and other competent authorities across Australia such as the AFP, ACC, the CDPP, NSW Police and the NSW Crime Commission are well funded and structured organisations that are tasked with a broad range of AML/CFT investigation, intelligence and prosecution responsibilities. These authorities also appear to operate with sufficient operational independence and autonomy ensuring freedom from undue influence and interference.

The Australian Federal Police (AFP)

239. The AFP is the primary law enforcement agency for the investigation of ML and FT offences in Australia at the Commonwealth level. In order to achieve this, the AFP utilises the following legislation: Financial Transaction Reports Act 1988, the POCA 1987, the POCA 2002 (in effect as of January 2003); and the Commonwealth Criminal Code (revised Division 400—ML offences—in effect as of January 2003).

240. The AFP is a diverse law enforcement organization comprising of 4,800 staff. The agency’s 2004–05 operating budget of AUD 910.646m represents an increase of recent funding levels in recognition of the significant amount of international counter-terrorism and transnational crime investigations, regional assistance, law enforcement support and capacity building the agency has under taken in recent years. This has included the enhancement of its offshore counter-terrorism response and investigative capability as well as long-term commitments to the Regional Assistance Mission to Solomon Islands and the establishment of the Joint Centre for Law Enforcement Cooperation in Jakarta. The AFP also has an international network currently comprised of 63 sworn/unsworn AFP members located in 30 offices in 25 countries.

241. While the AFP has the primary law enforcement responsibility for investigating criminal offences against Commonwealth laws, the number of such offences identified or reported far exceeds its investigational capacity. The AFP must therefore ensure its limited resources are directed to the matters of highest priority and the decision to accept or reject matters for investigation is guided by a precept known as the Case Categorization and Prioritisation Model (CCPM). The CCPM is used to provide a transparent, objective and consistent basis for evaluating and comparing AFP operational activities. CCPM considers major elements including, incident type, importance of matter to client and AFP, and the resources required by the AFP to undertake the matter.

242. In addition, a dedicated Financial Crimes Unit has been established and Financial Investigative Teams (FIT) consisting of 44 members with primary responsibility for asset identification/restraint and forfeiture under to POCA 2002. The FIT provide mentoring and advice to other operational AFP officers both domestically and internationally during the course of their financial investigations. The FIT is also staffed by members, who monitor, assess and add value to information received from AUSTRAC regarding SUSTR, and other AUSTRAC related information. 2003-2004 marked the first full year of operation for the POCA 2002 which resulted in the AFP restraining AUD 77.3 million in assets, recovering AUD 4 million, and penalty value of orders of AUD 1.8 million. In 2002-2003 the AFP restrained AUD 21.8 million in assets, recovered AUD 13.5 million, with penalty value of orders of AUD 2.3 million. It should be noted that a direct correlation should not necessarily be drawn between restrained and recovered figures in any one period, as cases can typically extend over several financial years. The AFP advised that it expects the recovery figures to climb proportionate to the additional assets being restrained

243. In April 2003, the AFP established a Counter Terrorism Division to undertake intelligence-led investigations to prevent and disrupt terrorist acts. Eleven Joint Counter Terrorism Teams (JCTT), comprising 83 investigators from the AFP and State and Territory police, are now in place throughout Australia. The JCTT’s consist of a combination of investigators, investigational support officers and analysts. Several investigators attached to the JCTTs also have skills and experience in the conduct of financial investigations. JCTTs are supported by the FIT and significant intelligence assets. The resources available are flexible and determined to meet the operational demand and priorities. AFP JCTTs are conducting a number of investigations specifically into suspected terrorist financing in Australia. The AFP also works closely with overseas counterparts in the investigation of terrorist financing, in particular the United States Federal Bureau of Investigation on matters relating to terrorist financing structures in South East Asia.

244. Like other countries, Australia is concerned at the potential for high technology crime. To assist in addressing the anticipated increase in e-crime, the AFP operates the Australian High Tech Crime Centre (AHTCC). This Centre aims to provide a national coordinated approach to combating serious, complex and multi-jurisdictional high tech crimes, especially those beyond the capability of single jurisdictions; and to assist in improving the capacity of all jurisdictions to deal with high tech crime.

Australian Crime Commission (ACC)

245. The ACC commenced operations on 1 January 2003 with the primary goal to reduce the incidence and impact of serious and organized criminal activity by: improving criminal intelligence collection and analysis; setting clear National Criminal Intelligence Priorities; and conducting intelligence-led investigations into federally relevant criminal activity, encompassing investigative and intelligence taskforces approved by the ACC Board.

246. The ACC has six offices nationally, with its headquarters located in Canberra. As at June 30, 2004, the ACC employed 518 staff, including 128 seconded staff officers from various law enforcement and government agencies and 390 Australia Public Service staff. The total appropriation for the ACC in the 2004–05 Budget is AUD 68.024m. The ACC has allowed AUD 6.9m over four years to enhance their technical capacity.

247. The ACC Board is comprised of, the ACC CEO, the Commissioner of the AFP (Chair), Secretary of the Commonwealth Attorney-General’s Department, CEO of the Australian Customs Service (Customs), Chairperson of ASIC, Director-General of the Australian Security Intelligence Organisation (ASIO), and the Commissioners of each of the State and Territory Police Forces.

248. Where the ACC Board makes a Determination in writing that the ACC should conduct a ‘Special Investigation’ or ‘Special Intelligence Operation’ into ‘matters relating to federally relevant criminal activity’ the ACC can use coercive powers available to it under the ACC Act, subject (in effect) to supervision by an ACC Examiner. These powers enable the ACC to require witnesses to appear before an ACC Examiner and answer questions in relation to Special Investigations and Special Intelligence Operations. They also enable the ACC to require the production of documents and other things by witnesses, other people and companies in relation to Special Investigations and Special Intelligence Operations.

249. When determining whether an ACC investigation or intelligence operation should be designated as a Special Investigation or Special Intelligence Operation, the ACC Board is required to consider whether methods other than the use of ACC coercive powers have been effective in collecting criminal information and intelligence (in the case of intelligence operations) and whether ordinary police methods of investigation have been effective (in the case of investigations). Consequently these powers are designed to enable the ACC to strengthen criminal intelligence gathering and law enforcement efforts of other Commonwealth, State and Territory law enforcement and regulatory agencies against nationally significant organised crime.

250. Operation Midas (also referred to in paragraph 212) is one of the ACC’s Special Investigations and targets major tax fraud, money laundering and related offences including offences against the FTR Act. A key component of Midas is its Financial Intelligence and Assessment Team (FIAT). FIAT is Midas’s target identification and development arm and also plays an important role in identifying and disseminating financial intelligence to other Commonwealth, State and Territory law enforcement agencies. FIAT makes extensive use of AUSTRAC’s money laundering targeting software (known as ‘TargIT’) to identify suspect patterns of financial transactions contained within AUSTRAC’s extensive database of reported transactions.

Commonwealth Director of Public Prosecutions (CDPP)

251. The CDPP is adequately funded, resourced and is a professional and independent prosecution agency with offices strategically located throughout Australia. The CDPP has 490 employees of which 270 are prosecutors and a total appropriation in the 2004–2005 Budget of AUD 75.212m. The main cases prosecuted by the CDPP involve drug importation, offences against the Corporations Act, fraud on the Commonwealth (including tax fraud, medifraud and social security fraud), terrorism offences and people smuggling. CPPP also prosecutes money laundering; however, the vast majority of cases brought under the money laundering legislation have been in the context of violations of the FTR Act (see section 2.1). To date there have been no terrorist financing prosecutions.

252. Under the POCA 2002, the CDPP is responsible for both the conviction-based and civil-based regime. The CDPP received an increase in its budget of AUD 2.9m annually to manage the increased workload resulting from the civil-based regime.

State and Territory Authorities

253. State and Territories also have enforcement agencies, prosecutorial authorities and legislative provisions to deal with the investigation, seizure/restraint/forfeiture of proceeds and the prosecution of offenders for money laundering offences. For example, in New South Wales, money laundering offences are contained in the Confiscation of Proceeds of Crime Act 1989 (NSW) and money laundering investigations are conducted by the New South Wales Police and the New South Wales Crime Commission. The New South Wales Director of Public Prosecutions consisting of 400 prosecutors State wide is responsible for prosecutions and confiscations under the Act.

254. The NSW Police is Australia’s oldest and largest police organization. As of June 2004, NSW Police had 18,921 employees, of whom 15,009 were police officers and 3,912 administrative employees. NSW Police was funded in 2003–2004 at a net cost of AUD 1.85 billion. The State is divided into 80 Local Area Commands and the Commands in turn are over-sighted by five regional offices. An Assets Confiscation Unit of 5 members (currently 3) was established to administer the Criminal Assets Recovery Act 1990. This unit targets drug dealers and the proceeds of serious crime related activity along with money laundering investigations. Since the establishment of the financial investigation capacity in March 2003, the volume of work has significantly increased.

255. The New South Wales Crime Commission was established in January 1996 and has an annual budget of approximately AUD 11m. As at June 2004, the number of permanent staff employed by the Commission was 115 members consisting of analysts and financial investigators. The principal functions of the Commission are to investigate matters relating to relevant criminal activity (includes money laundering), assemble admissible evidence for submission to the Director of Public Prosecutions, review police enquiries, furnish reports relating to illegal drug trafficking and organized crime, disseminate investigative, technological and analytical expertise, and make applications for the restraint and confiscation of property under the Criminal Assets Recovery Act. To perform its function of investigating serious organized crime, the Commission has been given powers that are greater than normal policing powers. In 2003–04 the Commission obtained forfeiture orders having an approximate total value of AUD 10,015,578.

Integrity Standards

256. Australian Government law enforcement and prosecution agencies maintain high standards of professionalism and confidentiality. All federal government officials are required to meet standards of conduct set out in the Public Service Code of Conduct and are subject to the Crimes Act 1914, the Public Service Act 1999 and the Public Service Regulations 1999. Section 10 of the Public Service Act 1999 requires that Australian Government employees must not make improper use of inside information or the employee’s duties, status, power or authority, in order to gain, or seek to gain, a benefit or advantage for the employee or for any other person.

257. The professional standards of the various policing bodies throughout Australia are set out in their enabling legislation. These standards are robust, for example, at the Federal level, the Australian Federal Police are subject to provisions of the Australian Federal Police Act 1979, the Australian Federal Police (Discipline) Regulations 1979, the Australian Federal Police Regulations 1979, and the Complaints (Australian Federal Police) Act 1981.

258. As legal professionals, prosecutors in Australia are bound by their professional standards as legal practitioners. They are also subject to the various frameworks and guidelines established for federal, State and Territory offices of public prosecutions such as the Prosecution Policy for the Commonwealth.

Training

259. Many Australian government officers are trained on AML/CFT identification and analysis. Although most law enforcement agencies in Australia have adequate training, they tend to rely on the AFP for relevant ML and FT training. Prosecution agencies keep current through continuing legal education and joint training with the AFP. Agencies such as the AFP, ACC and AUSTRAC provide training and instruction both internally to their own agencies and also to other federal or State government bodies and international counterparts.

260. For example, the AFP conducts training through its Financial Investigations Training Program for AFP members, other Australian Government organisations and international law enforcement agencies. The workshop develops the skills of investigators in generating and collating financial data concerning the assets, liabilities, income, expenditure and suspicious financial transactions for a person, entity or group of interest. It assists in the detection of financing of criminal activity, receipt of the proceeds of crime, money laundering offences or the re-investment of funds from illicit sources for further criminal offences. The data can be used to identify, trace and ultimately confiscate the proceeds of crime (or property used to commit certain crimes) or to quantify in dollars the impact the crime has produced e.g. a serious, complex fraud.

261. The AFP also provides Advanced CT Investigations Training to members attached to the JCTTs. This program includes instruction on terrorist financing, relevant financial legislation and investigation methodologies. The AFP is also working closely with partners offshore to develop regional capacity in the conduct of investigations into the financing of terrorism. Initiatives include:

  • the establishment of the Jakarta Centre for Law Enforcement Cooperation (a capacity building facility for the investigation of terrorism and other transnational crime);

  • the delivery of targeted investigations training to key personnel identified with partner agencies; and

  • the development and funding of Transnational Crime Coordination Centres across South East Asia and the Pacific.

Additional Elements

262. The AFP, together with the CDPP, have provided some information sessions to members of the Administrative Appeals Tribunal whose members conduct examinations under the POCA 2002. Other informal information sessions have been provided to various courts in Australia. Prosecutors continue to provide guidance to the courts on a case-by-case basis through written submissions.

Recommendation 32: Statistics on ML/FT investigations, prosecutions, and convictions

263. At a Federal level competent authorities maintain annual statistics on money laundering investigations, prosecutions, and convictions. The AFP case management system PROMIS comprehensively records statistics in relation to the number of cases and the amounts of property frozen, seized and confiscated relating to ML, FT, criminal proceeds and the number of persons or entities and the amounts of property frozen pursuant to or under U.N. Resolutions relating to terrorist financing. According the 2003–2004 AFP Annual Report, the AFP opened 333 criminal investigations for money laundering and violations of the FTR Act in 2003–2004; 400 investigations were opened from 2002–2003. Although it is unclear which of these refer only to money laundering charges (Division 400 of the Criminal Code Act) rather than violations of the FTR Act, these cases resulted in 13 prosecutions being commenced in 2003–2004 for money laundering (Division 400) violations. Five of these were based on investigations of predicate narcotics offences, and eight were commenced strictly as money laundering investigations without a predicate offence. There were likely more investigations based on Division 400 violations, but since these had not yet resulted in prosecutions being initiated in 2003–2004, these statistics were not available. The above cases were generally investigated by the AFP’s general operation teams.

264. The CDPP maintains a database that records the details of prosecutions conducted by the CDPP. It also maintains a database which records the details of actions by the Criminal Assets Branches. (Details and analysis of money laundering prosecutions is included in section 2.1 of this report.)

265. At the State and Territory level, statistical data varies. Specific statistics on cases of money laundering or suspected money laundering are either not readily available or the offence of money laundering is grouped with offences such as possession of stolen goods and possession of money from the sale of illicit drugs.

2.6.2 Recommendations and Comments

266. Authorities in Australia have an adequate legal basis for the use of a wide range of investigative techniques including controlled deliveries, undercover operations, interceptions and other forms of surveillance that balance the need for law enforcement with the need to protect civil rights. Law enforcement are also able to compel production of bank account records, customer identification records, and other records maintained by financial institutions and other persons through lawful process, as necessary, to conduct investigations of ML, FT and predicate offences.

267. Although there have been some significant money laundering-related investigations in the past in Australia, in practice, investigators do not appear to take a proactive approach towards the investigation of money laundering. Focus has been mainly on asset seizures as it pertains to offence related property or proceeds of crime available as a result of predicate offence investigations such as drug trafficking. Prosecutions of the offence of ML have been rare. This has been attributed to the fact that in most cases ML is a subsidiary crime and prosecutorial authorities are able to get what they feel to be an appropriate sentence and confiscation of proceeds based on the predicate offence.

268. While Australian authorities are to be commended for their active approach to combating profit generating crime in general, the investigative and prosecutorial authorities need to focus more on investigating and prosecuting ML and not just predicate offences. Federal authorities advise that there has been an attitudinal change with this respect as recently an increasing number of ML cases under Division 400 of the Commonwealth Criminal Code have been forwarded to them by law enforcement. These cases are either before the courts or presently being assessed. Australian authorities are encouraged to continue to make this a priority. In order to focus more attention on money laundering, the ACC has proposed a national money laundering task force that would operate in every State and combine elements of the ACC, regional police, and the Australian Taxation Office (ATO).

269. Concrete results in terms of money laundering convictions are an important element to demonstrate the effectiveness of the various reporting and other measures imposed. 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, etc.) at the State/territory level. Collaboration between jurisdictions is required in order to help facilitate future evaluations of the anti-money laundering and combating the financing of terrorism regime of Australia. Australia should 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.

2.6.3 Compliance with Recommendation 27, 28, 30 & 32

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2.7 Cross Border Declaration or Disclosure (SR.IX and R.32)

2.7.1 Description and analysis

Special Recommendation IX
Declaration system for physical cross-border movements of currency

270. Section 15 of the FTR Act provides that an International Currency Transfer Report (ICTR) must be completed where currency in an amount exceeding the prescribed threshold of AUD10,000 in value (or its foreign currency equivalent) is transferred into or out of Australia. Currency is defined as “the coin and paper money of Australia or of a foreign country that is designated as legal tender and circulates as, and is customarily used and accepted as, a medium of exchange in the country of issue.16” This interpretation does not include the reporting of bearer negotiable instruments. Section 15 of the FTR Act covers, inter alia, the transfer of currency by a passenger on an aircraft or ship; the receipt of currency transferred to a person from outside Australia; the consignment of currency to another person for carriage to a place outside Australia; or the consignment of the currency through the post to a place outside Australia. Section 15 and Schedule 3 of the FTR Act prescribe the reportable details to be included in ICT reports, including the amount of currency, the identification of the bearer, and the time and place at which ICT reports are to be made.

271. The declaration system for passengers on an aircraft or ship required by the FTR Act has been in operation since 1990. The original threshold amount of AUD 5,000 (or its foreign currency equivalent) was increased to AUD 10,000 in May 1997. Passengers departing from, and arriving in, Australia must complete either an out-going or in-coming passenger card, which includes a question relating to the transfer of currency. If a passenger is carrying currency equal to or greater than AUD 10,000 is being transferred, an ICTR must be completed and handed to a customs officer on entry to or departing Australia. Reports of currency transfers in the form of completed ICTRs are batched by Customs and forwarded to AUSTRAC. At AUSTRAC the reports are optically scanned into a computerised database that can be accessed by authorised law enforcement personnel for AML/CFT purposes. This information is retained by AUSTRAC for a period of 8 years.

272. Where persons fail to declare or make false declarations with regard to the reporting obligations of section 15 of the FTR Act, offence provisions under sections 15(6) and 29 (3), (4) and (5) of the Act provide penalties including imprisonment for up to 5 years or the imposition of an appropriate fine instead of, or in addition to a term of imprisonment.

273. The provisions are comprehensive with respect to cash movements; however, there is no corresponding system for declaration/disclosure of bearer negotiable instruments. There are therefore no sanctions available for false declaration/disclosures relating to bearer negotiable instruments.

Authority to obtain further information and restrain currency or bearer negotiable instruments

274. Details of instances in which false declarations have been made or undeclared currency detected is retained in a variety of Customs and AFP databases for prosecution action or intelligence purposes. Customs performs intelligence-driven and random targeting of passengers to ensure that ICTRs have been lodged, and, where necessary, that the reported details are correct. In 2002, Customs and the AFP agreed that Customs officers who (in the course of investigating offences against Customs administered legislation) have obtained evidence of a breach of either section 29 or section 31 of the FTR Act should prepare a brief of evidence in relation to that matter for prosecution by the DPP. A breach of section 29 of the FTR Act refers to the offence of making a statement or presenting a false or misleading document that results in a report that is false or misleading.

275. AFP officers working at Customs points have the ability, under section 3W of the Crimes Act 1914, to conduct an arrest without warrant where they have a reasonable belief that a person has committed or is committing an offence, including dealing in the proceeds of crime or terrorist financing (sections 400.3 - 400.9, 102.6 and 103.1 of the Criminal Code Act 1995, respectively). Under section 3ZF of the Crimes Act 1914 law enforcement officer also has the ability to search and seize evidential material in relation to such offences.

276. Customs officers have powers provided by section 186 of the Customs Act 1901 to examine and search goods “subject to Customs control.” Customs officers also have specific powers under sections 33 and 33A of the FTR Act to question, search, seize and arrest without warrant persons who have failed to report or declare currency as required under section 15. In practice these powers are exercised solely by the AFP under a Memorandum of Understanding (MOU). Movement of those goods (including passengers’ baggage) is necessarily restricted while the examination is completed. However, there is not a corresponding ability to stop or restrain bearer negotiable instruments in relation to a false declaration or disclosure, since such a disclosure/declaration is not required under the law.

277. Customs uses intelligence-based risk assessments to select passengers for examination and has access to a range of passenger information that is used to assist in the identification of passengers who may present a risk to border security prior to their arrival in Australia. The pre-arrival analysis of information assists Customs to further assess potentially high-risk passengers on their arrival in Australia.

Domestic and international co-operation

278. Co-ordination between Australia’s Customs and Immigration authorities has been long established in Australia. Australian Customs officers perform a combined function, undertaking Customs checks, as well as checks on behalf of the Department of Immigration and Indigenous and Multicultural Affairs (DIMIA) at all ports of entry into Australia. Australian Federal Police (AFP) and the Australian Customs Service (Customs) officers also co-ordinate their efforts in monitoring cross border activity.

279. The Australian Customs Service has entered into formal agreements and memoranda of understanding with a number of overseas Customs agencies, including those of China, Japan, Indonesia, Thailand, New Zealand, Canada, France and Papua New Guinea. Australian Customs has also recently increased the number of its overseas posts to six. In addition to its previously existing posts in Tokyo, Brussels, Bangkok, and Washington, DC, Customs officers are now based in Jakarta and Beijing..

Sanctions for persons physically transporting currency or bearer negotiable instruments related to money laundering or terrorist financing

280. Division 400 of the Criminal Code Act 1995 provides a range of penalties that may be applied to persons who deal with (including possession of) proceeds of crime that includes money or other property derived from the commission of any indictable offence. These provisions also criminalise the possession of money or property when there is a risk that it could become the instrument of a crime. This would cover terrorist financing offences, to the extent that terrorist financing is criminalised under Australian law. Penalties include imprisonment for up to 25 years.

Confiscation relating to cross-border movement of currency or bearer negotiable instruments

281. The POCA 2002 provides powers of confiscation and forfeiture in relation to indictable offences, which includes offences under the FTR Act for breach of cross-border cash reporting requirements. Where the source of the currency is suspected of being related to terrorist financing, confiscation can be sought under section 19 of POCA.

Unusual cross-border movement of gold, precious metals or precious stones reported to Customs Service or other competent authorities of the originating country

282. Customs is able to share information relating to other non-financial goods. The sharing of information is regulated by Customs legislation such as section 16 of the Customs Administration Act 1985 which sets out the terms for the sharing of information with both domestic agencies and foreign countries - sections 16(3) - (3D) refer. Other mechanisms have been developed to monitor and regulate the movement of high value property. For example, “conflict diamonds” (primarily rough uncut diamonds used to finance the activities of rebel movements intended to undermine or overthrow legitimate governments) are subject to controls enacted under clause 4MA of the Customs (Prohibited Imports) Regulations 1956 and clause 9AA of the Customs (Prohibited Exports) Regulations 1958. These provisions implement the controls known as the Kimberley Process Certification Scheme (KPCS) for rough diamonds. As Customs is responsible for a breach of these regulations, relevant information may be passed to a range of overseas authorities. Where there is no ongoing agreement with the relevant country for sharing Customs information, Customs will initiate a one-off agreement to allow the relevant information to be passed on. While these legal provisions appear adequate, there has been no occasion or foreign request to apply these measures.

Additional Elements

283. Any information recorded by Customs is subject to strict control by virtue of section 16 of the Customs Administration Act 1985. The circumstances in which information gathered by Customs may be used or passed to other authorities is very limited, and carefully monitored.

2.7.2 Recommendations and Comments

284. Australia has a comprehensive system for reporting cross-border movements of currency above AUD 10,000 to AUSTRAC. These reports are stored in AUSTRAC’s database, and this information is available to domestic authorities and foreign FIUs. Nevertheless, the requirements do not extend to bearer negotiable instruments; the Australian legislation should be amended to include incoming and outgoing cross-border transportations of bearer negotiable instruments.

2.7.3 Compliance with Special Recommendation IX and Recommendation 32

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3. Preventive Measures - Financial Institutions

General

285. The anti-money laundering measures applicable to the Australian financial system are contained in the Financial Transactions Reports Act 1988 (FTR Act). Obligations under the FTR Act are primarily limited to “cash dealers”, a term covering particular reporting entities and activities identified as vulnerable to money laundering activity. The reporting scope of the FTR Act goes beyond a strict definition of the financial sector, and includes solicitors, gold and bullion sellers, gambling houses, casinos, and bookmakers, as reporting entities. The persons and entities referred to in the definition of “cash dealers” in section 3 of the FTR Act, include:

  • a financial institution;

  • a financial corporation;

  • an insurer or insurance intermediary;

  • a financial services licensee dealing in securities or derivatives;

  • a Registrar or deputy registrar of a registry;

  • a trustee or manager of a unit trust;

  • a person who carries on a business of issuing, selling or redeeming travellers cheques, money orders or similar instruments;

  • a person who is a bullion seller;

  • a person (other than a financial institution or real estate agent acting in the ordinary course of real estate business) who carries on a business of :

    • (i) collecting currency and holding currency collected on behalf of other persons;

    • (ii) exchanging one currency for another, or converting currency into prescribed commercial instruments, on behalf of other persons;

    • (iii) remitting or transferring currency or prescribed commercial instruments, or making electronic funds transfers, into or out of Australia on behalf of other persons or arranging for such remittance or transfer;

    • (iv) preparing payrolls on behalf of other persons in whole or in part from currency collected;

    • (v) delivering currency (including payrolls);

  • a person (other than a financial institution or real estate agent acting in the ordinary course of real estate business) who carries on a business in Australia of:

    • (i) on behalf of other persons, arranging for funds to be made available outside Australia to those persons or others;

    • (ii) on behalf of other persons outside Australia, making funds available, or arranging for funds to be made available, in Australia to those persons or others;

  • a person who carries on a business of operating a gambling house or casino;

  • a bookmaker including a totalisator agency board and any other person who operates a totalisator betting service.

286. While this covers a broad range of financial institutions in Australia, the FTR Act does not yet cover the full range of financial institutions as defined in the FATF Recommendations. For example, it does not cover all financial leasing companies, issuers of travellers’ cheques, and debit and credit card schemes. Securitisation firms, electronic payment system providers, and managed investment schemes would have obligations if they had a financial services licence covering the dealing in securities or derivatives. As a result, although in some cases they will be regulated by the prudential supervisor APRA and/or the financial market integrity and consumer protection regulator ASIC, certain institutions are not covered for AML/CFT purposes. In addition, particular obligations, such as reporting and record-keeping, might vary between types of cash dealers as described below

287. All cash dealers are required to report to AUSTRAC any suspect transactions (SUSTR), significant cash transactions (of AUD10,000 or more) (SCTR), all international funds transfer instructions into and out of Australia (IFTI); transfers of physical currency equal to or greater than AUD10,000 into or out of Australia (ICTR); to ensure that the identification procedures for accounts are undertaken, and to hold client identity, account and signatory information. The FTR Act customer identification provisions require reporting entities to verify the identity of their customers where they conduct certain financial transactions or where the customer is able to act on or operate an “account” facility. Certain cash dealers termed “financial institutions” under the FTR Act are required to retain records of client account information and financial transaction documents. Cash dealers are obliged to retain the account and signatory information obtained for a period of 7 years after the account has been closed. Under section 15A of the FTR Act, solicitors are required to report significant cash transactions (of AUD 10,000 or more) entered into by or on behalf of a solicitor, in the course of practicing as a solicitor. The solicitor is not obliged to retain documents or records pertaining to a significant cash transaction reports.

3.1 Risk of money laundering or terrorist financing

288. Australia’s legislative framework does not distinguish between financial institutions or specify AML/CFT obligations for financial institutions on the basis of risk. Nevertheless, the Australian government indicated that it has developed its existing AML/CFT system in light of international and local law enforcement experience with a view to developing requirements that do not place undue burdens on the business and customers. Obligations under the FTR Act are limited to “cash dealers”, a term covering particular entities and activities identified as vulnerable to money laundering activity. The identification and assessment of risk also informs regulatory enforcement policy. The ACC in particular is responsible for developing criminal intelligence and routinely researches professional activities and industry sectors that are vulnerable to criminal exploitation including for the purpose of money laundering. AUSTRAC’s compliance program uses risk management strategies to identify reporting entities most in need of improving their reporting performance. As part of this approach, AUSTRAC devotes resources to the identification and education of reporting entities and the subsequent monitoring of information reported to AUSTRAC.

3.2 Customer due diligence, including enhanced or reduced measures (R.5 to 8)

3.2.1 Description and Analysis

Recommendation 5
Anonymous and numbered accounts

289. The opening and operation of anonymous and false name “accounts” is specifically prohibited under sections 18 and 24 of the FTR Act. Importantly, the FTR Act specifically provides a criminal offence for these activities. Reporting entities are also required to obtain verification of individuals involved in cash transactions equal to AUD 10,000 or more. Therefore, anonymous or numbered accounts are not permitted in Australia.

Account opening

290. The current legislation imposes a complex and indirect obligation for the identification and verification of the identity of customers. The starting point is that identification and verification is only required for business relationships with financial institutions that lead to the opening of an “account” as defined in section 3 of the FTR Act. An “account” is defined in section 3 of the FTR Act as any facility or arrangement by which a cash dealer:

  • (a) accepts deposits of currency;

  • (b) allows withdrawals of currency;

  • (c) pays cheques or payment orders drawn on the cash dealer by, or collects cheques or payment orders on behalf of, a person other than the cash dealer;

  • and includes any facility or arrangement for a safe deposit box or for any other form of safe deposit, but does not include an arrangement for a loan that sets out the amounts and times of advances and repayments, being amounts and times from which the borrower and lender may not depart during the term of the loan.

291. The obligation to identify the customer (when an account has been opened) and to verify the customer’s identity then requires an interlinking of a significant number of provisions in the FTR Act and Regulations.

  • section 18 (timing of identification and consequences of non-identification);

  • section 20 (keeping account and signatory information);

  • section 3 (definitions of account and signatory information);

  • section 20A (definition of identification record);

  • section 21 (definition of identification reference);

  • regulations 3 to 10B (acceptable verification procedures).

292. The starting point is that under section 18(1)(a)(iii) and (iv) of the FTR Act the CDD requirements for opening accounts apply only when the account exceeds the monetary thresholds outlined in the section; i.e., the credit balance exceeds AUD 1,000 or the aggregate of amounts credited exceeds AUD 2,000 within a 30-day period. Once the threshold is reached, the cash dealer must identify and verify the identity of the customer (normally the signatory) and keep records of that process. In terms of the legislation it is therefore possible for no customer identification to occur at account opening stage, and for an account to operate indefinitely until such time as the thresholds are triggered.

293. This provision, while intended to prevent the financial exclusion of poorer sections of the community, is not in line with the standards and in any event is impractical. For reasons of cost and efficiency most cash dealers use the 100-point check (described below) to identify customers at the establishment of the business relationship, that is, when the “account” is opened, rather than waiting for the threshold to be met. The application of the low threshold provisions of section 18(1)(a) of the FTR Act appears to be both an unnecessary regulatory burden as well as creating potential loopholes for criminals and terrorists.

294. When the threshold is reached there is no positive direct obligation requiring cash dealers to identify customers. However, s.18 states that the account is blocked if the necessary signatory and account information has not been obtained by the end of the day on which the threshold is reached. It is then an offence (both for the account holder and the cash dealer) to allow a withdrawal from the account (though not a deposit). The penalty is up to 2 years imprisonment. The cash dealer must also have made reasonable efforts to obtain the account and signatory information before the threshold is reached or it will commit an offence. Once the information is obtained then section 20 requires the maintenance of the information in a way that it can be audited.

295. There are therefore significant limitations on the CDD requirements when establishing business relationships. Certain low-value accounts can operate without any identification requirements. As indicated above, the FTR Act does not yet cover the full range of financial institutions as defined in the FATF Recommendations. Obligations for cash dealers to identify and verify customers (whether individuals or incorporated bodies) are limited to opening or operating “account” facilities with the cash dealers, as defined by section 3 of the FTR Act, and therefore does not cover the full range of situations where “business relationships” are established. “Account” is defined as “any facility or arrangement by which a cash dealer does any of the following: (a) accepts deposits of currency; (b) allows withdrawals of currency; (c) pays cheques or payment orders drawn on the cash dealer by, or other than the cash dealer; (c) or collects cheques or payment orders on behalf of, a person; and includes any facility or arrangement for a safety deposit box or for any other form of safe deposit, but does not include an arrangement for a loan that sets out the amounts and times of advances and repayments, being amounts and times from which the borrower and lender may not depart during the term of the loan.”

296. Thus, CDD obligations would not apply in situations where a business relationship is established but no “account” created, such as for insurance contracts, financial institutions (such as internet-based or e-money institutions) where activity is not based on acceptance or provision of “currency” but rather other funds, and cases where relationships are limited to conducted wire transfers or other non-currency based transactions. Certain loans are also not covered by the account definition.

Occasional transactions

297. Where a “cash dealer” is party to a transaction involving a cash component of AUD 10,000 or more, section 7 and Schedule 1, Part A para.4(a) – (d) of the FTR Act require reports of such transactions to include identification details of each person conducting the transaction. Para 4(f) of the FTR Act requires details of the method used to verify the identity of the customer to be recorded and reported. Schedule 1, Part A5 (a) – (c) of the FTR Act requires the identification of any person on whose behalf the transaction was conducted (i.e. beneficiary), their address and their occupation or principal business activity. However, these requirements do not cover non-cash transactions over the threshold. Moreover it is not clear what the prescribed verification procedures are, though it is assumed they are the same as for account opening. There are thus identification requirements for single or occasional cash transactions, including where the transaction is carried out in a single operation or in several operations that appear to be linked, above the applicable designated threshold (AUD 10,000) as required in Recommendation 5, but not for other occasional transactions of USD/EUR 15,000 or more.

298. Where reporting entities conduct international funds transfer instructions (IFTIs) on behalf of customers, regardless of threshold, they are required to report these transactions to AUSTRAC. Reporting entities are required to include originator information with reports made under section 17B of the FTR Act and Regulation 11AA. Required information includes: senders name, recipient’s name, date, amount, account number, beneficiary customer’s name, bank and account number. For IFTIs the FTR Act requires identification but no verification of the customer, although the Australian authorities indicated that financial institutions voluntarily verify the identity of customers as a matter of sound commercial practice. Furthermore, there are no requirements for the identification and verification of customers making use of domestic wire transfers within Australia.

299. In terms of conducting CDD when doubts arise as to the veracity or adequacy of previously obtained customer identification data or other re-identification/verification requirements, section 18(2) of the FTR Act provides that where a “cash dealer” has not identified the customer, then it is required to block the operation of any such “account” until such time as it has obtained the necessary customer and account information. However, there is no requirement under the FTR Act that existing clients’ information be re-examined, in any circumstance. To the contrary, the Regulation 4(1)(i) of the FTR Act provides that existing customers of more than three years are deemed to have been adequately identified and that identity adequately verified. This grandfather provision should be repealed, and institutions required to re-examine existing clients taking into account risk and materiality as laid out in the Recommendation 5.

300. There is no specific obligation under the FTR Act requiring due diligence when there is a suspicion of money laundering or terrorist financing.

Method of verification

301. The obligation to verify identity is linked to the indirect requirement in s.18 for cash dealers to have account and signatory information. These require details such as the account number, names of the account holder, name of all signatories and an identification record for all signatories. Identification record is defined in s.20A to mean either:

  • (a) an identification reference (all cash dealers may use this method) - an identification reference is a written reference from an acceptable referee under s.21 (see below); or

  • (b) carrying out a prescribed verification procedure (only identifying cash dealers can use this method). An identifying cash dealer is a cash dealer that has been declared to be such by the Director of AUSTRAC upon an undertaking to comply with various requirements of the FTR Act and Regulations. Cash dealers can choose if they want to apply to become “identifying cash dealers”. Regulations 3–10 of the FTR Regulations set out prescribed verification procedures.

  • (c) or a procedure approved by the Director of AUSTRAC.

302. The net effect of these provisions is that Cash dealers need to obtain account and signatory information either directly through a 100 Point check verification (Regulation 4 of the FTR Regulations), which is the primary verification method applied in Australia, or through an identification reference from a third party referee, under section 21 of the FTR Act17. For the purposes of opening or operating an “account”, cash dealers are required under sections 20A, 21, and 21A of the FTR Act and Regulations 3-10B to verify the identity of account holders and all signatories to the account. This can be done by any of three methods below:

  • a) The 100 point check method: The 100 point check is the method most used by financial institutions to verify the identity of a signatory to an account. The 100-point check form is completed by the account provider, being the “cash dealer”. Signatories provide the account provider with 100 points of identification, which can be attained by a combination of original primary,18 and/or secondary19 identification documents20. Different documents are allocated different points values. It also incorporates a reference from an acceptable referee. The allocation of points and acceptable documents may vary between account providers, as the FTR Act sets only the minimum standard.

  • b) The Acceptable Referee method: With this method a signatory must find an ‘acceptable referee’ who has personally known them for at least 12 months. The referee confirms the identity of the signatory by viewing the signatory’s primary and/or secondary identification, witnessing the signatory sign the s. 21 form and completing details on the form including how long they have known the signatory. There are 36 categories of Acceptable Referees. All categories are published in the Australian Government Gazette under the authority of the Minister for Justice and Customs. The list currently includes: employees of financial institutions and insurance businesses, notaries, accountants, federal police officers, licensed doctors, nurses, dentists, and pharmacists; managers of a post office, a teacher or principal at a primary or secondary school, and elders in the Aboriginal community.

  • c) Any other alternative method: The Director of AUSTRAC under section 20A of FTR Act may approve an alternative method of signatory verification for individual cash dealers. 75 alternative methods have been approved, 4 have been rejected and 9 have been revoked.

303. Regulation 4 of the FTR Regulations sets out the points allocated for each of the various categories of documents or independent checks which may be used to verify the identity of a “signatory or party to a bullion transaction” (presumably this is intended to refer to signatories to all accounts and to any party to a bullion transaction), and which need to total 100 points of identification. The documents listed include a primary class of Government issued documents including birth certificates, passports, drivers’ licences, but also a range of other documents or records that may be used to verify the customer’s details. A reporting entity or cash dealer, who has failed to obtain both account and signatory information, or who has failed to adequately verify the identity of the customer, must block that account. Failure to comply with the customer identification obligations is subject to criminal penalty provisions under sections 18(3), (4), (4A) and (6), 24(6), 29 (3) and (4) of the FTR Act.

304. These methods for verifying the customer’s identification are not adequate. The “acceptable referee” method is not an adequate method to verify the identity of a customer, and should be substantially tightened or even removed except for exceptional cases where reliance on other identification methods is not possible. The emphasis needs to be placed on obtaining reliable identification documentation or data, with all financial institutions being subject to this obligation. It is anomalous that only cash dealers that have specially applied to AUSTRAC to become ‘identifying cash dealers are allowed to rely on the 100 Point check method for customer verification. This effectively makes the Acceptable Referee Method the default procedure for customer verification available to all cash dealers under the FTR Act. While the requirement to have more than one document or method to check identity is generally sound, the 100-point check system of verification involves a number of documents of questionable reliability and needs to be strengthened by only placing reliance on identification documents or methods of proven acceptability. It also allows reliance on identification references, thus building in an inherent weakness.

Identify and verify the legal persons or legal arrangements

305. Under the FTR Act, the normal account and signatory information must be obtained for accounts held in the name of legal persons and arrangements. The only additional requirements under the FTR Act are to produce the certificate of incorporation (for a body corporate), a certificate of registration (for an account held in a business name), and for trusts that the holder of the account held in trust must state that fact, and provide the prescribed details of the trustees and beneficiaries of the trust. Signatories are also then identified.

306. There is also a derogation for cash dealers from the obligation to identify and verify the signatories to accounts of incorporated bodies under FTR Regulation 5. The signatory to an “account” held by a public authority or incorporated body may be considered identified and authorised to act on that “account” if the public authority or incorporated body’s verifying officer provides the financial institution certification to the effect that the verifying officer has verified the signatory’s identity and the signatory has been authorised to act on that “account”. FTR Regulation 5 itself requires the “verifying officer” be identified and verified. The legal status of a customer may be clarified as part of the normal customer identification. “Incorporated body” does not include all legal person or companies. In particular, proprietary companies are only to be regarded as “incorporated bodies” if, for 2 years, they have held an account or have traded for continuously.

307. The FTR Act’s “account information” definition (section 3c (iii – v)) requires limited information to be provided to the cash dealer by the holder of an account on opening an account for and by a body corporate, accounts held in a business name, or those held in trust. It does not include requirements to identify the directors or shareholders or provisions regulating the power to bind the entity. There do not seem to be any special verification requirements regarding accounts held in trust (though certain prescribed details must be obtained – see below). Moreover, FTR Regulation 5 allows a wide range of incorporated bodies to do their own identification and verification of signatories once the nominated verifying person has been checked by the cash dealer. When taken together, these obligations are very limited, and do not meet the requirements under the FATF Recommendations.

Identification and verification of beneficial owners

308. The FTR Act does not have comprehensive requirements to identify and verify beneficial owners. The FTR Act requirements for beneficiary verification are limited to (i) where that beneficiary is also the signatory to an account and (ii) the customer is a beneficiary of an account related to a trust (FTR Regulation 11A: account information in relation to trust accounts). The FTR Act’s definition of “account information” in section 3 and Regulation 11A requires prescribed details to include information on the name and address of the trustee, the name of beneficiaries under the trust and classes of beneficiaries under the trust should they be identified by reference to class membership. Under section 7 of the FTR Act details of the parties to a significant cash transaction must be verified. This includes beneficial owners who will also need to be identified where they are a beneficial party to a large cash transaction under Schedule 1 Part A 5 (a) – (c) of the FTR Act. Schedule 1, Part A 5 (a) – (c) of the FTR Act requires the identification of any person on whose behalf the transaction was conducted (i.e. beneficiary): (a) the name of the person; (b) the address of the person; (c) the occupation of the person (or, where appropriate, the business or principal activity of the person). The beneficial ownership provisions are therefore inadequate with regard to verification requirements. They are limited in scope to merely identifying trust accounts, accounts in a business name or in name of a body corporate, and where the beneficiary is also the signatory to an account.

309. There is no obligation under the FTR Act placing a general duty on the cash dealer to identify and verify the details of the beneficial owner, in respect of all customers. Nor is there an obligation for 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.

310. There are no requirements placed on cash dealers to identify and verify the beneficial ownership of companies or other legal persons. However, some information may be publicly accessible. ASIC maintains public registers in respect of all companies (Corporations Act section 118), including information on the company’s share structure and members. In addition, every company (whether private or public) is required to maintain a share register in which the names and addresses of the holders of its shares are recorded (Corporations Act section 168). This must be kept at a prescribed location (section 172) and made available for inspection by anyone (section 173).

311. In addition, under Part 6C.1 of the Corporations Act 2001 a substantial shareholder (in summary, a shareholder holding 5 per cent or more of voting power) of a listed public company or responsible entity of a listed managed investment scheme must disclose this interest to the company and the relevant market operator (for example, the ASX) within two business days after acquiring the interest. If a takeover bid for the company or scheme is on foot, this information must be provided by 9.30am the next trading day. This concept of ‘interest’ extends to associates who have the power to (or control of the power to) exercise the right to vote attached to the interest or dispose of the interest. Upon reaching the 5 per cent threshold, there is a continuing obligation to disclose any variations of 1 per cent or more within the same timeframe. If these provisions are contravened, the Court may make any order (including a remedial order) that it considers appropriate upon the application of ASIC, the company concerned, a member (or former member) of the company or scheme, the person from whom the interest was acquired or any person whose interests are affected by the contravention

Information on the purpose and intended nature of the business relationship

312. There are no obligations under the FTR Act that financial institutions be required to obtain information on the purpose and intended nature of the business relationship. However, there are some obligations for financial advisors to understand the nature of the client’s affairs under consumer protection legislation. In the process of establishing a business relationship, financial service providers will assess the needs and intentions of a customer, so as to better provide the appropriate product or service. The objective of this consumer protection regulation is improving service delivery not verifying the identity of the financial services customer. For example, a license holder providing ‘personal advice’ to a retail client is required to have a reasonable basis for the advice provided, which involves making and documenting reasonable inquiries about the relevant personal circumstances of the retail client (Corporations Act 2001 section 945A and section 946A). Licence holders must also retain records, such as those showing particulars of all acquisitions and disposals of financial products made by the licensee, the charges and credits arising from them, and the names of the person acquiring or disposing of the products.

Ongoing due diligence

313. There are no obligations under the FTR Act to conduct ongoing due diligence on the business relationship with the customer, although the suspicious transaction reporting obligation is predicated on a cash dealer’s natural familiarity with the business activity of their customers. AUSTRAC suspicious transaction reporting guidelines to reporting entities (AUSTRAC Industry Guideline 1: paragraphs 39-40 notes that the role of “KYC” coincides with broader institutional prudential requirements. Guideline 1 further encourages (but does not compel) reporting entities to exercise “KYC” in order to be “aware of their customer’s business activities” so as to better identify suspicious activity. AUSTRAC Guidelines, while helpful, do not create legally enforceable obligations. The Australian regulatory authorities take the view that a reporting entity’s ongoing knowledge of their customers serves its commercial risk and fraud mitigation measures as well as its overall risk management program. It constitutes a commercial asset in terms of the reporting entity’s ability to better service their clientele as well as a platform from which to better perform the ongoing scrutiny necessary to identify ID and credit fraud.

Keep documents, data, and information collected under the CDD process current

314. There are inadequate obligations under the FTR Act for financial Institutions to keep document, data, and information collected under the CDD process current or up to date. However, the development of customer profiles and broader client relationship management require reporting entities to maintain up to date account, address and income source details for routine billing, account statements or marketing correspondence. As the vast majority of banking interactions occur remotely, reporting entities also frequently use customer contact through internet and telephone banking as an opportunity to confirm or update relevant information.

Risk

315. There is no reference in Australian law or regulations permitting financial institutions to determine the extent of the CDD measures on a risk sensitive basis under the FTR Act. In general terms, customer verification should at a minimum meet the identification requirements set out by the FTR Act. However, AUSTRAC under Industry Guideline 1 advises that such procedures be conducted in terms of a cash dealer’s broader credit fraud measures, customer acceptance policies and broader prudential and risk management frameworks.

316. The Australian system sets out a customer identification framework that applies to all customers and serves as the basis for broader risk management frameworks. The provisions of the FTR Act provide the basic required standard, with additional risk being an issue that the reporting entity may voluntarily address in terms of higher-level risk, fraud prevention and client acceptance policies. For example, some reporting entities’ customer acceptance policies require that government issued photographic ID is sighted, in order to validate a customer’s identification data and meet the requirements of their financial group’s broader risk management framework. While this effectively means that customers may be required to meet a higher standard than that required by Regulation 4 of the FTR Regulations 1990, it remains a voluntary business practice.

Enhanced and reduced CDD measures

317. There are no obligations under the FTR Act for cash dealers to perform enhanced due diligence for higher risk categories of customer, business relationship or transaction, such as for non-resident customers, private banking, legal persons or arrangements, or companies that have nominee shareholders or shares in bearer form. As a result, where reporting entities assess that business activity or a customer profile may pose a higher than normal risk they, voluntarily but not legally require a higher standard of initial customer verification. Despite this, the lack of an obligation is a regulatory weakness and needs to be remedied. AUSTRAC Industry Guidelines and Information Circulars (which do not contain legally enforceable obligations) advise financial institutions of risks and encourage greater diligence with regard to correspondent banking, cheques and monetary instruments, trade with NCCT listed Territories, entities sanctioned under Reserve Bank powers and other countries of interest. AUSTRAC regularly advises industry of emerging trends, transaction activity, and other typologies that may merit additional due diligence.

318. Reduced CDD measures for low risk customers are not widely applied as the Australian system starts off a low base. The FTR Act sets out minimum customer verification requirements. AUSTRAC advises industry that the need to adequately identify customers should be viewed in light of a reporting entity’s broader risk management such as prudential, credit risk or ID fraud policies. Furthermore, the FTR Act provides that for low risk customers, such as low net volume customers, identification need not be performed unless such accounts trigger certain low value thresholds set out in section 18 of the FTR Act.

319. Reduced CDD measures for customers resident in another country are not applied under the FTR Act. Where reporting entities may need to identify customers resident in another country, identification procedures are provided by FTR Regulation 8 which allow reporting entities to delegate FTR Act styled identification procedures to an overseas associate or correspondent bank who have nominated an authorised verifying officer to complete the customer identification process. AUSTRAC provides advice to reporting entities regarding dealings with jurisdictions named on the FATF NCCT list. In keeping with their suspicious transaction obligations under section 16 FTR Act, reporting entities are advised to exercise extra scrutiny in monitoring transactions and business dealings involving NCCTs and report any unusual activity. (AUSTRAC Industry Guideline 1, para. 35-36 “Transactions with certain countries” and AUSTRAC Information Circular 39).

320. The legislation does not mention the possibility of simplified CCD measures whenever there is a suspicion of money laundering or terrorist financing or specific higher risk scenarios. The FTR Act provides a basic framework for the identification of customers. AUSTRAC’s advice and guidance to industry emphasises that the legislative framework is a minimal requirement and that the commercial risk and fraud mitigation elements of an institution’s risk management framework should inform the broader operation of its “Know-Your-Client” and customer acceptance policies and procedures. Should cash dealers have concerns regarding the potential risks presented by a customer or class of customers, they are encouraged to exercise a level of CDD consistent with their broader risk management framework, “KYC” standards and client acceptance policies. Notwithstanding AUSTRAC’s approach, the concern remains that there is no obligation or requirement under the FTR Act or regulations requiring cash dealers exercise a level of enhanced CDD consistent with the perceived risk of the customer.

Timing of verification

321. There is no general requirement for cash dealers to verify the identity of the customer or beneficial owner before or during the course of establishing a business relationship. Rather, as indicated above, the FTR Act allows cash dealers to operate accounts without identifying the clients until the thresholds of AUD1,000 on a day or an aggregate of AUD2,000 within a month are met.

322. For accounts exceeding this threshold, if a reporting entity is unable to satisfactorily obtain account and signatory information, then it is obliged to meet the account blocking provisions under section 18(2) of the FTR Act. While there is an obligation to block the account, there is no obligation to consider filing a suspicious transaction report in these circumstances, though in practice financial institutions will often do so. There is no obligation to terminate the relationship. Sections 18(8) and 18(8A) provide that where an account is blocked for 12 months after the day the account is opened, the reporting entity must provide the Director of AUSTRAC with written notice within 14 days after the end of that period. A reporting entity who fails to provide the Director with written notice is liable to a fine.

323. Outside of the threshold scenario above, Australian’s legislation does not contemplate permitting financial institutions to complete the verification of the identity of the customer and beneficial owner following the establishment of the business relationship (i.e., for non-face to face businesses or certain securities or life insurance transactions.)

324. As indicated above, there are no requirements for Australian financial institutions to apply CDD requirements to existing customers on the basis of materiality and risk or conduct due diligence on such existing relationships at appropriate times. Where a cash dealer is providing services to a previously unidentified existing customer, it may choose a number of options to rectify the lack of identification. The standard identification processes available under the Act and the Regulations may be used to verify the existing customer. If the existing customer is of sufficiently long standing then under the FTR Regulation 4(1)(i), customers of not less than 36 months may be taken by a financial institution to be identified for the purposes of the FTR Act.

Recommendation 6

325. There are no specific legislative or other enforceable obligations regarding the identification and verification of politically exposed persons (PEPs) under the FTR Act or other regulations. However, the assessment team was informed that those cash dealers currently operating within the international market or with relationships with overseas counterparties have developed AML programs which include the routine list matching against commercially available PEP listings, risk assessment tools and authorisation requirements for higher risk transaction activity or business relationships.

Recommendation 7

326. There are no legislative or other enforceable obligations for financial institutions that pertain to correspondent banking. Payable-through-accounts are not a facility provided by Australian banks. However where foreign banks allow their accounts to be used as a payable through account by customers for an Australian related transaction, AUSTRAC Industry Guideline 1, Addendum 4 sets out the need for vigilance in monitoring and reporting of suspicious activity. However, Industry Guidelines do not create enforceable obligations.

Recommendation 8

327. There are no requirements for financial institutions to have policies in place or take such measures as needed to prevent the misuse of technological developments in ML/FT, or specific and effective CDD procedures that apply to non-face to face customers. As the Australian financial services industry is highly automated and technically advanced in terms of banking practice and customer management, this sector places an onus on being able to identify and mitigate emerging technological vulnerabilities. Such threats are often addressed through a combination of technical measures, customer education and coordination and liaison with relevant law enforcement and competent authorities. This co-operative method helps to ensure higher industry standards.

3.2.2 Recommendations and Comments

328. Generally the CDD/KYC regime under the FTR Act is inadequate and fails to comply with the revised FATF requirements, and substantial amendments are required. The identification and verification methodology under the FTR Act needs to be substantially improved and strengthened. 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, including financial leasing entities, friendly societies, electronic payment systems and other financial institutions as described in paragraph 286. Also, while there are due diligence requirements when establishing business relations, the effectiveness of the FTR Act provisions is limited by the definitions of “account” and “cash dealer”; it is recommended that the scope of “account” be extended to capture a wider range of products, services or business activity under the CDD account opening measures and other instances of establishing business relationships.

329. 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. In the cases where adequate CDD data is not obtained, financial institutions should be required to consider filing a suspicious transaction report.

330. The Regulation 4(1)(i) of the FTR Act provides that existing customers of more than three years are deemed to have been adequately identified and that identity adequately verified. This grandfather provision should be repealed, and institutions required to re-examine existing clients taking into account risk and materiality as laid out in the Recommendation 5.

331. The acceptable referee method is not an adequate method to verify the identity of a customer and should be substantially tightened or even removed except for exceptional cases where reliance on other identification methods is not possible. The 100-point check involves a number of documents of questionable reliability and needs to be strengthened by only placing reliance on identification documents or methods of proven acceptability, which should exclude identification references, for example. Australia is currently investigating various issues relating to identification document security and integrity and verification of identification documents. This work will have implications for documents relevant to identification of customers.

332. The provision 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 and to conduct due diligence on such existing relationships at appropriate times.

333. For occasional customers, 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. Also, Australian legislation should be amended to require identification of those 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.

334. Australia needs to amend its legislation to create a general obligation to identify and verify the details of the beneficial owner, in respect of all customers; and 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. Financial institutions should also be required to gather information on the directors and the provisions regulating the power to bind the entity. The use of third parties to complete verification of signatories as currently contained in Regulation 5 should be tightened. Australia also needs to require financial institutions to: 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.

335. Australia should also adopt requirements for financial institutions to perform enhanced due diligence for higher risk categories of customers, business relationships, and transactions such as nonresident customers, private banking, legal persons or arrangements, and companies that have nominee shareholders or shares in bearer forms.

336. There are no specific AML legislative obligations regarding the identification and verification of PEPs under the FTR Act. There are no specific AML requirements for PEPs issued in respect of either international or domestic PEPs under FTR Act or any other law. Australia should adopt requirements in these areas including requiring financial institutions to: put in place appropriate risk management systems to determine whether a potential customer, a customer or the beneficial owner is a politically exposed person; obtain senior management approval for establishing business relationships with a PEP; to take reasonable measures to establish the source of wealth and the source of funds of customers and beneficial owners identified as PEPS.

337. Compliance with Recommendation 7 presently depends upon voluntary individual business practices of cash dealers. There is a need to legislate specifically for correspondent relationship obligations. For example, financial institutions should be required to: gather sufficient information about a respondent institution to understand fully the nature of the respondent’s business, assess the respondent institution’s AML/CFT controls, and ascertain that they are adequate and effective, obtain approval from senior management before establishing new correspondent relationships, and document the respective AML/CFT responsibilities of each institution. There is also a need for AUSTRAC to provide clarity on minimum expectations for correspondent banking relationships through specific industry guidelines.

338. Australian financial institutions should be required 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 schemes. Australia is non-compliant on the issue of applying adequate and effective measures for non-face to face customers. There are no identifiable or specific measures for managing the risks inherent in the referee verification method. In this context, the Acceptable Referee method of customer identification and verification is inadequate and should be reviewed. The FTR Act should be amended to provide specific, clear and effective CDD procedures that apply to non-face to face customers. Substantial legislative amendments applicable to non-face to face customers are therefore required under the FTR Act.

3.2.3 Compliance with Recommendations 5 to 8

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3.3 Third parties and introduced business (R.9)

3.3.1 Description and Analysis

Recommendation 9

339. Section 20A of the FTR Act allows cash dealers to rely on identification conducted by a third party called an acceptable referee. Under section 21 of the FTR Act, “acceptable referees” perform third party customer identifications by providing an identification reference, which verifies the customer’s identity, to cash dealers. Section 21 of the FTR Act sets out the specific requirements for this process and which includes under subsection (1) the acceptable referee providing a written identification reference for a signatory to an account, signed by the referee and setting out the name to be used by the signatory in relation to the account and stating that:

  • (a) the referee has known the signatory for the period specified in the reference;

  • (b) during the whole of that period, or for so much of that period as is specified in the reference, the signatory has been commonly known by that name; and

  • (c) the referee has examined:

    • (i) a specified primary identification document for the signatory in that name;

    • (ii) a specified secondary identification document for the signatory in that name and a specified primary identification document for the signatory in a former name of the person; or

    • (iii) only a specified secondary identification document for the signatory in that name.

340. Further relevant identification data is included within the information required of an identification reference as prescribed by section 21(2) of the FTR Act, such as:

  • (a) the name, address and occupation of the referee and the basis on which the referee claims to be an acceptable referee;

  • (b) if the reference states that the referee examined a primary identification document for the person in a name different from the name to be used by the person in relation to the account—the explanation that the person gave the referee for the difference in names;

  • (c) if the reference states that the referee examined only a secondary identification document for the person—the explanation that the person gave the referee for the failure to produce a primary identification document; and

  • (d) the required details of the identification document or documents examined by the referee.

341. By Ministerial declaration the acceptable referee must have an existing relationship with the customer of at least 12 months and must be from a gazetted list of acceptable referees comprising professions or individuals that may provide an identification reference. There are currently 36 categories of acceptable referee, including lawyers, police officers, notaries, and Justices of the Peace. The list also includes licensed doctors, dentists, pharmacists, and certain teachers.

342. The system allows a cash dealer’s customer to find an acceptable referee to verify his/her identity, and then forward an identity reference to the reporting entity. Financial institutions are not required to satisfy themselves that the third party—i.e., the referee—is adequately regulated and supervised and has adequate CDD measures in place. However, while a cash dealer is permitted to use parties other than itself or its agents to perform customer verifications, the ultimate responsibility to ensure compliance with the requirements of the FTR Act lies with the cash dealer offering the relevant product or service.

343. Under the FTR Act, the use of foreign-based third party verifiers is limited to financial institutions with which the reporting entity conducts business. This will often be a foreign-based subsidiary of the reporting entity or a financial institution with which the reporting entity holds a correspondent banking relationship. This does not ensure that procedures are undertaken to a level compliant with FATF standards, although in practice they may also be.

344. Both regulated and unregulated professions perform third party verifications. Often a third party verifier will be another cash dealer acting as an agent on behalf of, or introducing business to another cash dealer. These entities are often regulated and covered under both financial services regulation and AML regulation. The FTR Act regime acknowledges that financial service providers often outsource aspects of their operations or functions to third party providers. The outsourced parties may or may not be Australian Financial Service Licence (AFSL) holders (such as securities brokers/dealers, fund managers, insurance brokers, etc.) in their own right; in the latter case, the outsourced party is essentially treated as an authorised representative of the AFSL holder where it is providing financial services.

3.3.2 Recommendations and Comments

345. The third party verification of customer information is inadequate. While financial institutions relying on third parties are ultimately responsible for compliance with the FTR Act, the other provisions of Recommendation 9 are not required. For example, 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. The current list of acceptable referees is overly broad and includes many entities that are unregulated (for AML/CFT or any other purpose). Accordingly, 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. Australia should adopt its legislation accordingly to make these requirements.

3.3.3 Compliance with Recommendation 9

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3.4 Financial institution secrecy or confidentiality (R.4)

3.4.1 Description and Analysis

Recommendation 4

346. The FTR Act imposes an obligation on reporting entities to report prescribed transactions i.e. large cash transactions, international wire transfers, suspect transactions and international currency transfers. The Privacy Act 1988 provides an exemption to non-disclosure of personal information where the disclosure is “required or authorised by law”. Therefore, the Privacy Act does not prohibit disclosure of personal information included in FTR reports to AUSTRAC.

347. While there does exist legislation designed to protect a client’s personal information, the Privacy Act does not hinder the operation of the AML legislation. There is also the normal banker-client confidentiality under banking contracts, but this was not raised as a significant problem when complying with AML/CFT requirements.

348. There is no Australian ‘banking secrecy’ legislation that allows financial institutions to conduct activity or provide services that may not be reviewed by competent authorities.

349. The financial sector regulators, ASIC and APRA, also have broad-ranging powers to obtain information and documents about the financial institutions they regulate, and, in the case of APRA, registered entities from which it collects statistics. Information may also be acquired in relation to clients of regulated and registered entities, their members and related companies. APRA and ASIC are able to disclose information they collect to AUSTRAC and other competent authorities (including foreign counterpart agencies) where it will assist them to perform their functions or exercise their powers.

3.4.2 Recommendations and Comments

350. Australia is fully compliant with this Recommendation.

3.4.3 Compliance with Recommendation 4

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3.5 Record keeping and wire transfer rules (R.10 and SR.VII)

3.5.1 Description and Analysis

Recommendation 10
Records on transactions, both domestic and international

351. Under sections 20, 23, 27C and 27D of the FTR Act, reporting entities have both direct and implied recordkeeping and record accessibility obligations. Certain cash dealers (“financial institutions” as defined under section 3 of the FTR Act) have specific record-keeping obligations contained in sections 40C – 40J of the FTR Act relating to amongst other things:

  • (a) the opening, operating and closing of an account

  • (b) domestic and international transfers

  • (c) loan applications

  • (d) records of financial transactions carried out by the financial institution.

352. The recordkeeping obligations under sections 40C – 40H of the FTR Act require broad recordkeeping of documents relating to the identity verification of customers, their operation of accounts and individual transaction activity of these accounts. Under section 40J(1)(b), a financial institution is guilty of an offence if it fails to retain a document necessary to preserve a record of the transaction. Records must be kept for at least 7 years after the day the account is closed or the transaction takes place. However, this is limited to “financial institutions” as defined in the FTR Act. Financial institutions are one category of “cash dealers,” (which includes only authorised deposit taking institutions, co-operative housing societies, “financial corporations” as defined in the Constitution, casinos, and totalisator agency boards). These obligations therefore do not apply to all “cash dealers”, which is already identified a category that does not cover the full range of financial institutions as defined in the FATF Recommendations. Therefore, for example, the FTR Act obligations would not include records of transactions from securities and insurance institutions, or foreign exchange dealers or money remitters, as they are either not financial institutions or do not hold “accounts” as defined under the Act.

353. There are no obligations under the FTR Act on reporting entities to retain records of financial transaction reports submitted to AUSTRAC, but they are required to retain transaction information related to the transaction reports submitted to AUSTRAC. Therefore, the FTR Act’s requirements for all cash dealers to report all international funds transfer instructions (IFTIs) to AUSTRAC implies that all cash dealers conducting such transactions would also maintain the information related to the transactional. In cases where no IFTI report is required by exemption from the Director under section 17B(4), the cash dealer/remitter not required to report must retain the prescribed report and details for a period of 7 years after the instruction.

Records of the identification data, account files and business correspondence

354. Under section 23 of the FTR Act, cash dealers are required to retain all information obtained in the course of obtaining account information or signatory information for 7 years after the account is closed. The provision does not specifically require that all account files and business correspondence be retained; however, such information would normally arise from customer interactions and instructions, and would therefore be retained.

Records and information to be available to domestic competent authorities

355. Customer and transaction records that are kept are available on a timely basis to domestic competent authorities upon appropriate authority. Access and recoverability of account information and records of transaction data is covered by section 40R of the FTR Act for limited class of certain reporting entities. For all other reporting entities, section 23(5) FTR Act covers the requirement to maintain account records that are easily accessible. Part IVA of the FTR Act affords powers of inspection to AUSTRAC authorised officers under section 27C and 27D FTR Act to inspect records pertaining to identification information related to sections 20 and 8A, 24C and 24D, and records related to the cash dealers obligations under section 7 (significant cash transaction reports), section 16 (suspect transactions reports), section 17B (International funds transfer instructions), and records related to the obligations of the solicitor under section 15A (cash transaction reports by solicitors).

356. Other legislation, such as the Crimes Act 1914, provides access for law enforcement and search warrants and other warrants. Financial service providers are required by ASIC to retain detailed records on their clients’ transactions. To the extent that entities providing wire transfer services are subject to ASIC’s financial services legislation (e.g. as is likely to be the case when a credit card is used as a payment system to effect a money transfer), they are required to comply with these record-keeping requirements.

Supplementary Information: Recommendation 10

357. In addition to the FTR Act, requirements related to customer due diligence and record-keeping are imposed through other Australian regulations, although these are not targeted specifically at money laundering and financing of terrorism activities. In particular, under section 286 of the Corporations Act 2001, all companies, registered schemes and other disclosing entities (whether or not they are financial institutions) must keep for 7 years financial records that correctly record and explain their transactions and financial position and performance and would enable true and fair financial statements to be prepared and audited. These financial records should include: invoices, receipts, orders for the payment of money, bills of exchange, cheques, promissory notes and vouchers; documents of prime entry; and working papers and other documents needed to explain the preparation of the company’s financial statements. In addition, Australia’s financial services licensing regime, administered by ASIC, requires financial service providers to adhere to certain record-keeping requirements for consumer protection purposes. For example, a license holder providing ‘personal advice’ to a retail client is required to have a reasonable basis for the advice provided, which involves making and documenting reasonable inquiries about the relevant personal circumstances of the retail client (Corporations Act sections 945A) Licence holders must also retain records, such as those showing particulars of all acquisitions and disposals of financial products made by the licensee, the charges and credits arising from them, and the names of the person acquiring or disposing of the products.

358. Certain record-keeping requirements are also imposed through taxation legislation. For example, the ATO requires businesses to retain for five years the records required to substantiate and audit its ‘self-assessed’ income tax return. This may include: sales and purchase records (invoices, receipts, bank statements, etc); year-end records such as lists of debtors and creditors; records of all payments to employees; and records of taxation withheld. These records must comply with certain minimum standards. For example, tax invoices for amounts less than AUD1,000 must include the seller’s name and Australian Business Number (ABN), the date of issue, the description of each thing supplied and the total price. Tax invoices for amounts more than AUD1,000 must also include the purchaser’s name and ABN or address, and the quantity of each thing supplied. The vendor’s and purchaser’s ABN, company name and/or business name can be matched against registers held with the ATO, ASIC and/or the relevant State and Territory authorities, from which additional information on the business can be obtained. This may include information on the beneficial owner(s) of the business.

Special Recommendation VII
Requirements to report all international funds transfer instructions (IFTIs) and recording of originator information

359. Australia has a mandatory system for reporting reports on all international funds transfer instructions to AUSTRAC. Under section 17B of the FTR Act the reporting obligations for international funds transfer instructions (IFTI) require cash dealers to include mandatory information in the reporting of cross border transfers. An IFTI is defined in section 3 of the FTR Act as “an instruction for a transfer of funds that is transmitted into or out of Australia electronically or by telegraph, but does not include an instruction of a prescribed kind.” A prescribed instruction refers to bank-to-bank settlements not generated by an external party i.e. a customer. FTR Regulation 2 (definitions covering, inter alia, location, ordering customer, etc.), and FTR Regulation 11AA outline the details that are required for an IFTI. Where an international funds transfer instruction is sent and reported to AUSTRAC, reporting entities are required to report the name and address or location of the originating customer. This will often include:

  • the ordering customer’s name;

  • the customer’s location (i.e. full business or residential address) and

  • customer’s account number

360. Therefore, adequate information on the originator is generally recorded by the financial institution for all cross-border transfers. There are no minimum thresholds for wire transfers under the Australian system. All international funds transfer instructions, whether incoming or outbound, must be reported to AUSTRAC. However, there are no requirements for any information to be recorded for domestic transfers. There is no obligation to verify that the sender’s information is accurate and meaningful or to require that the account number be included.

361. Despite the comprehensive reporting system to AUSTRAC, there is no requirement that the originator information be included as part of the funds transfer instruction itself. It should be noted that in practice, AUSTRAC’s database would be a useful resource for obtaining originator information through foreign FIU requests.

362. Nor are there any obligations under the FTR Act for domestic wire transfers to either include the full originator information or include the originator’s account number/unique identifier provided that this can be used to retrieve full originator information within three business days. Australian authorities have indicated that, a matter of commercial practice, unique reference numbers are universally included in the wire transfer by Australian banks. These unique reference numbers are traceable back to the originator.

363. Occasional or non-routine international funds transfer instructions are sent as individual transfer messages. The very occasional nature of these transfers increases the risk of money laundering or terrorist financing, particularly with respect to batch transfers. However, there is no obligation under FTR Act ensuring that occasional transfers are not batched when reported.

Requirements for intermediary financial institutions

364. Where an international funds transfer instruction is sent by the originating institution through intermediaries, those intermediary institutions are also taken to be acting on behalf of the originating institution’s customer and therefore have the same obligations as the originating institution in terms of the inclusion of originating customer information when reporting the wire transfer under section 17C of the FTR Act. There is no obligation that each intermediary financial institution in the payment chain be required to maintain all the required originator information with the accompanying wire transfer.

Dealing with incoming transfers that do not include adequate originator information

365. There are no obligations under the FTR Act requiring risk-based procedures for identifying and handling wire transfers that are not accompanied by complete originator information. Australian authorities indicated that in practice, any lack of originator information is brought to the attention of AUSTRAC through the reporting requirements for incoming international funds transfer instructions contained in section 17B of the FTR Act and Regulation 11AA of the FTR Regulations.

Monitoring for compliance with SRVII

366. As the measures to include the full originator information with wire transfer instructions generally does not apply, there are no corresponding monitoring for compliance with these provisions. AUSTRAC does monitor for compliance with the IFTI reporting requirements.

367. The sanctions available for complying with the reporting requirement include imprisonment or fines (section 28 of the FTR Act) and injunctive relief (section 32 of the FTR Act). Failure to comply with the reporting requirements of section 17B of the FTR Act is a criminal offence under section 28 of the FTR Act, punishable by imprisonment for up to 2 years or a fine.

3.5.2 Recommendations and Comments

368. Australia needs to broaden the scope of record-keeping requirements to include all financial institutions as defined in the FATF Recommendations. The provisions could also be clarified to ensure that requirements apply to all account files and records of business correspondence.

369. Cash dealers are required to report all international funds transfer instructions to AUSTRAC, which maintains a comprehensive database that can be accessed and the originator information retrieved pursuant to requests for foreign FIUs. However, beyond the requirement for cash dealers to record pertinent originator information for international (but not domestic) wire transfers, there are no further obligations for cash dealers to comply with the other components of SR VII. Australia should adjust its legislation and implement measures 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; and that occasional transfers are not batched when reported. Australia should also implement measures to ensure compliance with the requirements of SRVII, including appropriate sanctions for non-compliance.

3.5.3 Compliance with Recommendation 10 and Special Recommendation VII

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Unusual and Suspicious Transactions

3.6 Monitoring of transactions and relationships (R.11 and 21)

3.6.1 Description and Analysis

Recommendation 11

370. 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. Nor is there a requirement for cash dealers to examine, as far as possible the background and purpose of the transactions, set forth their findings in writing, and keep findings available for competent authorities. The 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 flow indirectly from Australia’s system for recording and reporting suspect transaction reports (SUSTRs). Section 16 of the FTR Act requires cash dealers (but not the full scope of financial institutions as required in the recommendations) to file a suspect transaction report (SUSTR) where the cash dealer has reasonable grounds to suspect a transaction:

  • may be relevant to investigation of an evasion, or attempted evasion, of a taxation law;

  • may be relevant to investigation of, or prosecution of a person for, an offence against a law of the Commonwealth or of a Territory;

  • may be of assistance in the enforcement of the proceeds of crime acts or the regulations made under that Act;

  • is preparatory to the commission of a financing of terrorism offence; or

  • may be relevant to investigation of, or prosecution of a person for, a financing of terrorism offence.

371. The monitoring obligation is therefore only implied and indirect, and it does not cover the full range of monitoring situations of all complex, unusual large transactions or transactions with no visible economic purpose as stipulated in Recommendation 11.

372. AUSTRAC provides guidance to industry on SCTR, SUSTR and IFTI reporting, indicators of suspicious transactions, the FATF’s NCCT list, account opening requirements, terrorist financing and a range of other issues via its Information Circulars and Guidelines. This information assists reporting entities to pay special attention to those jurisdictions considered to be problematic by the FATF. For example, AUSTRAC Industry Guideline 1 indicates several factors and areas about which cash dealers should be aware that could be considered in assessing whether or not a transaction is suspicious. These factors/areas include:

  • the nature of, or unusual circumstances surrounding, the transaction;

  • the known business background of the person conducting the transaction;

  • regular or unusual transactions involving known narcotic source or transit countries;

  • transactions with certain countries where the transaction is suspected of facilitating laundering of the proceeds of crime or tax evasion;

  • unusual business dealings, particularly where significant amounts of cash are involved in circumstances that are difficult to explain. The cash dealer may in these circumstances suspect money laundering.

373. Addendum 4 to Guideline 1 alerts financial institutions to suspicious activity in relation to the risks associated with correspondent banking such as misuse of Nostro/Vostro accounts. While these guidelines are helpful, they are not legally enforceable and failure to comply with them cannot result in sanctions.

Recommendation 21

374. AUSTRAC published Information Circular 39 on the AUSTRAC website to inform members of the public and the 4500 reporting entities in Australia that provide financial transaction report information to AUSTRAC of the most current NCCTs list. However, Information Circulars are awareness tools and are not legally enforceable. It should be noted, however, that as cash dealers are required to report all international funds transfer instructions (IFTIs), AUSTRAC is able to monitor all electronic international monetary transactions, and pays particular attention to transactions involving countries on the NCCTs list.

Measures on advice about weaknesses in the AML/CFT systems of other countries

375. Recommendation 21 requires that there be effective measures in place to ensure that financial institutions are advised of concerns about weaknesses in the AML/CFT systems of other countries. AUSTRAC Information Circulars alert reporting entities to the need to apply special attention to business relationships and transactions with persons, including companies and financial institutions, from countries identified on the NCCT list, in line with FATF Recommendation 21. AUSTRAC Industry Guidelines and Information Circulars are issued under the authority of the Director in terms of section 38(1)(e) of the FTR Act. While AUSTRAC has the authority under section 38(1)(e) of the FTR Act to indicate other countries as higher risk, AUSTRAC has made limited use of this provision. AUSTRAC Guideline 1 on suspect transactions refers to several countries and regions that cash dealers must pay particular attention to for unusual cash transactions.

Examination of transactions having no apparent economic or visible lawful purpose

376. While there is no obligation requiring that the background and purpose of a transaction, which has no apparent economic or visible lawful purpose, should be examined; AUSTRAC information Circular 39 recommends that financial institutions comply with this element so as to determine whether such transactions require reporting under the FTR Act.

Apply appropriate counter-measures

377. AUSTRAC regularly monitors the FATF NCCT list and other sources and issues guidelines advising financial institutions to give extra scrutiny to dealings with non-FATF compliant countries and Territories. In addition, other legislation prohibits transactions or dealings with listed entities. See also Banking (Foreign Exchange) Regulations 1959 and Charter of the United Nations Act 1945, Charter of the United Nations (Terrorism and Dealings with Assets) Regulations 2002, and Iraq (Reconstruction and Repeal of Sanctions) Regulations 2003. In addition to advising cash dealers to pay special attention to relevant transactions involving NCCTs, AUSTRAC Information Circulars also update cash dealers when FATF has recommended the application of additional counter-measures with particular jurisdictions. AUSTRAC also monitors wire transfers to and from NCCT jurisdictions and also monitors the numbers of Suspicious Transaction Reports (SUSTRs) received involving each of the NCCT listed jurisdictions. The FTR Act does not provide AUSTRAC with any authority to compel cash dealers to apply appropriate counter-measures, where a country continues not to apply or insufficiently applies the FATF Recommendations.

3.6.2 Recommendations and Comments

378. The monitoring obligation is therefore only implied and indirect, and it does not cover the full range of monitoring situations as stipulated in Recommendation 11. Australia should adopt legally enforceable regulations or guidelines establishing an explicit obligation for all financial institutions to perform the elements required by Recommendation 11. Currently, AUSTRAC Guideline # 1 gives some guidance in this regard but it is not legally enforceable.

379. AUSTRAC Guidelines and Information Circulars assist cash dealers to identify high risk and NCCT countries and advise cash dealers on the need to scrutinise such transactions involving these countries in order to determine whether they should be reported as STRs according to the FTR Act. Nevertheless, the Guidelines and Information Circulars are not enforceable. Australia should consider adjusting its legislation to clarify obligations under Recommendation 21 in its Guidelines and Information Circulars and making these measures legally enforceable. Where counter-measures are required, AUSTRAC Industry Guidance provides such direction, and the powers of the RBA, under the Banking (Foreign Exchange) Regulations may be applied.

3.6.3 Compliance with Recommendations 11 & 21

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3.7 Suspicious transaction reports and other reporting (R.13–14, 19, 25 and SR.IV)

Recommendation 13 and SR IV

3.7.1 Description and Analysis21

380. Section 16(1) FTR Act provides for the reporting of suspicious transactions for offences against a broad range of revenue, proceeds of crime and other legislation. A suspicious transaction report (SUSTR) must be filed if the cash dealer has reasonable grounds to suspect a transaction “may be relevant to the investigation” of:

  • (a) an evasion, or attempted evasion of taxation law,

  • (b) an offence against any Commonwealth or Territorial law or

  • (c) may assist the enforcement of the proceeds of crime legislation and related regulations.

381. All financial institutions captured under the cash dealer definition are subject to the obligations of the FTR Act and compliance monitoring by AUSTRAC. This includes the requirements under section 16 to report to AUSTRAC where the reporting entity has reasonable grounds to suspect that a transaction:

  • may be relevant to investigation of an evasion, or attempted evasion, of a taxation law;

  • may be relevant to investigation of, or prosecution of a person for, an offence against a law of the Commonwealth or of a Territory;

  • may be of assistance in the enforcement of the Proceeds of Crime Act 1987 or the regulations made under that Act;

  • is preparatory to the commission of a financing of terrorism offence; or

  • may be relevant to investigation of, or prosecution of a person for, a financing of terrorism offence.

382. Reporting entities can submit suspicious transaction reports to AUSTRAC via either its Electronic Data Delivery System (EDDSWeb) or via paper forms that are subsequently mailed or faxed to AUSTRAC. All suspect transaction and other financial intelligence reported by cash dealers is stored in a database that can be accessed by analysts from AUSTRAC and its partner agencies. For cash dealers to ensure effective compliance with this requirement, they must have the capacity/systems to monitor both transaction patterns and relationships to detect suspicious behaviour and or activity. Such systems also assist cash dealers to comply with the recommendation to give special attention to jurisdictions recognised as being non compliant by the FATF.

Attempted transactions

383. A suspect transaction is reportable if there is an attempted transaction and regardless of any amount being transacted. Section 3(7) of the FTR Act provides that for the purposes of suspect transaction reporting a transaction means “a proposal for a transaction, or negotiations for a transaction, in the same way as it applies in relation to a completed transaction.” Although section 16(1)(b)(i) of the FTR Act makes explicit reference to reporting suspicious transactions which may be relevant to the investigation of an evasion, or an attempted evasion, of a taxation law, the rest of section 16(1) covers the reporting of suspicious transactions in non-tax matters; therefore transactions should be reported regardless of whether they are though to involve tax matters.

384. Banks lodge the majority of the SUSTRs received by AUSTRAC. The different types of cash dealers that submit SUSTRs are provided in the table below. It should be noted that cash dealers submit multiple SUSTRs on the same entities and also on associated entities. The automated database then links all reports (not just SUSTRs) by various attributes, such as name, address, account number, etc. AUSTRAC does not maintain statistics on multiple reports. However, AUSTRAC’s automated monitoring system, TargIT, identifies unusual financial activity. It has the technological capacity to identify unusual or suspicious networks of transactions and associated entities. TargIT is an important mechanism to proactively assist the law enforcement, revenue protection and national security endeavours of AUSTRAC’s partner agencies.

SUSTRs received for the calendar years from 1 January 2001 to 31 December 2004 by Cash Dealer Type

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385. The table below contains the transaction types of SUSTRs reported to AUSTRAC by reporting entities over a 4 year period from 1 January 2001 to 31 December 2004.

Transactions types reported on SUSTRs by reporting entities in the calendar years from 1 January 2001 to 31 December 2004

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386. The number of STRs filed over the past several years and the range of entities reporting is positive and appears to be trending in the right direction. Numbers of reports have been steadily increasing for several types of cash dealers, notably banks, credit unions, casinos, and finance corporations. However, it was not possible to check the uniformity of reporting within each sector as information on reporting by individual institutions could not be made available to the assessment team.

Transactions relating to the financing of terrorism

387. Cash dealers are also required to submit to AUSTRAC suspicious transaction reports about potential terrorist financing activity. The Suppression of the Financing of Terrorism Act 2002 introduced section 16(1A) of the FTR Act which sets out the terms of suspicious transaction reporting regarding terrorist activities and the financing of terrorism. Under section 16(1A) of the FTR Act suspicious transaction reporting obligations apply to possible terrorist financing in the same way as they apply to other types of suspect activity. Section 16(1A) of the FTR Act requires the cash dealer to report a SUSTR where the cash dealer has reasonable grounds to suspect a transaction is preparatory to the commission of a terrorist financing offence or; may be relevant to the investigation of the investigation of a terrorist financing offence. AUSTRAC Information Circulars 22, 23 and 24 provide further guidance on terrorist financing.

388. While these requirements are generally broad, there are limitations related to the definition of “cash dealer” which does not apply to all financial institutions as defined in the FATF Recommendations. In addition, as the reporting obligation relates to the suspected terrorist financing offences, the evaluation team’s concern regarding the scope of the terrorist financing offence (as discussed in section 2.2) led the team also to be concerned that this could limit the reporting obligation.

Recommendation 14

389. The legislation provides for the full protection of cash dealers submitting suspect transaction reports. Section 17 of the FTR Act provides for the general protection for financial institutions and their employees in relation to the filing of reports of suspect transactions under sections 16(1) and (1A) of the FTR Act. An action, suit, or proceeding cannot be laid against the cash dealer or officer, employee or agent of the cash dealer in relation to this action, as section 16(5) of the FTR Act prohibits SUSTRs from being used in any legal proceeding22. This protection applies to all financial institutions and their employees who report suspicions in good faith to AUSTRAC; section 17 protects cash dealers reporting suspicious activity, but not knowingly involved, from being prosecuted under Division 400 of the Criminal Code. Cash dealers submitting SUSTRs also derive protection in that they cannot be considered to be breaching customer confidentiality when reporting suspect transactions. Section 16 (5A) and 16(5AA) of the FTR Act also prohibits cash dealers from disclosing that a SUSTR has been submitted to AUSTRAC.

390. Secrecy provisions in section 25 of the FTR Act provide that the names and personal details of staff of financial institutions that make a suspicious transaction report are kept confidential by AUSTRAC. Secrecy provisions in the FTR Act prohibit a person making a record of any relevant information and divulging or communicating to another person any information relating to a suspicious transaction report. This confidentiality is further endorsed by section 16(5D) which provides that the report, a copy of the report or a representation of the report is inadmissible in evidence in any legal proceeding. This protection includes the inadmissibility of any information relating to the formation or existence of a suspicious transaction report. Recommendation R14.3 is fully met.

391. Section 16(5A) of the FTR Act prohibits the reporter (whether a financial institution, their directors, officers or employees) from disclosing, or “tipping off” a customer that a suspicious transaction report has been provided to AUSTRAC. If any cash dealer gives further information, the dealer is also prohibited from disclosing that information and disclosing it to any other person where it could reasonably be inferred that the first-mentioned information has been given. A person who contravenes this section is guilty of an offence punishable by imprisonment for a maximum of 2 years under section 16(5B) of the FTR Act.

Recommendation 19

392. In addition to the requirement to report suspicious transactions through SUSTRs, AUSTRAC receives financial intelligence from reports regarding:

  • significant cash transactions equal to or greater then AUD10,000 reported as significant cash transaction reports under section 7 (SCTRs);

  • significant cash transactions by solicitors equal to or greater then AUD10,000 reported as significant cash transaction reports under section 15A (SCTRs by solicitors).

393. As with all the reports that AUSTRAC collects, reports of large cash transactions are stored on the AUSTRAC database and can be accessed by authorised staff within its 28 Partner Agencies. The number of online users per partner agency and the access levels available is governed by each MOU that AUSTRAC has with its 28 Partner Agencies. All MOUs with AUSTRAC’s Partner Agencies contain a number of rules and conditions relating to the access to FTR information, including privacy, security, accountability and feedback provisions to which the Agency must agree to before access to information is granted. The MOU also requires Partner Agencies to maintain an auditable record. Authorised staff also have online access to transactions that specifically relate to the wholesale repatriation and expatriation of currency by financial institutions. These transactions, also known as International Note Flows, are reported as significant transaction reports (SCTRs).

394. Sections 25-27 of the FTR Act deal with secrecy and access to AUSTRAC information. Section 25 requires AUSTRAC staff to deal with information in accordance with the Act and only for the purposes of their duties under the Act. The maximum penalty for failure to act in compliance with these provisions under Section 25 is 2 years imprisonment. Section 26 sets out the special provisions in relation to reports of suspect transactions, and allows information to be communicated to a range of officials, such as the Commissioner of Taxation; the Commissioner of the AFP, the Chief Executive Officer of the ACC; or the Chief Executive Officer of Customs. Section 27 sets out the provisions for access to FTR information by authorised officials of domestic partner agencies. In accordance with AUSTRAC practice, a Memorandum of Understanding (MOU) is negotiated with domestic partner agencies, signed by the Head of the relevant agencies. Section 27AA allows ASIO to access FTR information. In addition, the secrecy provisions of the Crimes Act 1914 apply to AUSTRAC staff. Section 70 of the Act prohibits Commonwealth officers from disclosing information acquired in the course of their work which they should not disclose. AUSTRAC also issues guidelines regarding how and when FTR information can be used. Education programs within AUSTRAC ensure that there is awareness of the privacy and security requirements amongst users of the information as well as AUSTRAC staff.

Recommendation 25 (Criterion 25.2: feedback)

395. AUSTRAC provides general feedback in the form of statistics on the number of disclosures, with appropriate breakdowns, and on the results of the disclosures; and some information on current techniques, methods and trends as typologies in some quarterly newsletters. AUSTRAC provides sanitised case examples in its Annual Report and newsletters and in its e-learning application on its website and presentations regularly made to cash dealers. AUSTRAC’s partner agencies also provide feedback during the course of investigations. However, during assessment discussions the private sector generally indicated that it did not receive adequate feedback on STRs filed.

3.7.2 Recommendations and Comments

396. The provisions for suspicious transaction reporting are generally adequate, but there is a limitation of “cash dealer” definition which does not apply to all financial institutions as defined in the FATF Recommendations. Australia should therefore amend its FTR Act to apply to all financial institutions as defined in the FATF Recommendations.

397. There is a requirement to report transactions suspected of being related to a terrorist financing offence, but the evaluation team had concerns regarding the scope on the terrorist financing offence itself; Australia should expand its 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.

398. Although AUSTRAC does provide some general and specific feedback on STRs received, AUSTRAC could provide more sanitised examples of actual money laundering cases and/or information on that decision or result of an STR filed.

3.7.3 Compliance with Recommendations 13, 14, 19, 25 (criteria 25.2), and Special Recommendation IV

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Internal controls and other measures

3.8 Internal controls, compliance, audit and foreign branches (R.15 and 22)

3.8.1 Description and Analysis

Recommendation 15

399. The requirement for cash dealers to have AML/CFT policies and internal controls is merely implicit within the FTR Act which obliges cash dealers to identify account signatories and to report potentially suspicious activity which may be linked to both money laundering and terrorist financing. Currently, a number of sectors have voluntarily have introduced AML/CFT policies and internal controls commensurate with their size and exposure to AML/CFT risk. These measures include staff training, suspicious transaction reporting procedures, customer risk assessment guidelines and internal audit mechanisms. These measures may be subject to the oversight of a compliance officer, if one is appointed for AML/CFT work, who then maintains contact with AUSTRAC.

400. The implicit nature of these internal control measures is a serious regulatory weakness and legislative or other amendments are required to oblige financial institutions to have in place institutionalised AML/CFT internal controls, policies and procedures. Although the FTR Act places implicit obligations on certain aspects of internal controls, policies and procedures, it should be an express statutory obligation for all cash dealers under the FTR Act 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.

401. Section 8A(2)(c) of the FTR Act requires certain cash dealers upon application for a declaration as an identifying cash dealer, to provide the Director of AUSTRAC with a written undertaking that the cash dealer will give the Director in respect of such periods as are determined by the Director, written reports on the applicants compliance with the FTR Act. In addition, the prospective identifying cash dealer undertakes in writing under Section 8A(2) of the FTR Act, the following:

  • ○ to carry out the verification procedures under paragraph 20A(1)(b), where that paragraph applies, and to take all reasonable steps to complete the procedures promptly in each case: Section 8A(2)(a);

  • ○ to report under section 16 in relation to information obtained by the applicant as a result of carrying out the procedures mentioned in paragraph (a): Section 8A(2)(b);

  • ○ to do such other things (if any) as are specified in the approved application form: Section 8A(2)(d).

402. Placing reliance on the written undertaking given in accordance with section 8A(2)(c) of the FTR Act, AUSTRAC requires all reporting entities to complete an Annual Compliance Report (ACR) at the beginning of each year. This report requires cash dealers to provide answers to over 50 questions including questions relating to their audit and compliance programs; account opening and maintenance information; information relating to SCTRs and SUSTRs; IFTIs; outsourced functions; business acquisitions, mergers, divestments; and industry association or membership information. For institutions to comply with these ACR requirements they need internal awareness of these requirements and have to undertake education programs to address any deficiency. Processes must also be developed to ensure timely action to meet these requirements. However, the ACR process under section 8A(2) of the FTR Act has limitations since it is based on undertakings given by a cash dealer, and the class of identifying cash dealer is not mandatory but voluntarily determined by the cash dealer themselves. Cash dealers can, without impunity, elect to opt out of the section 8A(2) obligations by not applying for the status of identifying cash dealer.

403. In practice, AUSTRAC advises cash dealers to develop effective suspicious transaction reporting systems, requires the implementation of policies and procedures, internal controls and appropriate staff training programs which are geared to ensure that staff are able to meet their reporting obligations and to protect their organisation against money laundering and terrorist financing. AUSTRAC’s advice to industry on suspicious transaction reporting emphasises the importance of ongoing training programs (AUSTRAC Industry Guideline 1, paragraph 20). However, these Industry Guidelines are not legally enforceable.

404. In terms of specific requirements for AML programs, AUSTRAC advises as to what cash dealers should consider in terms of developing their broader prudential and risk management systems. This guidance, is provided by the Director of AUSTRAC in accordance with his power to issue guidelines to cash dealers about their obligations under the FTR Act and the regulations, under section 38 (1)(c) of the FTR Act.

405. The difficulty with this construction is that section 38(1) (c) is limited to the obligations of cash dealers, and cash dealers have no express obligations under the FTR Act and regulations to establish and maintain internal procedures, policies and controls to prevent ML and FT and to communicate these to their employees. This lacunae, which dampens the effectiveness of compliance measures within cash dealers, is further compounded by the absence of a statutory obligation in the FTR Act requiring cash dealers to develop appropriate compliance management arrangements, including the appointment of a money laundering reporting officer and compliance officer to oversee AML/CFT compliance.

406. The measures in place are not obligatory and to the extent that or where similar measures are present in a cash dealer they are not directed specifically at monitoring compliance with AML/CFT regulatory obligations. The requirement that financial institutions should be required to maintain an adequately resourced and independent audit function to test compliance (including sample testing) with these procedures, policies and controls, is not obligatory under the FTR Act.

407. APRA, as the prudential regulator, and ASIC, as the market integrity and consumer protection regulator, also impose broad requirements on the entities they regulate in relation to internal controls and compliance policies. For example, both ASIC and APRA require the entities that they regulate to have appropriate operational policies and procedures and audit practices in place to manage risks and comply with applicable regulation. The responsibility for ensuring such procedures are in place lies with directors and senior managers, although other officers, such as internal compliance officers, may also bear responsibility for such policies, depending on the structure of the regulated entity.

Recommendation 22

408. Section 6 of the FTR Act provides that the FTR Act applies throughout the whole of Australia and also applies outside Australia. Australian authorities have indicated that foreign branches and subsidiaries of Australian banks are thus required to comply with the FTR Act outside Australia, to the extent that host country laws and regulations permit. Generally, however, Australian financial institutions and any subsidiaries or branches are subject to the laws of the jurisdiction in which they are incorporated. The Australian banks themselves indicated that they would first apply the local laws, and that in several cases local laws prohibited full implementation of the Australian standards due to local secrecy provisions.

409. There is no legal obligation or guidance requirement under the FTR Act that, where the minimum AML/CFT requirements of the home and host countries differ, branches and subsidiaries in host countries are required to apply the higher standard, to the extent that local (i.e. host country) laws and regulations permit. Equally, there is no requirement that financial institutions be required to inform their home country supervisor when 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.

410. Australia relies upon sound commercial practice for internationally active Australian financial institutions to ensure that a basic standard of AML is maintained across the operations of both domestic and overseas-based branches and subsidiaries. The application of a standard group AML policy and procedure helps to ensure compliance not only with Australian requirements but also broader international standards as may be found in European or North American markets.

411. Australian authorities have indicated that Australian banks do not conduct a significant amount of business in countries that are non-compliant with the FATF recommendations. For example, at 30 June 2004 Australian banks’ exposures to the (then) NCCT countries were as follows: Philippines- AUD0.5 billion; Indonesia - AUD0.4 billion; Nigeria – negligible; Myanmar – negligible; and Nauru – zero (Cook Islands was not separately identified). This compares with Australian banks’ exposure to: New Zealand -AUD155 billion, UK - AUD93 billion, US - AUD24 billion; and total offshore - AUD334 billion.

3.8.2 Recommendations and Comments

412. An express statutory obligation should be imposed for all cash dealers under the FTR Act 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. The current implicit nature of the internal control measures is a serious regulatory weakness. Legislative amendments are required to oblige cash dealers to have in place institutionalised AML/CFT internal controls, policies and procedures commensurate with their size and exposure to AML/CFT risk. Such obligations should include requirements for financial institutions to: have a designated AML/CFT compliance officer at the management level; have an adequately resourced and independent audit function, establish ongoing employee training, put in place adequate screening procedures.

413. Australia should also adopt legal requirements for 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. Financial institutions should also be required 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.

3.8.3 Compliance with Recommendations 15 & 22

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3.9 Shell banks (R.18)

3.9.1 Description and Analysis

414. While there are no express statutory provisions preventing shell banks in domestic law, Australian authorities do not in practice allow the establishment or accept the continued operation of shell banks. Australia’s banking authorisation process effectively precludes the establishment and operation of “shell banks” within the jurisdiction. Under section 9 of the Banking Act 1959, institutions must be authorised by APRA to carry on a banking business in Australia. Banking licences issued under section 9 of the Banking Act 1959 and the APRA “Guidelines on Authorisation of deposit-taking institutions” (ADIs), sets out specific criteria to be met by all applicants, including mutually owned applicants and foreign banks seeking to establish branches or locally incorporated subsidiaries. In particular:

  • Capacity and commitment: APRA will only authorise suitable applicants with the capacity and commitment to conduct banking business with integrity, prudence and competence on a continuing basis (paragraph 10).

  • Capital: Applicants must demonstrate that they can meet APRA’s minimum capital requirements (based on Bank of International Settlements standards) from commencement of their banking operations, and APRA may impose higher requirements on a case by case basis. Applicants proposing to operate as banks must have a minimum of UAD50 million in Tier 1 capital (paragraphs 12–14).

  • Structure: Only a body corporate can carry on a banking business in Australia. This means that banking businesses are subject to ASIC’s registration and requirements for body corporates under the Corporations Act 2001.

  • Ownership: All substantial shareholders of an applicant are required to demonstrate to APRA that they are “fit and proper” in the sense of being well-established and financially sound entities of standing and substance. In the case of foreign bank applicants, this requirement applies both to the foreign bank itself and to the substantial shareholders of the foreign bank. APRA requires all substantial shareholders to be able to demonstrate that their involvement in the ADI will be a long-term commitment and that they will be able to contribute additional capital, if required (paragraph 17).

  • Management: Directors and senior management of the proposed ADI must satisfy APRA that they are fit and proper to hold the relevant position. APRA may consult other regulators (domestic and overseas) regarding the suitability of personnel for the proposed ADI. Where necessary, applicants should provide APRA with the authority to seek details in this regard. APRA also requires that a minimum number of directors are totally independent of the management of the ADI (paragraphs 18-20).

  • Risk management and internal control systems: Applicants must satisfy APRA that their risk management and internal control systems (i) are appropriate to the scale of the ADI’s operations, (ii) adequately address issues such as credit, prudential and operational risk, (iii) entail sufficient reporting and controls for foreign operations (paragraph 21-23).

  • Information and accounting systems: Applicants must satisfy APRA that their information and accounting systems are adequate for maintaining up-to-date records of all transactions and commitments (paragraphs 24-25).

  • External and internal audit arrangements: Applicants must demonstrate to APRA that appropriate arrangements have been established with external auditors (paragraphs 26-27).

  • Supervision by home supervisor: Foreign bank applicants must have received consent from their home supervisor for the establishment of a banking operation in Australia. Only applicants who are authorised banks in their home country and subject to adequate prudential supervision will be granted authorities to operate foreign ADIs.

415. APRA’s authorisation processes for ADIs prevent banks that do not meet minimal capital adequacy, shareholder, risk management and corporate governance requirements from gaining a banking authority.

416. There is no prohibition on financial institutions to enter into, or continue, correspondent banking relationships with shell banks. Nor are financial institutions required to satisfy themselves that respondent financial institutions in a foreign country do not permit their accounts to be used by shell banks. Australian authorities indicate that for Australia’s internationally active financial institutions, sound commercial practice requires higher levels of diligence when entering correspondent relationships. Australian financial institutions exercise greater levels of due diligence when establishing relationships with foreign institutions.

3.9.2 Recommendations and Comments

417. There are no statutory provisions preventing shell banks in domestic law. Australian authorities do not, allow the establishment or accept the continued operation of shell banks. In addition, Australia’s banking authorisation process effectively precludes the establishment and operation of “shell banks” within the jurisdiction.

418. 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.

3.9.3 Compliance with Recommendation 18

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3.10 The supervisory and oversight system - competent authorities and SROs; Role, functions, duties and powers (including sanctions) (R.23, 30, 29, 17, 32 & 25)

Authorities/SROs roles and duties & Structure and Resources (R23, 30)

3.10.1 Description and Analysis
Recommendation 23

419. AUSTRAC’s regulatory role includes an ongoing monitoring program to ensure cash dealer compliance with the requirements of the FTR Act. This monitoring program allows for both on-site inspections and desktop monitoring, based largely around the reporting of financial intelligence to AUSTRAC and the quality, timing and volume elements of that intelligence. AUSTRAC also conducts industry examinations which consider the size of the sector, services offered, vulnerabilities to ML, partner agency interest and other relevant factors. AUSTRAC has access to the premises of a cash dealer and to inspect records and record keeping systems Part IVA of the FTR Act (sections 27A – 27E) provides for AUSTRAC’s “Powers of inspection”. These powers constitute the basis of AUSTRAC’s ongoing monitoring and inspection program.

420. AUSTRAC’s regulatory powers provide for compliance inspections to assess AML compliance with the reporting and CDD obligations of the FTR Act. Compliance inspections can be done through either joint studies or more formal audits. The scope of formal audits is limited to the reporting and CDD requirements of the FTR Act while Joint Studies are a more cooperative program which will look at all aspects of a cash dealer’s broader AML procedures including staff training and reporting processes.

421. Australia’s financial system, more generally, is supervised by two financial sector supervisory agencies, ASIC and APRA. APRA is the prudential supervisor and regulator of the Australian financial services sector. Section 8 of the Australian Prudential Regulatory Authority Act 1998 establishes APRA for the purpose of regulating bodies in the financial sector in accordance with other laws of the Commonwealth that provide for prudential regulation or for retirement income standards, and for developing the administrative practices and procedures to be applied in performing that regulatory role. In performing and exercising its functions and powers, APRA is required to balance the objectives of financial safety and efficiency, competition, contestability and competitive neutrality. APRA oversees banks, credit unions, building societies, general insurance and reinsurance companies, life insurance, friendly societies, and most members of the superannuation industry.

422. The Australian Securities and Investments Commission Act 2001 establishes the Australian Securities and Investments Commission (ASIC) and empowers ASIC to enforce and regulate company and financial services laws in order to protect consumers, investors, shareholders and creditors. ASIC is primarily concerned with disclosure and conduct of Australian companies and financial service providers. ASIC is responsible for the administration of the Corporations Act as well as consumer protection in the financial system. ASIC regulates, among others, Australian companies, financial markets and organisations and professionals who provide financial services such as dealing in and advising on financial products such as investment products, superannuation, insurance and, deposit products. The Australian Securities and Investments Commission Act 2001 requires ASIC to

  • uphold the law uniformly, effectively and quickly;

  • promote confident and informed participation by investors and consumers in the financial system;

  • make information about companies and other bodies available to the public;

  • improve the performance of the financial system and the entities within.

423. Under Australia’s functional division of responsibilities, each authority focuses on its own areas of responsibility and enforcement of its relevant legislation. 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. The supervisory system would also be enhanced if t co-ordination on AML/CFT matters between all the relevant authorities were to be improved (See section 6.1). AUSTRAC is currently limited in the information it can share with the APRA. There is a need to foster greater formal cooperation amongst relevant financial sector supervisors and regulators on AML/CFT issues and operational developments going forward. This would assist AUSTRAC in achieving enhanced AML/CFT outcomes. It would also strengthen the need for a common compliance imperative on financial institutions to address consumer and credit fraud, prudential and operational risk and AML/CFT measures as complementary measures, as part of their broader risk management strategies.

Recommendation 30

424. Detailed comments for the resources of AUSTRAC as the FIU are provided under the FIU section of this report. This section now examines whether AUSTRAC as AML/CFT supervisor and regulator is adequately structured, funded, staffed, and provided with sufficient technical and other resources to fully and effectively perform its compliance and regulatory functions under the FTR Act.

425. AUSTRAC has a section of 32 professionals (out of an entire staff complement of 154) dedicated to its compliance and regulatory reporting functions under the FTR Act. The reporting and compliance section of AUSTRAC is responsible for deterring money laundering, serious crime and tax evasion, and in this role oversees compliance with the FTR Act. The reporting and compliance section of AUSTRAC works with cash dealers in the financial and gaming sectors to ensure they understand and comply with their obligations to report certain transactions to AUSTRAC and to identify their customers. This section has also focused its work on remittance dealers during the past year, which has paid dividends through a significant increase in reporting volumes. The section also focuses on education, public awareness’ and improving data quality of reports to AUSTRAC. During the last reportable year AUSTRAC refocused its inspection program and directed more resources to education with less emphasis on detailed inspection audits, conducting 147 educational visits during that year.

426. As Australia’s national anti-money laundering regulator, AUSTRAC is required to ensure effective supervision and compliance with the FTR Act in respect of a vast range of financial, non-financial and gambling reporting entities. It therefore needs adequately skilled supervisory and compliance staff in an acceptable numerical proportion of staff to reporting entities to effectively fulfil this mandate.

427. The assessment team has significant concerns regarding the adequacy of resources required to fully perform AUSTRAC’s supervisory functions, as required under the revised Recommendations. For AUSTRAC to be an effective AML/CFT regulator under the current FATF standards, special emphasis needs to be placed on substantially increasing staffing levels in the Reporting and Compliance section, providing for a dedicated budget for targeted audit inspections to further enhance the compliance culture amongst cash dealers, and concomitant funding arrangements to drive the desired compliance and financial reporting outcomes. AUSTRAC also needs to ensure that these staff are adequately skilled in financial supervision and inspection issues. Consideration needs to be given for a mechanism of inspection cost recovery in deserving instances, under the FTR Act. These concerns are echoed in the comments of the TFG International Report, October 2003.

428. While the AUSTRAC financial budget has steadily increased over the years, further dedicated financial resources must be directed toward the Reporting and Compliance section in the Money Laundering Deterrence Division (which division has a AUD 5.8m budget out of a total appropriation of AUD 20.805m for financial year 2004/05), 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. AUSTRAC had 154 total staff as at March 2005, of which only 20 percent, 32 persons (which in turn was 60 percent of the Money Laundering Deterrence Division comprising 53 persons) are AML supervisory and compliance staff. If one excludes 26 IT contractors, the operational AUSTRAC staff total becomes 121 persons.

429. Notwithstanding the existence of technological aids and AUSTRAC systems, this number of supervisory and compliance staff appears limited given the varied extent and numbers of the existing reporting entities under the FTR Act. The need to increase AML supervisory and compliance staff is made more pressing by the proposed draft amendment Bill that would introduce more reporting entities under the FTR Act compliance regime.

430. The staff of AUSTRAC currently maintains high professional standards, including standards concerning confidentiality, is of high integrity and is generally appropriately skilled. While this criterion is generally met, there is a distinct need for an enhancement of supervisory skills and training pertaining to the conduct of on site inspections and enforcement related activities.

431. AUSTRAC currently undertakes relevant training of new staff to adequately train them on AUSTRAC compliance and supervisory procedures for combating ML and FT, so as to enable to contribute to the work of AUSTRAC within a short amount of time.

Authorities’ Powers and Sanctions – R. 29 & 17

Recommendation 29

432. AUSTRAC’s regulatory role includes an on-going monitoring program to ensure cash dealer compliance with the requirements of the FTR Act. This monitoring program allows for both on site inspections and desktop monitoring, based largely around the reporting of financial intelligence to AUSTRAC and the quality, timing and volume elements of that intelligence. AUSTRAC also conducts industry examinations that consider the size of the sector, services offered, vulnerabilities to money laundering, partner agency interest and other relevant factors. AUSTRAC’s on-site inspection powers are covered by section 27C of the FTR Act. AUSTRAC’s regulatory responsibilities also include the identification and education of reporting entities, monitoring of the quality of financial intelligence reported to AUSTRAC, including compliance inspections, and rectification of any non compliance detected through the monitoring and inspection program.

433. Part IVA of the FTR Act (sections 27A – 27E) provides AUSTRAC’s “powers of inspection”. These powers constitute the basis of AUSTRAC’s ongoing monitoring and inspection program. Section 27C powers of inspection are limited to certain prescribed measures. As there is an absence of the requirements for AML/CFT programs and internal rules, the generally accepted standard inspection powers and procedures such as checking the institutions’ policies and procedures are also not required by the FTR Act. As part of its regulatory compliance program, AUSTRAC conducts compliance inspections to assess AML compliance with the reporting and identification obligations of the FTR Act, though the emphasis seems to be oriented towards the reporting obligations.

434. As previously mentioned, compliance inspections are presently done through either joint studies or more formal audits. AUSTRAC currently focuses on educational visits rather than formal inspection audits. Formal inspections are rarely conducted. However, educational visits include inspections of records to ascertain whether an entity is a cash dealer, and if so, whether they have reporting obligations and whether they are complying with them.

435. Section 27E of the FTR Act allows AUSTRAC to access business premises provided that written notice is given to the relevant cash dealer, solicitor, solicitor corporation or partnership of solicitors. This access is not predicated on the need for a court order. Sections 27C and 27D allow AUSTRAC to inspect the premises of a reporting entity and solicitor including inspecting records and reports kept by the reporting entity or solicitor.

436. The powers of enforcement and sanctions are limited to criminal sanctions. There is a need to remedy this deficiency and institute a comprehensive administrative penalty regime under which administrative penalties can be imposed on regulated entities and persons who are materially noncompliant in respect of all of their AML/CFT obligations

437. APRA, as the prudential regulator, and ASIC, as the market integrity and consumer protection regulator, have extensive monitoring, investigation and enforcement powers that are supported by a wide range of civil, criminal and administrative sanctions. These powers include authority to conduct inspections and request the production of documents. However, APRA and ASIC exercise their powers in the performance of their statutory mandates and functions, which are not