We summarise below six potential focus areas that AUSTRAC, the AML/CTF Regulator, may be looking towards in in 2017.
We have created this list based on our experience dealing with the regulator, as well as conferences, seminars and online publications. Although AUSTRAC’s official agenda in 2017 is not clear, we suggest that entities looking at their AML/CTF compliance programs should consider how the following may fit in:
- Pending AML/CTF rule changes: AUSTRAC has announced proposed changes to the AML/CTF Rules. AUSTRAC is seeking input from various stakeholders regarding the proposed approach to the restructure of the AML/CTF rules compilation and progressing deregulatory recommendations relevant to the AML/CTF Rules. The implementation of these recommendations will take a staged approach in conjunction with consultation with the Review by the Attorney-General’s Department. The overall goal of these changes will see the simplification of AML/CTF Rules while providing an opportunity for development without changes being made to the AML/CTF Act.
- Digital financial industry: There has been focus on online movement of money, with a particular emphasis on expanding legislation to include online gaming, online remitters and cryptocurrencies. AUSTRAC is conducting industry consultation regarding the New Payments Platform and Fintech. AUSTRAC is particularly interested in phone payment systems (i.e. Apple Pay) and how they might be used to launder money or finance terrorism using stolen phones. The expansive growth of these digital platform services indicates there will need to be a new strategy to manage these new payment systems and Fintech in its current form. AUSTRAC looks to be heading towards collaborative effort with the industry in order to improve information sharing. Additionally, with consistent innovations in the digital technology industry, the current regulatory framework could be viewed as obsolete if it does not addapt to these changes. Therefore a legislative expansion to cover the field could be in store for the future.
- Stored value cards: Stored value cards are high on AUSTRAC's priority list of potential changes. Low value pre-paid money cards were used by Jihadists in the 2015 Paris attacks. Consequently, AUSTRAC is revisiting the definition of stored value cards and the monetary thresholds for application of the AML/CTF regime to stored value cards.
- Gambling products/services: In consultation with industry, AUSTRAC seeks to expand the scope of gambling products included in the AML/CTF legislation. The current system leaves a gap in some smaller and often unnoticed areas. Poker machines, online gaming and gambling nights/fundraisers at sports clubs are some of these areas that AUSTRAC is seeking to cover. Heading towards 2017 AUSTRAC is likely to mandate a framework that looks at an overall risk assessment and the methods to improve internal controls in the gambling industry.
- Specific industry focus: AUSTRAC is currently conducting industry based ‘risk assessments’. The assessment for the superannuation industry has just been released. AUSTRAC is still in consultation with industry regarding the others, which will be released in the new year. The addition of these risk focused assessments could provide insight into the nature of risk, vulnerabilities and consequences if left unchecked. This new strategy is seen as an ideal option for both AUSTRAC and the industry as it will allow for a more targeted approach to risk assessment, similar to the UK industry-based AML/CTF legislation.
- International engagement: AUSTRAC has just completed a Memorandum of Understanding (MOU) with China regarding information sharing. AUSTRAC anticipates that this will provide a significant amount of useful data. AUSTRAC is currently working with a number of African countries and Indonesia to get their AML/CTF legislation to a level where they also can enter into a similar MOU. The cooperation between all countries is a stepping stone to a universal system of information sharing. Given the current efforts of these international engagements we will see the support of a global network that aims to strengthen AML/CTF rules not only in Australia, but around the world.
In addition to our future predictions, we have noted some 2016 ‘hot topic’ issues in the AML/CTF space, which we anticipate AUSTRAC will continue to monitor in 2017
‘Hot topic’ issues for current reporting entities:
- Terrorism financing: Ensuring that entities address both money laundering and terrorism financing risk. AUSTRAC recently released the Regional Terrorism Financing Risk Assessment, which contains useful information to assess jurisdictional risk. This information is seen as a necessary component given that geographical borders, particularly between Australia and Southeast Asia have seen an increase of exploitation by extremists. The risk assessment adopted by AUSTRAC incorporates two risk methodologies that aims to help entities identify, analyse and mitigate potential issues when considering jurisdictional risk. This assessment method could see the development of new strategies in creating awareness for entities undertaking a risk assessment.
- Risk assessments: AUSTRAC is moving towards a specific and tailored risk assessment model that avoids generic ‘cookie-cutter’ documents, as they are not sufficient. The aim of this is for entities to control their risk by creating a system of checks and balances. This approach enables flexibility in the constantly changing business world and allows these entities to understand where they might be at risk when undertaking operations. The adaptive nature of this risk assessment may enable entities to consider risk that is often missed by the generic model. Each industry brings with it unique challenges, therefore the adoption of this new dynamic approach could be used to bolster AML/CTF efforts.
- Bitcoin- The growing popularity of cryptocurrencies, such as Bitcoin has seen the market for purchasing goods online expand. Although the Bitcoin marketplace is hard to track, Bitcoin still has a front and back end (i.e. where people are depositing money to buy Bitcoin, and converting Bitcoin back to currency). Detection of these online transfers of currency at the moment is difficult even though they cross paths with established banking channels. AUSTRAC is focussing on the ‘in and out’ channels for Bitcoin, which provides an indication of how they may regulate future cryptocurrencies. Similarly, the UK regulator is developing a ‘Know Your Customer’ regulatory framework towards digital currency with the emergence of Bitcoin. This push has been widely welcomed by business operators in the region in order to have an effective AML/CTF system. It should be noted outside of the UK that current EU member states do not have a universal system adopted towards digital currency. AUSTRAC could push to adopt a similar approach like the UK given the emergence of and popularity of cryptocurrency in Australia.
Overall, it looks like there are a few changes coming down the pipeline, particularly in the Fintech and digital currency space. We will continue to monitor this area, and provide further updates as they become available.
This article was co-authored by Hong-Viet Nguyen (Senior Associate) and Nicola Greenberg (Solicitor).
The contents of this publication, current at the date of publication set out above, are for reference purposes only. They do not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking any action based on this publication.
© Herbert Smith Freehills 2020