3 Australian Transaction Reports and Analysis Centre

Summary

The enactment of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006(AML/CTF), which was designed to update Australian arrangements to meet international standards established by the Financial Action Task Force, presented the Australian Transaction Reports and Analysis Centre (AUSTRAC) with a major challenge. It not only required AUSTRAC to assume a broader regulatory role in addition to its established financial intelligence unit activities but also imposed a legislative shift from dealing with specified entities to designated services encompassing an unknown number of providers across a broader range of activities.

AUSTRAC was required to oversee compliance by a wide range of financial services providers, bullion sellers, designated remittance service providers, the gambling industry and other specified reporting entities, and ‘cash dealers’ (as defined under the Financial Transactions Reports Act).

AUSTRAC therefore proceeded to put in place an implementation strategy to deal with the extremely diverse range of organisations and increased numbers of transactions covered by the new legislation. Mechanisms were developed to identify, engage, and assess the entities covered and implement appropriate risk treatment regimes, including providing assistance to small business to understand their obligations and how to meet them. At the same time, development of more sophisticated data mining and analysis techniques to deal with the range and scale of transactions being monitored was also initiated.

A combined top-down and bottom-up approach within AUSTRAC produced a phased implementation strategy based on 34 identified projects covering customer facing issues, supervisory issues, workload issues and organisational growth and capacity building.

As the first step in engaging its customer base, AUSTRAC researched, identified, and contacted 19 700 prospective reporting entities regarding their potential AML/CTF obligations. A range of support mechanisms including follow up contact, a substantial help desk operation (which handled 38 164 calls in 2007–08) and substantially expanded on-line services were then put in place.

In 2007, AUSTRAC launched its Internet-based portal AUSTRAC Online — a system to allow businesses to enrol as reporting entities, receive assistance with their regulatory and reporting obligations, and submit an annual AML/CTF compliance report. More than 13 000 Australian reporting entities are now enrolled with AUSTRAC through the system.

The development of close working relationships with industry and public interest groups has been a fundamental element of AUSTRAC’s activities and the AUSTRAC Industry Consultative Forum (ICF) was established in 2007 to help meet the consultative requirements of the AML/CTF Act. The ICF, which meets twice a year and on an ad hoc basis as required, has two constituent forums — the Financial Consultative Forum and the Gambling Consultative Forum.

Relevant chronology

1988 — Cash Transaction Reports Act 1988 (CTR Act) passed and provides for the establishment of a statutory regulatory and financial intelligence agency. The CTR Act permits the provision of financial intelligence to law enforcement and revenue agencies, including the Australian Federal Police and the Australian Taxation Office;

February 1989 — Cash Transaction Reports Agency (CTRA) established within the Attorney-General’s portfolio;

March 1989 — Provider Advisory Group established, comprising representatives of the major and second tier banks and industry peak bodies;

1989 — international intergovernmental body, the Financial Action Task Force (FATF) established by the G-7 Summit to coordinate action against money laundering. Secretariat supported by the OECD. Australia one of 15 founding member nations;

April 1990 — FATF issued a report containing Forty Recommendations which provide a plan of action and international standards to combat money laundering;

1991 — CTRA instrumental in introducing the ‘100 point’ customer identification check for new account signatories;

1992 — Legislation renamed the Financial Transaction Reports Act 1988 (FTR Act) and CTRA’s name changed to Australian Transaction Reports and Analysis Centre (AUSTRAC) to reflect some broadening of the agency’s functions;

1994 — Privacy Consultative Committee established with representatives of relevant public interest groups (privacy, civil liberties and consumers) as well as the Privacy Commissioner’s Office and revenue and law enforcement agencies;

1995 — International Group of Financial Intelligence Units established with AUSTRAC a founding member. Neil Jensen awarded PSM in Queen’s Birthday honours list for his contribution to Australia’s anti-money laundering program;

1996 — FAFT reviewed and issued revised recommendations;

1999 — United Nations International Convention for the Suppression of the Financing of Terrorism;

2000 — Gaming Industry Provider Advisory Group established;

September 2001 — following the terrorist attack in the USA greater attention given to counter-terrorism issues;

October 2001 — FATF issued Eight Special Recommendations to deal with terrorist financing;

2001 — United Nations Security Council Resolution 1373 on prevention and suppression of financing terrorist acts;

2002 — Suppression of Financing of Terrorism Act 2002 enacted. AUSTRAC work in establishing intelligence agreements with international counterparts and domestic law enforcement agencies became of primary importance. Neil Jensen appointed Director;

June 2003 — FAFT issued a further revision of its recommendations to ensure they remained up to date;

December 2003 — the Government announced that a review of FTR Act and Australia’s anti-money laundering and counter-terrorism financing system would be undertaken;

October 2004 — FATF published a ninth Special Recommendation, further strengthening agreed international standards for combating money laundering and terrorist financing;

2005 — FATF third mutual evaluation of Australia’s compliance with the international anti-money laundering and counter-terrorism financing standards (40+9 recommendations) supported the need for a review;

December 2006 — Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act) passed with staged implementation (a day, 6 months, 12 months and 24 months after Royal Assent) to be fully achieved by March 2010 (see reference to Policy Principles below). AML/CTF Act covers financial sector, gambling sector, bullion dealers and certain other professional and businesses and implements a risk-based approach to regulation. AUSTRAC role continued and extended to give it a dual role of the national AML/CTF regulator and financial intelligence unit;

January 2007 — Minister made Policy (Civil Penalty Orders) Principles 2006 providing a 15 month period after each staged implementation date during which reporting entities must take reasonable steps towards compliance;

2007 — AUSTRAC Industry Consultative Forum (ICF) established to help meet consultation requirements under the AML/CTF Act and comprising the Financial Consultative Forum and Gambling Consultative Forum. ICF meets twice a year and further as required;

2007 — AUSTRAC launched internet-based portal, AUSTRAC On-line, system to facilitate compliance reporting with over 16 000 reporting entities; the AUSTRAC Regulatory Guide; the Typologies and Case Studies Report 2007 to provide a guide to help stakeholders better understand risks to their business; and revised e-learning course;

2007 — AUSTRAC co-hosted workshops for Asia Pacific Economic Cooperation (APEC) officials; FATF membership further expanded to 34 members;

January 2008 — Anti-Money Laundering and Counter-Terrorism Financing Regulations registered. Regulations ensure managed investment schemes are covered;

December 2008 — AML/CTF Act final date of effect;

2008 — AUSTRAC signed its 50th international Memorandum of Understanding with Mexico. Neil Jensen appointed Chair of Egmont Group. Sophisticated automated monitoring systems allowed screening of around 69 000 transactions per day. AUSTRAC information contributed to Australian Taxation Office assessments of $76.7 million in 2007–08;

March 2009 — first major policy principles period relating to December 2007 obligations ends; and

March 2010 — AML/CTF Act to be fully implemented.

Key observations from case study

Major innovations

With passage of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act), AUSTRAC moved from dealing with designated entities to dealing with designated services with an unknown number of providers and across a broader range of activities. A range of mechanisms needed to be developed to identify, engage and educate the population covered by the legislation. While alternative remittance providers were required to register with AUSTRAC, others needed an incentive to enrol on-line, including the availability of a streamlined on-line reporting system which would reduce compliance costs. At the same time more sophisticated data mining and analysis techniques needed to be developed to handle the range and scale of transactions being monitored.

Observations and lessons learned

• Innovation prompted by a problem — evidence of links between tax evasion, fraud; organised crime and money laundering led to initial government response. Later concern about financing of terrorism led to broader approach. AUSTRAC had to develop the people, processes and systems needed in an increasingly complex environment and to meet domestic expectations and international standards;
• Adherence to international standards and collaboration — As a member of FAFT, AUSTRAC needed to implement the 40+9 recommendations and demonstrate it was meeting international standards through the mutual evaluation process;
• Impact through networks of cooperation — intelligence sharing with international counterparts and domestic law enforcement, social justice and revenue agencies, together with close working relationships with industry and public interest groups are fundamental to AUSTRAC’s activity;
• Utilisation of technology — operations based on sophisticated data collection, data mining and analysis, and reporting technology and software;
• Sophisticated risk management — AUSTRAC assists businesses to develop their own compliance procedures tailored to the specific risks they face. As these range from large financial institutions to small businesses a one size fits all approach is not appropriate;
• Communication, education and support to ensure compliance — As the population covered by the legislation is not known with certainty, a range of mechanisms was necessary to identify, engage, and assess the entities covered and implement appropriate risk treatment regimes. This included providing assistance to small business to help them understand their obligations and how to met them;
• Organisational responsiveness — following the passage of the AML/CTF Act, AUSTRAC had to adapt to a dual role of the national AML/CTF regulator and financial intelligence unit, an expanded remit and increased work load. It grew from a small agency of around 80 staff to one with over 400 staff;
• Phased implementation strategy based on identified manageable projects — through a top-down and bottom-up approach AUSTRAC identified 34 projects covering custom facing issues, supervisory issues, workload issues and organisation growth and capacity building. These projects needed to be scoped, staged and coordinated;
• Leveraging past experience and building on success — AUSTRAC’s prior experience with implementing the FTR Act and with the initial FATF 40 recommendations provided a basis of expertise on which to build its activities in the CTF areas and implement the AML/CTF Act;
• International standing and influence — AUSTRAC’s active role in FATF and the Egmont Group, the large number of memoranda of understanding with other countries and its international technical assistance program have provided opportunities for mutually-beneficial learning and enhanced Australia’s international reputation; and
• Recognition and rewards — the nomination and the 1995 award of a Public Service Medal to Neil Jensen for his contribution to Australia’s anti-money laundering program provided high level recognition and encouragement to Neil Jensen and AUSTRAC generally.

 

 

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