Anti-money Laundering

One of the most significant concerns regarding international money transfers is money laundering. Governments all over the world are constantly putting anti-money laundering measures in place. These measures are crucial to maintaining the integrity and stability of the international financial system. As this blog will explore, Australia takes anti-money laundering extremely seriously. We will take you through […]

One of the most significant concerns regarding international money transfers is money laundering. Governments all over the world are constantly putting anti-money laundering measures in place. These measures are crucial to maintaining the integrity and stability of the international financial system.

As this blog will explore, Australia takes anti-money laundering extremely seriously. We will take you through important elements of the AML/CTF Acts, explain what KYC sees is, and why it is so important, help you to understand your obligations and how to find out what they are, and explore why anti-money laundering is so important.

AML/CTF Acts

As explained by the Australian Government, “The Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act), and the Anti-Money Laundering and Counter-Terrorism Financing Rules (AML/CTF Rules) aim to prevent money laundering and the financing of terrorism by imposing a number of obligations on the financial sector, gambling sector, remittance (money transfer) services.”

Basically, the government wants to know that large sums of money being transferred were acquired legally. As such, we can understand that the purpose of the AML/CTF is to help deter, detect and disrupt money laundering and terrorism financing.

They go on to say that “These obligations include collecting and verifying certain ‘know your customer’ (KYC) information about a customer’s identity when providing those services.” Whilst it can be tedious to complete the KYC process when signing up, it is a requirement designed to prevent corruption.

Businesses that are required to comply with these acts are also required to comply with the when handling this personal information.

What is KYC?

KYC (Know Your Customer) pertains to regular compliance at financial institutions. KYC is necessary for such companies to identify new clients and ensure their funds came from a legitimate source. There are three clearly identifiable steps in the money laundering process, and the purpose of KYC is to cut off money laundering at the first step. These steps are:

• Depositing illegal funds into a financial system.
• “Layering”, which is the process of making a number of transactions, usually repetitive and large amounts of money, designed to obfuscate the origins of the funds.
• “Cleaning” and “washing” the funds by converting them into significant and otherwise acceptable assets like real estate, commercial investments or financial instruments.

When financial institutions take customers through the KYC process, they are screening you against those who pose higher than average risks of money laundering, like convicts, criminal suspects and people or companies under economic sanctions.

It is the responsibility of financial institutions to do customer due diligence (CDD), which goes well beyond the initial vetting process of a customer. They must maintain up-to-date and accurate customer information and transaction records for regulatory compliance reasons. Should any investigations be required, the financial institution needs to be able to provide the thorough, updated and accurate information.

Privacy obligations for small businesses

There is a lot of confusion around the compliance obligations of small businesses, so we will clear this up for you.

When it comes to small businesses, the obligations are different. First, it is important to know the privacy act defines small business based on annual turnover: $3 million dollars of annual turnover or less. The Australian government state that “If a small business is brought into the Privacy Act because they are reporting entities under the AML/CTF Act and then are later exempted from reporting obligations due to rules issued by AUSTRAC under the AML/CTF Act, the small business is still a reporting entity within the meaning of the Privacy Act.”

Like individuals and large businesses, small businesses should understand their responsibilities so they can follow the law as strictly as possible.

Why is anti money laundering important?

On the Anti-money laundering and counter-terrorsim financing page of the Australian Government website, it is explained that “The term ‘terrorism financing’ includes the financing of terrorist acts, and of terrorists and terrorist organisations. The financing of terrorism may include the provision of any kind of asset in any form.” These can include bank credits, traveller’s cheques, bank cheques, money orders, shares, securities, bonds, drafts and letter of credit.

The Australian Government is always looking to improve the AML/CTF regime to “ensure it is fit-for-purpose, responds to the evolving threat environment, and meets international standards set by the Financial Action Task Force (FATF), the global financial crime watchdog and standard-setter.” With organised crime costing Australians tens of billions of dollars every year, it is important to ensure the safety and wellbeing of the Australian community, and uphold the integrity of our markets and economic activity. But the motivation goes well beyond the prevention of illegitimate and illegal financial gain of criminals. The Australian Government also has to prevent funds going to terrorist organisations. It is very important to remember, these laws are not simply designed to prevent deliberate criminal activity, but also to stop legitimate businesses from unwittingly assisting the laundering of money that aids serious crimes.

Australia takes counter-terrorism financing very seriously

In November 2019, Australia hosted the ‘No Money for Terror’ Ministerial Conference on Counter-Terrorism Financing in Melbourne, Australia. The event was attended by 65 delegations, which included 23 ministers and representatives of 15 international bodies such as the United Nations and Financial Action Task Force. The conference considered key terrorism financing risks and focussed on the best practices around the globe for preventing this criminal activity.

Amongst many other talking point, the conference “Recognised the important role of not-for-profit organisations in providing activities and services that aim to improve the lives of individuals and societies” and “Noted that terrorist organisations seek the same logistical capabilities as not-for-profit organisations, which makes them potentially vulnerable to abuse by terrorists and terrorist networks.” This highlights something of crucial significance when understanding and following your compliance obligations: just because you have no ill or criminal intent, does not mean you are completely immune from bad activity around financial transactions. You do your part to help prevent money laundering when you meet all your compliance obligations.

Conclusion

Ultimately, you need to understand your obligations regarding remittance. Whilst submitting personal information and transactional explanations can be tedious and annoying, the rules are required to keep us all safe. Understanding these rules helps to meet your requirements, and also to recognise when you are being asked for unnecessary information. Being armed with this knowledge, you can send money overseas or receive money from overseas more safely.