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Proposals for an updated anti-money laundering (AML) framework are taking shape in Australia, as regulators look to avert a potential grey-listing by the Financial Action Task Force (FATF).

Last week, Australia’s Attorney-General’s Department opened the second stage of a consultation on reforming the country’s AML and counter-terrorism financing (CTF) regime.

The proposal would simplify the current regime, while expanding its reach over the activities of digital asset service and remittance providers.

The project is part of a A$166m ($109m) investment from the Australian government in this month’s budget to implement a modernised AML/CTF framework.

The final design of the reforms will be subject to parliamentary scrutiny, and if the proposed reforms become law, regulated entities will have time to prepare.

The revision of the AML/CTF regime is intended to see off the threat of grey-listing by FATF. Since 2015, Australia has failed to comply with 16 out of 40 FATF Standards.

One of the country’s key shortcomings has been its failure to extend its AML/CTF regime to “tranche-two” entities. These include high-risk professions, such as lawyers, accountants and company service providers, as well as real estate agents and precious metals dealers.

As noted by Mark Dreyfus, attorney-general, Australia is currently one of only five jurisdictions in the world that does not regulate tranche-two entities, the others being China, Haiti, Madagascar and the US.

One of the key aims of the reforms is to bring these entities under AML/CTF regulation, in addition to “simplifying” and “modernising” the regime for entities that are already regulated.

Australia’s AML/CTF regime will next be assessed by FATF in 2026-27. A poor assessment could lead to being placed on the greylist, a move that would have “serious consequences” in terms of investment and impact on GDP.

It would also expose Australia’s regulators and law enforcement agencies to new threats, and would hinder their ability to work with other other jurisdictions to fight financial crime.

'Simplifying' AML obligations

The Attorney-General's Department has published an  of its proposed reforms, alongside  consultation papers, each tailored to particular sectors.

All stakeholders, including current and future reporting entities, are invited to comment on the proposals by June 13, 2024.

After the first round of consultation was conducted in 2023, the department said the feedback it received was supportive of “simplifying, clarifying and modernising” Australia’s AML/CTF regime.

At present, key requirements relating to AML/CTF programmes and customer due diligence (CDD) are “dispersed” throughout two separate pieces of legislation.

These are the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 and the Anti-Money Laundering and Counter-Terrorism Financing Rules Instrument 2007.

The Attorney-General’s Department acknowledges that current requirements are “difficult to follow” and have created “implementation challenges”. Its proposals would replace them with “clear, risk-based and outcomes-focused” obligations.

“A key objective underpinning the reforms is ensuring a reporting entity’s obligations are clear, easy to understand and reflect contemporary business,” it said.

“The proposed changes seek to simplify and clarify obligations in the regime, rather than fundamentally change existing obligations that are based on international standards.”

An entity's AML/CTF programme is expected to demonstrate how it addresses the risks of money laundering and terrorism financing that it may reasonably face. It is a collection of documented policies, procedures, systems and controls that a business or organisation uses to identify, mitigate and manage those risks.

The Attorney-General’s Department believes that clarifying the requirements will reduce the cost burdens and will result in higher levels of compliance and higher-quality financial intelligence.

Digital asset service providers

There are specific changes for digital asset service and remittance providers to be aware of.

Previously, Australia’s AML/CTF regulations captured only exchanges between fiat and digital currency and vice versa. The department is now proposing to extend the regulations to capture all five services required to be regulated by FATF.

These are: exchanges between digital assets for fiat currency, and vice versa; exchanges between one or more forms of digital assets; transfers of digital assets; safekeeping and administration of digital assets; and participation in and provision of financial services related to an issuer’s offer and/or sale of a digital asset.

Entities that provide one or more of these “designated services” will be required to enrol and register with AUSTRAC, Australia’s AML/CTF regulator and financial intelligence unit, as a digital asset service provider, unless the entity is a financial institution.

Similarly, the department proposes that the terms “electronic funds transfer instruction” and “designated remittance arrangement” be retired and replaced with “value transfer service”. This would allow remittances of any type to be captured by AML/CTF regulations.

Finally, the department is seeking new powers for the AUSTRAC CEO to be able to prohibit individuals from taking part in either remittance or digital asset service activities. This power is already available to the AUSTRAC CEO with regard to traditional financial service activities.