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2010-2011
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
HOUSE OF REPRESENTATIVES
COMBATING THE FINANCING OF PEOPLE SMUGGLING AND OTHER
MEASURES BILL 2011
EXPLANATORY MEMORANDUM
(Circulated by authority of the Minister for Home Affairs and Justice,
the Honourable Brendan O'Connor MP)
COMBATING THE FINANCING OF PEOPLE SMUGGLING AND OTHER
MEASURES BILL 2011
GENERAL OUTLINE
This Bill amends the Anti-Money Laundering and Counter-Terrorism Financing Act
2006 (AML/CTF Act), the Financial Transaction Reports Act 1988 (FTR Act) and
the Privacy Act 1988 (Privacy Act).
The primary purpose of this Bill is to reduce the risk of money transfers by remittance
dealers being used to fund people smuggling ventures and other serious crimes by
introducing a more comprehensive regulatory regime for the remittance sector.
It will also introduce measures to enhance within the Australian Intelligence
Community information sharing of financial intelligence prepared by the Australian
Transaction Reports and Analysis Centre (AUSTRAC).
Measures in the Bill will also allow businesses regulated under the AML/CTF Act to
more effectively and efficiently verify the identity of their customers by enabling
reporting entities under the AML/CTF Act to use personal information held on an
individual's credit information file for the purposes of electronic verification of
customer identity.
In addition, the Bill amends the FTR Act to enable the AUSTRAC Chief Executive
Officer to exempt cash dealers from obligations under the FTR Act in the same way
in which the AUSTRAC CEO can do so under the AML/CTF Act.
Schedule 1 amends the AML/CTF Act to strengthen the Commonwealth legislative
framework on the regulation of remittance dealers and the providers of remittance
networks.
Remittance dealers facilitate the transfer of funds within and between countries, often
outside the formal financial and banking system. Often remittance services are
provided by remittance dealers operating within large remittance networks which
provide the systems and support needed to transfer customer funds to and from
Australia. Remittance dealers provide a valuable service to the Australian
community. People use remittance services because they see them as cheaper, faster
and more reliable than other options and because they often provide the only means
for sending money to many locations around the world.
The remittance sector is recognised by the international anti-money laundering and
counter-terrorism financing (AML/CTF) community, and domestically by law
enforcement and national security authorities, as being vulnerable to money
laundering and terrorism financing (ML/TF). Australian law enforcement authorities
are aware that some international cash transfer services provided by remittance
dealers are used by individuals in Australia to pay the organisers of people smuggling
ventures and to fund, or launder the proceeds from, other serious criminal activities.
Part 6 of the AML/CTF Act requires remittance dealers to register with the
AUSTRAC before providing remittance services. Providing these services without
being registered is an offence that carries a penalty of imprisonment for two years, a
$55,000 fine, or both. Remittance dealers are the only reporting entities that must
register with AUSTRAC. This requirement is in place because of the unique ML/TF
risk faced by the sector and to give effect to FATF's Special Recommendation VI on
Terrorist Financing which requires regulation of money transfer services either
through a formal registration or license scheme.
The current registration scheme has a number of limitations that affect AUSTRAC's
ability to effectively regulate and supervise the sector, including:
· Registration is automatic upon application without any assessment of the
applicant's suitability.
· There is no clear authority to refuse to register a remittance dealer, or to
suspend, cancel or impose conditions on registration.
· There are limited sanctions available to AUSTRAC to ensure that remittance
dealers comply with their obligations under the AML/CTF Act.
The Bill will address these issues by introducing an enhanced regulatory regime for
remittance dealers and the providers of remittance networks. It will significantly
improve AUSTRAC's ability to effectively regulate the remittance sector.
In summary, the amendments in Schedule 1 will:
· introduce a new designated service into the Act which will extend AML/CTF
regulation to businesses that operate as providers of remittance networks
· require providers of remittance networks and their affiliates, and independent
remittance dealers to be registered with AUSTRAC and to reapply for
registration every 3 years
· introduce a registration scheme which requires a person seeking registration to
provide the AUSTRAC CEO with information relevant to their suitability for
registration, and to allow the AUSTRAC CEO to obtain information from
other persons for the purposes of determining whether the person is suitable to
be registered
· empower the AUSTRAC CEO to refuse, suspend, cancel, or impose
conditions on the registration of a provider of a remittance network, remittance
affiliate or independent remittance dealer
· introduce internal and external review mechanisms for registration decisions
made by the AUSTRAC CEO
· introduce enforcement measures, including offences, civil penalty provisions,
and an infringement notice scheme to enhance AUSTRAC's ability to
effectively regulate the remittance sector
· require providers of remittance networks to undertake some AML/CTF Act
obligations on behalf of their affiliates, and
· provide for a transition period for implementation of the new registration
regime to ensure that those operating in the remittance sector have time to
comply with the registration requirements introduced by this Bill.
2
In keeping with the current framework of the AML/CTF Act, the amendments set out
in this Schedule are principles based with the operational details to be set out in the
Rules.
Schedule 2 amends the AML/CTF Act to expand the list of agencies with which
AUSTRAC can share financial intelligence. While the Australian Security
Intelligence Organisation and the Australian Secret Intelligence Service are listed as
designated agencies under the AML/CTF Act, other key agencies in the Australian
Intelligence Community (AIC) are not included. Similarly, the Department of
Foreign Affairs and Trade - which has responsibility for administering Australia's
sanctions regime - is not listed as a designated agency. These omissions act as a
barrier to achieving a holistic national intelligence effort on national security and
organised crime issues such as people smuggling and ML/TF.
The Bill will enable AUSTRAC to share financial intelligence information with the
Department of Foreign Affairs and Trade, the Defence Imagery and Geospatial
Organisation, Defence Intelligence Organisation, Defence Signals Directorate, and the
Office of National Assessment.
Expanding the list of designated agencies that can access AUSTRAC information will
improve information sharing between AUSTRAC, AIC agencies and DFAT, and
enhance Commonwealth agencies' coordinated response to threats to Australia's
national security.
Schedule 3 amends the AML/CTF Act and the Privacy Act to enable reporting
entities to use credit reporting data to verify the identity of their customers.
Customer identification and verification of customer identity is one of the key
requirements of the AML/CTF Act. The Anti-Money Laundering and Counter-
Terrorism Financing Rules Instrument 2007 (the Rules) allows for document-based
and electronic verification or a combination of the two. Where customer information
is verified electronically, the verification must be based on `reliable and independent
electronic data'. The nature of the information which must be verified varies
depending on whether the customer is a natural or legal person. Where the customer
is a natural person the reporting entity must verify the customer's full name and either
their date of birth or residential address.
Part 4.2 of the Rules also sets out a `safe harbour' electronic verification process
which may be used to verify the identity of customers who are natural persons when
the reporting entity determines that the relationship with the customer is of medium or
lower money laundering or terrorism financing risk. In these circumstances, Rule
4.2.13 specifies that the reporting entity should verify the following customer
information:
· name and residential address using reliable and independent electronic data
from at least two separate data sources; and either
· date of birth using reliable and independent electronic data from at least one
data source; or
3
· that the customer has a transaction history for at least the past three years.
Reporting entities, particularly those which operate online business models, have
expressed strong interest in using electronic identity verification to meet their
obligations under the AML/CTF Act. In practice, however, viability of electronic
verification of identity is affected by the limited options available for using electronic-
based sources for confirming customer details, in particular a person's date of birth.
Credit reporting databases maintained by credit reporting agencies (CRAs) offer a
reliable and independent source of information for the purposes of electronic
verification of identity. The databases maintained by the larger CRAs include date of
birth and other relevant information on most of the adult population of Australia.
However, sections 18K and 18L of the Privacy Act place detailed limits on the
disclosure of personal information held by credit reporting agencies and the use of
that information by credit providers, and to date have precluded the use of personal
information held on an individual's credit information file for the purposes of
electronic verification of identity under the AML/CTF Act.
The Australian Law Reform Commission considered the question of the use of credit
reporting information for electronic verification in its inquiry For Your Information:
Australian Privacy Law and Practice (2008). The ALRC recommended that ,
provided appropriate privacy protections were implemented, `the use and disclosure
of credit reporting information for electronic identity verification purposes to satisfy
obligations under the [AML/CTF Act] should be authorised expressly under the
AML/CTF Act' (Recommendation 57-4). The Government agreed in principle to the
recommendation and subsequently undertook a Privacy Impact Assessment (PIA) to
investigate appropriate privacy protections. Affected private sector businesses and
peak bodies, and privacy groups were consulted as part of the PIA process. The
outcomes of the PIA informed the development of this Bill.
In summary the amendments in Schedule 3 will:
· permit a reporting entity to disclose personal information to a credit reporting
agency for identity verification purposes with the express consent of the
individual whose identity is being verified
· permit a credit reporting agency to conduct a matching process between
personal information provided to it by a reporting entity and the personal
information held on its own files and provide a report to the reporting entity on
the outcome of the verification process
· require reporting entities to notify their customers of unsuccessful attempts to
verify identity using credit reporting data
· require credit reporting agencies and reporting entities to retain information
about verification requests for 7 years and to delete it at the end of that period
· require a credit reporting agency to keep information about verification
requests separate from the individual's credit information file
· create offences to address unauthorised access to, and disclosure of,
verification information.
4
It is important to note that the Australian Government has committed to reforms to
privacy laws to implement the recommendations of the ALRC. To this end, the
Government proposes to respond to the ALRC report in two stages. The first stage
response was publicly released on 14 October 2009 and legislation is in the process of
being drafted to implement this response. The second stage will be advanced once the
first is complete.
Schedule 4 amends the FTR Act to enable the AUSTRAC CEO to exempt a person
from one or more provisions of that Act.
The AML/CTF Act commenced operation in December 2006 and established a
regulatory regime to detect and deter money laundering and terrorism financing. The
AML/CTF Act builds on the obligations contained in the FTR Act and applies to a
wider range of businesses. The AUSTRAC CEO has the ability to provide exemptions
from obligations under the AML/CTF Act. This item will bring the FTR Act into line
with the AML/CTF Act. This will allow the AUSTRAC CEO to provide regulatory
relief in circumstances which would otherwise result in unnecessary or unduly
onerous obligations being imposed.
FINANCIAL IMPACT STATEMENT
AUSTRAC will meet the ongoing costs of administering the measures within existing
resources.
REGULATION IMPACT STATEMENT
The regulatory impact analysis conducted indicates a potential net benefit of between
$17 million and $18 million per year. However, this range was based on the
assumption that affiliates would only incur 10% of their current compliance costs and
a partial estimate of the impact on remittance network providers which took into
account staffing costs only and did not include costs such as the development of
supporting systems.
The detail of the reforms will be contained in the Anti-Money Laundering and
Counter-Terrorism Financing Rules which will be developed by AUSTRAC in
consultation with industry to minimise the impact on business. The assessment of the
regulatory impact of the reforms will be refined as the Rules are developed.
Executive summary
Background
This Regulatory Impact Statement (RIS) examines proposed reforms to the Anti-
Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act). The
proposed reforms would strengthen Australia's anti-money laundering and counter-
terrorism financing (AML/CTF) regime by enhancing the AML/CTF regulation of
alternative remittance dealers. The introduction of a more robust regulatory regime
for this sector aims to reduce the risk of money laundering, counter-terrorism
financing and other serious crimes, such as people smuggling.
5
The alternative remittance sector in Australia provides individuals and businesses
with the ability to transfer funds overseas often outside the formal banking sector.
The system operates through agents who enter into agreements to receive money from
individuals or businesses in one country and pay funds to individuals or businesses
overseas. The remittance sector can transfer funds relatively quickly, securely and
cost effectively and is particularly valuable in countries where established banking
networks do not exist.
Businesses in the alternative remittance sector vary greatly in size and sophistication,
ranging from community-based independent remittance dealers that are sole operator
businesses to large multinational entities that have highly sophisticated operations.
AUSTRAC estimates that there are around 6,500 individual providers of remittance
services in Australia, the majority of which form part of larger networks. Under the
AML/CTF Act, reporting entities are required to report international funds transfer
instructions and threshold transaction (transactions over $10,000 in physical currency)
to AUSTRAC. AUSTRAC estimates for the 12-month period to 31 May 2010 the
total value of all reports submitted by registered providers of remittance services was
$7.2 billion. International funds transfer instruction (IFTI) reports accounted for
approximately $6.3 billion. The reporting value for threshold transaction reports
(TTRs) is estimated to be approximately $856 million.
Problem with existing approach
Australian law enforcement authorities are aware alternative remittance dealers are
being used to facilitate serious and transnational crime, including people smuggling
ventures.
The alternative remittance sector is recognised in Australia and internationally as a
high-risk sector for money laundering and terrorism financing (ML/TF). This is
largely due to the nature of the service, which can involve large-volume transactions,
international funds transfers (including to high-risk countries), and a low level of
compliance with regulation which makes it difficult for authorities to `follow the
money trail'. Money remittance services are particularly vulnerable to misuse for:
· Laundering money gained through illegal activities into seemingly legitimate
funds
· Financing terrorism activities, which has been defined as `the financial
support, in any form, of terrorism or of those who encourage, plan or engage
in terrorism'1
· Financing serious and transnational crime, including people smuggling
activities.
In Australia, alternative remittance dealers are regulated under the AML/CTF Act and
must comply with a range of resulting obligations, including customer identification
and verification, transaction reporting and establishing an AML/CTF program. These
measures have addressed some of the ML/TF risk posed by the sector.
1
World Bank and International Monetary Fund, 2003, Reference Guide to Anti-Money Laundering and Combating the
Financing of Terrorism.
6
However, problems remain with the existing legislative and regulatory regime which
does not sufficiently address the significant risk posed by the sector. The level of
compliance with AML/CTF obligations in the alternative remittance sector is low
which increases the level of ML/TF risk because measures are not in place to mitigate
this risk. For example, a lack of customer due diligence increases the attractiveness of
the business for criminals and a lack of reporting means that AUSTRAC does not
receive the financial intelligence which is used by law enforcement to investigate and
detect criminal activity.
The recognised problems of the current approach are as follows:
· The registration scheme allows no discretion to determine suitability. This
means that criminals are able to legally operate an alternative remittance
dealer by applying for registration to the AUSTRAC CEO who must accept
the registration
· Regulatory and enforcement options are inflexible, and often do not allow for
a proportionate response and have no clearly outlined review mechanisms.
The lack of effective enforcement tools have led to lower compliance levels in
the sector by increasing the difficulty for AUSTRAC to take enforcement
action against non-compliance businesses
· Regulation does not reflect current business practices between providers of
remittance networks (PRNs) and affiliate remittance dealers, increasing
compliance burden on dealers and decreasing regulatory efficiency for
Government, and
· The current system does not adequately take into account the relationship
between PRNs and affiliates and limits the effective flow of information with
potential legal consequences.
Purpose of the proposal
The purpose of this proposal is to address the problems of the existing regulatory
regime identified above. It will enhance the AML/CTF regulation of alternative
remittance dealers to ensure that dealers implement measures to mitigate the risk of
ML/TF.
The proposed reforms will ensure that AUSTRAC has the necessary information
about providers of remittance services to effectively regulate the remittance sector and
reduce the AML/CTF risk posed by the remittance sector.
The regulatory options
The proposal to enhance the AML/CTF regulation is comprised of the following
components:
· provide the AUSTRAC CEO with the ability to refuse, suspend or cancel the
registration of remittance dealers
· introduce regulation of remittance network providers to help AUSTRAC more
effectively regulate the remittance sector by capturing organisations that
establish the systems and support used by their agents to transfer customer
funds internationally, and
7
· extend the infringement notice scheme to cover certain breaches of registration
requirements by remitters to provide AUSTRAC with greater enforcement
powers.
Within this proposal, this RIS proposes two regulatory options to address the
problems with the existing approach:
· Option 1: Enhanced registration for the remittance sector, including providing
the AUSTRAC CEO with the ability to refuse, suspend or cancel the
registration of remittance dealers, and extending the infringement notice
scheme to cover certain breaches of registration requirements by remitters to
provide AUSTRAC with greater enforcement powers.
· Option 2: Enhanced registration for the remittance sector, including that
detailed at Option 1 and introducing regulation of remittance network
providers to more effectively regulate the remittance sector by capturing
organisations that establish the systems and support used by their agents to
transfer customer funds internationally.
Estimated Impacts
The proposed reforms will provide a benefit to the Australian community. For the
wider community, the benefits of the proposed reforms stem from the reduced risk of
remittance services being used to facilitate illegal activity and the associated reduction
in the community wide impacts of criminal activity. These impacts can be both
direct, if community members are the victims of crime and indirect as community
resources are directed to law enforcement activities, criminal justice services or
services to support the victims of crime.
While it was not possible to quantitatively estimate the benefits for this regulatory
proposal, the available evidence points to a real value to individuals and the
community in being able to reduce the risk of money laundering and terrorism
financing.
The proposed reforms will also have a regulatory impact on the remittance sector,
including on small business. Compliance costs identified in this RIS were estimated
using information gathered via a web-based survey of affiliates and independent
remittance businesses and consultations with selected PRNs.
It must be noted that establishing an accurate measure of the likely costs of the
proposed AML/CTF regime is a difficult task for several reasons, including:
· The risk based approach embedded in the legislation allows for high degree of
variation in the approach businesses use to implement the regulatory regime.
As a result, it is difficult for firms to precisely estimate the costs they will
face, there is significant variation across firms, and there is the potential for
wide variation around industry average costs.
· The difficulty separating estimated costs for the proposed reforms from
`business as usual' costs, that is, there are some types of costs that businesses
would incur even without the current regulatory requirements, for example
collecting and verifying customer identification.
· At this stage of the regulatory development process, it is not possible to
establish a detailed understanding of the changes to business systems and
8
processes.2 Further detail will be included in future subordinate regulation
(Rules).
· The combination of industry structure and the nature of the proposed
regulatory means that secondary data sources do not provide a suitable basis to
estimate costs.
Option 1
The proposal in Option 1 would to some degree assist in mitigating the ML/TF risk
posed by the alternative remittance sector. This is due to the AUSTRAC CEO's
ability to not allow a person from providing a remittance service if that person poses a
money laundering or terrorism financing risk. However, as a number of regulatory
problems would remain, the extent to which Option 1 reduces ML/TF risk remains
uncertain.
In this option, alternative remittance dealers would incur costs are associated with the
enhanced registration scheme requiring businesses to provide more information to
AUSTRAC and more frequently. The net impact of Option 1 is $1.5 million in the
first year when all affiliates and independent remittance businesses are registered
under the enhanced arrangements. The NPV of the cost of this Option over 10 years
is $4 million. This assumes all businesses are registered in year 1, 4, 7 and 10. This
RIS determines that the result of considering qualitative and quantitative information
leads to the conclusion that Option 1 is expected to deliver a net benefit.
Option 2
The benefits outlined in Option 1 are also present in Option 2. The additional benefits
of this option are that extending AML/CTF obligations to PRNs formalises the
support already offered by many PRNs to their affiliates. This will have the effect of
boosting compliance by the sector and putting in place better controls to mitigate the
ML/TF risk. As a result, this option is viewed as being highly likely to substantially
reduce the risk of the misuse of remittance services to facilitate illegal activity.
In relation to affiliates of PRNs, a significant saving was identified as the compliance
burden for a number of regulatory activities would be shifted from over 600 affiliates,
many of which are small business, to the larger PRNs. Given the shift in
responsibility, PRNs would incur additional costs associated with registration of
affiliates, development of an AML/CTF Program and reporting requirements. To a
large extent, this reflects existing practices in the industry. PRNs affected by the
reforms will be required to undertake additional regulatory activity to ensure that their
affiliates are complying with AML/CTF regulation.
Independent remittance providers would incur some costs associated with the
enhanced registration scheme.
It is estimated that Option 2 would deliver a net benefit of between $169 million and
$183 million in NPV terms over 10 years. However, this is a partial estimate and
does not take into account significant costs that will be incurred by PRNs, such as the
2
A similar view was expressed in a consultation process in New Zealand to estimate the impacts of their proposed
changes to AML/CTF legislation. See Deloitte (2008) New Zealand Ministry of Justice `Assessment of business
compliance costs of the indicative antimony laundering regulatory requirements' available at
http://www.justice.govt.nz/policy-and-consultation/crime/documents/fatf/AML-Costing-Final-
Report.pdf/view?searchterm=AML%20CTF.
9
development of supporting systems, which could not be quantified despite
consultation with industry. Thus, this represents an over-estimate of the net benefit.
The extent of this over-estimate depends on the costs borne by PRNs for IT system
changes, other process changes and staff training (these costs are not estimated in this
RIS).
Conclusion
Table E.1 presents a summary of the partial compliance cost estimates estimated for
this RIS.
Table E.1: Comparison of options - partial quantified costs/benefits
Option NPV of quantified net benefit/ (cost) over 10 years
Option 1 $4,046,000
Option 2 Range: This figure is based on partial cost estimates,
$ thus the final net benefit will be lower than this
168,930,000 figure.
to $ 183, The figure does not include the expected
300,000 additional costs for PRN's new or enhanced IT
systems, the development of other systems and
processes and in some cases for staff training
This estimate is based on an assumption that
affiliates continue to incur only 10 per cent of
their existing compliance costs.
Note: Numbers above 100,000 have been rounded.
On the basis of the analysis of benefits and costs, Option 2 is the preferred option. As
illustrated in Table E.2, relative to Option 1, Option 2 offers:
· A larger benefit to individuals, industry and the community through putting
better controls in place to mitigate the risk of money laundering and the
financing of terrorism and other criminal activity. In addition, depending on
the final approach to implementing the arrangement, it may be the case that
overall the remittance sector will experience reduced compliance costs.
· Significantly reduced compliance costs for around 6000 affiliates -- mostly
small businesses. There is also the potential for compliance cost reductions to
flow through into lower costs for consumers, although this is dependent on a
range of other factors.
· Formalises and extends existing relationships between PRNs and affiliates to
improve compliance and make enforcement of regulatory requirements more
straightforward for Government.
Table E.2: Comparison of options - qualitative assessment of impacts
Option Qualitative benefits
Reduced risk of Small business Ease of enforcement
ML/TF & competition
Option 1
Option 2
Where: = a positive impact ; and = a negative impact.
10
1 INTRODUCTION
1.1 This Regulatory Impact Statement
This Regulatory Impact Statement (RIS) examines proposed reforms to the Anti-
Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act) to
strengthen Australia's AML/CTF system through enhancements to the AML/CTF
registration scheme.
1.2 Remittance sector
The remittance sector facilitates the transfer of funds within and between countries,
often outside the formal financial and banking system. The remittance sector
provides a valuable service to the Australian community. It provides a cheap, fast,
reliable (and sometimes the only) means of sending money to locations around the
world.
The remittance sector in Australia provides individuals and businesses with the ability
to transfer funds overseas. Fund transfers have typically taken place using
conventional banks and other financial institutions. However, individuals and
businesses also have the option of using providers of remittance services as an
alternative channel for moving funds.
The system operates through businesses that enter into agreements to receive money
from individuals or businesses in one country and pay funds to individuals or
businesses overseas. The remittance sector can transfer funds relatively quickly,
securely and cost effectively and is particularly valuable in countries were established
banking networks do not exist.
AUSTRAC estimates that there are around 6,400 providers of remittance services in
Australia. There are four main types of businesses in the remittance sector. In this
report we are describing them as:
· Providers of remittance networks Tier 1 (PRN T1): PRN T1s (sometimes called
`principal network providers') operate the infrastructure needed to transfer funds
transfers from Australia to other countries and are involved in monitoring
activities on behalf of network providers and remittance affiliates. The primary
purpose of the PRN T1s business is likely to be the provision of remittance or
related financial services. There are approximately 25 PRN T1s in Australia's
remittance sector.
· Providers of remittance networks Tier 2 (PRN T2): PRNs T2 (sometimes called
`super agents') have a contractual relationship with both the PRN T1s and
remittance affiliates. Some PRN T2s have remittance and other financial services
as their primary activity. However, for others, remittance services are part of, but
not the primary purpose of their broader business activities.
· Remittance affiliates: Remittance affiliate businesses provide fund transfer
services to individuals and businesses. Remittance affiliates are most often in a
business relationship with at least one and sometimes more than one PRN T2, and
a PRN T1. This relationship extends to sharing the `brand' of the PRN T1 and/or
11
the PRN T2. There are approximately 6100 remittance affiliates in Australia's
remittance sector.
· Independent remittance businesses: Independent remittance agents provide
remittance services using their own systems and processes. There are
approximately 400 in Australia's remittance sector.
Figure 1-1 illustrates the sector structure and the size of each group. We note that the
terminology used in this diagram is not commonly shared across the remittance
sector. However, it has been adopted consistently throughout this report.
Figure 1-1: Business structure of the remittance sector
1.3 Volume and value of transactions in the remittance sector
Providers of remittance services are required to submit transaction reports to
AUSTRAC. The number of transaction reports submitted annually offers an
indication of the volume of transactions in the remittance sector undertaken by
registered providers of remittance services. Table 1-1 describes the transaction
reporting requirements for providers of remittance services.
Table 1-1: Transaction reports submitted to AUSTRAC
Transaction report Description
Submitted when there is an instruction to
International funds transfer instructions transfer money or property into or out of
reports (IFTI) Australia, either electronically or through a
designated remittance arrangement
Submitted when an exchange of physical
Threshold transactions reports (TTRs) currency is AUD10,000 or more
Submitted when a provider of remittance
services forms a suspicion that a fund
Suspicious matter reports (SMRs)
transfers may be related to an offence such
as tax evasion, or the proceeds of crime
Source: AUSTRAC Annual Report 2008-09
AUSTRAC estimates for the 12-month period to 31 May 2010 the total value of all
reports submitted by registered providers of remittance services was $7.2 billion.
12
IFTI reports accounted for approximately $6.3 billion. The reporting value for TTRs
is estimated to be approximately $856 million.
For all businesses providing remittance services, in 2008-09, AUSTRAC received
approximately 20 million reports3 from registered providers of remittance services, an
average of more than 76,000 reports received per business day.4 T his represents a
10.15 per cent increase on the number of reports received in 2007-08. Figure 1-2
illustrates the proportion of reports submitted to AUSTRAC by the registered
remittance sector and the percentage change in reporting volumes.
Figure 1-2: Reports submitted by the registered remittance sector to AUSTRAC, 2008-09
IFTI reporting volumes
10,243,774 (17.9% change
2004-05
from previous year)
2005-06 11,411,961 (11.4%)
Reporting periods
2006-07 13,017,467 (14%)
2007-08 14,963,719 (15%)
2008-09 16,325,870 (9.1%)
- 2,000,000 4,000,000 6,000,000 8,000,000 10,000,000 12,000,000 14,000,000 16,000,000 18,000,000
Reporting volumes
NB: The numbers of reports for 2004-05 to 2007-08 include only IFTI reports submitted under the FTR Act. The figure for
2008-09 includes IFTI reports submitted under both the FTR Act and the AML/CTF Act. The requirement for IFTIs to be
submitted under the AML/CTF Act came into effect on 12 December 2008.
TTR reporting volumes
2,288,373 (11.3% change
2004-05
from previous year)
2005-06 2,416,427 (5.6%)
Reporting periods
2006-07 2,675,050 (10.7%)
2007-08 2,934,955 (9.7%)
2008-09 3,373,280 (14.9%)
- 500,000 1,000,000 1,500,000 2,000,000 2,500,000 3,000,000 3,500,000 4,000,000
Reporting volumes
NB: The numbers of reports for 2004-05 to 2007-08 include only significant cash transactions reports (SCTRs) that were
submitted under the FTR Act. The figure for 2008-09 includes both SCTRs and threshold transaction reports (TTRs). TTRs
were introduced on 12 December 2008 under the AML/CTF Act and will progressively replace SCTRs from 2008-09 for those
entities with reporting obligations under the AML/CTF Act.
3
IFTIs, TTRs, SMRs
4
AUSTRAC, 2009, AUSTRAC Annual report 2008-09
13
SMR reporting volumes
17,212 (49.9% change from
2004-05
previous year)
2005-06 24,801 (44.1)
Reporting periods
2006-07 24,440 (-1.5%)
2007-08 29,089 (19%)
2008-09 32,449 (11.6%)
- 5,000 10,000 15,000 20,000 25,000 30,000 35,000
Reporting volumes
NB: The numbers of reports for 2004-05 to 2007-08 include only suspect transaction reports (SUSTRs) that were submitted
under the FTR Act. The figure for 2008-09 includes both SUSTRs and suspicious matter reports (SMRs). SMRs were
introduced on 12 December 2008 under the AML/CTF Act and will progressively replace SUSTRs from 2008-09 for those
entities with reporting obligations under the AML/CTF Act.
Source: AUSTRAC Annual report 2008-09
Figure 1-1 illustrates that for all transaction reports, reporting volumes have increased
over the five year period. Information provided by AUSTRAC for this RIS indicates
that between 2008-09 and 2009-10 reporting for the remittance sector has continued
to increase. Specifically, over the two years, the volume of IFTIs has increased by 27
per cent, the volume of TTRs increased by 41 per cent and the volume of SMRs
increased by 68 per cent.
1.4 Development of the current regulatory proposal
The AML/CTF Act commenced in 2006. The Act requires that providers of
designated remittance services are registered by the AUSTRAC. To date, AUSTRAC
estimates that more than 94 per cent of remittance services are registered. However,
experience with the registration scheme has identified a number of shortcomings.
To address the shortcomings, the Government announced its intention to amend the
AML/CTF Act to introduce a more comprehensive regulatory regime for the
remittance sector. The introduction of a more robust regulatory regime for the sector
aims to reduce the risk of anti-money laundering, counter-terrorism financing and
other serious crimes.
On 23 April 2010, the Government released a discussion paper regarding an enhanced
registration scheme for providers of remittance services and invited the remittance
sector to comment on the proposed measures. The discussion paper provided a broad
overview of what this enhanced registration scheme could look like. Essentially, it
proposed a scheme to give the AUSTRAC CEO the power to refuse, suspend, cancel
or impose conditions on registering providers of remittance services. The discussion
paper also noted the possibility of introducing registration requirements for providers
of remittance networks.
14
On 16 July 2010, the Government followed up the discussion paper with specific
proposals for an enhanced AML/CTF registration scheme. The Government
continued its engagement with the remittance sector by facilitating consultations on
the expected impacts of these specific proposals in July and August 2010. The
purpose of consultations was to give the Government a sound understanding of how
the reforms might affect businesses providing remittance services and help to ensure
an effective outcome is reached. The information gathered through these
consultations is used in this RIS.
1.5 Structure of the RIS
The remaining Chapters of this RIS are structured as follows:
· Chapter 2 The nature and extent of the problem
· Chapter 3 The objective of government action
· Chapter 4 Options
· Chapter 5 Impact assessment
· Chapter 6 Preferred option
· Chapter 7 Consultation
· Chapter 8 Other matters
2 NATURE AND EXTENT OF THE PROBLEM
2.1 The nature of money laundering and terrorism financing
The remittance sector is recognised by the international anti-money laundering and
counter-terrorism financing (AML/CTF) community, and domestically by law
enforcement and national security authorities, as being especially vulnerable to money
laundering and terrorism financing.
Australian law enforcement authorities are aware, and international AML/CTF
standards recognise, that international cash transfer services provided by ARDs are
being used to pay the organisers of serious and transnational crime, including people
smuggling ventures.
Thus, the nature of the problem to be addressed by the proposed changes to the
AML/CTF Act is that money remittance services are vulnerable to use by criminals
for the purposes of:
· laundering money gained through illegal activities into seemingly legitimate funds
and
· financing terrorism activities, which has been defined as `the financial support, in
any form, of terrorism or of those who encourage, plan or engage in terrorism'5
and
· financing serious and transnational crime, including people smuggling activities.
The International Monetary Fund reports the social and economic consequences of
money laundering include:
5
World Bank and International Monetary Fund, 2003, Reference Guide to Anti-Money Laundering and
Combating the Financing of Terrorism.
15
· Undermining financial systems: money laundering expands the black economy,
undermines the financial system and raises questions of credibility and
transparency
· Expanding crime: money laundering encourages crime because it enables
criminals to effectively use and deploy their illegal funds
· 'Criminalising' society: criminals can increase profits by reinvesting the illegal
funds in businesses
· Reducing revenue and control: money laundering diminishes government tax
revenue and weakens government control over the economy.6
Terrorism financing involves two broad areas:
· Funding of terrorist attacks - funding the cost of conducting an actual terrorist
attack, including the cost of explosive materials, firearms, communications
equipment, vehicles, travel and accommodation.
· Logistical funding - funding required to support groups or individuals who may
plan a terrorist attack, or direct, recruit for and provide training to terrorist groups.
The funding may also be used to maintain terrorist infrastructure such as training
camps.
The consequences of terrorism are widespread and significant. Since 2001, more than
100 Australians have been killed in terrorist attacks overseas, including a combined
total of 98 Australian victims of the September 11 2001 attacks in the United States
and the Bali bombings of 12 October 2002. It is believed that Australians are now
targeted by terrorists. 7
In the past, few Australians had been killed in terrorist attacks and none were targeted
as Australians. For example:
· Two Australians were killed by the Irish Republican Army in the Netherlands in
1990, with the terrorists believing the victims to be British
· Three Australians were killed in the bombing of the Hilton Hotel in Sydney in
1978, with the terrorists targeting Indian officials attending a meeting there.8
Alternative remittance dealers are recognised in Australia and internationally as a
high risk of being misused for money laundering and terrorism financing. It is known
that alternative remittance dealers in Australia have been used to facilitate money
laundering for serious and organised crime, including people smuggling ventures.
Box 2.1 provides two examples of recent incidents where money laundering activities
were identified within the remittance sector. While these incidents were successfully
thwarted, they highlight the types of illegal activity that can and are occurring within
the sector.
6
AUSTRAC materials, available at
http://www.austrac.gov.au/elearning/pdf/intro_amlctf_money_laundering.pdf, accessed 9 August 2010.
7
Department of Foreign Affairs and Trade, 2004, Transnational Terrorism: The Threat to Australia,
available at http://www.dfat.gov.au/publications/terrorism/chapter1.html, accessed 12 August 2010.
8
Department of Foreign Affairs and Trade, 2004, Transnational Terrorism: The Threat to Australia,
available at http://www.dfat.gov.au/publications/terrorism/chapter1.html, accessed 12 August 2010.
16
Box 2.1: Case study -money laundering within the remittance sector
Case study 1
A Sydney-based family and their associates were suspected of engaging in criminal
activities.
The case involved a number of international funds transfers in and out of Australia, with the
majority of funds being transferred into Australia.
The investigation focused on a particular remittance dealer who was suspected of having
remitted funds overseas on behalf of organised crime groups.
As the law enforcement investigation progressed, it identified a second money laundering
syndicate operating predominantly through a casino.
Law enforcement officers conducted a series of raids across Sydney and Melbourne, and ten
men were arrested for alleged involvement in trafficking AUD250,000 worth of cocaine, ice
and cannabis from NSW to Victoria.
Case study 2
A law enforcement investigation revealed that a number of organised crime syndicates were
using a network of money remittance dealers in Sydney and Melbourne to launder the
proceeds of drug importation and distribution operations.
The money remitters operated out of several shops, which were used by suspects from major
crime syndicates based in Victoria and New South Wales and who transferred money to
syndicates overseas. T he money remitters used various methods to prevent authorities from
detecting their money laundering activities, including:
· Failing to report transactions to AUSTRAC
· Concealing the identity of their clients and the overseas recipients
· Using other remitters to reduce the size of the international transfers and conceal the
frequency of the international transfers
· Paying airline pilots to physically carry large amounts of cash overseas.
Employees of major banks were also investigated for their failure to report large-volume
deposits and transfers made through the remittance dealers' bank accounts.
Investigators charged the proprietors of the money remittance providers and associated
businesses with laundering in excess of AUD93 million. One of the airline pilots pleaded
guilty to money laundering under the Criminal Code Act 1995 and was sentenced to four-
and-a-half years' imprisonment.
Source: Australian Transaction Reports and Analysis Centre, AUSTRAC typologies and case studies reports 2009 and 2010.
2.2 The extent of the money laundering and terrorism financing
Money laundering and terrorism financing are illegal activities that are often not
easily detected. This means that it is not possible to readily quantify the extent of
money laundering or terrorism financing occurring via Australia's money remittance
sector. However, it is possible to point to evidence demonstrating a significant
problem and potentially a growing problem through the outcomes of some
enforcement activities, the level of activity deemed as `suspicious' within the money
remittance sector.
17
Globally, the International Monetary Fund estimated that money laundering could
amount to up to US$1.5 trillion globally.9
In terms of Australia, the Australian Institute of Criminology (AIC) has reported that
money laundering from all crime types in and through Australia amounted to $4.5
billion in 2004.10 The AIC identifies the role of the money remittance sector in
money laundering as `lending themselves to use by criminal or terrorist elements in a
variety of ways', including:
· Due to the number of transactions and intermediaries and the fact that remittance
businesses are illegal in some countries, each transaction does not always have a
single coherent set of documentation which identifies the receiver of the
remittance
· Remittance businesses have not always been obliged to identify their customers
and may receive instructions over the phone, so they may not always know for
whom they are acting
· The use of intermediaries and the possible consolidation of remittances into one
sum means that money is coming in from many sources and no one person or
organisation may have responsibility for knowing the identity of all these sources
· There is the possibility that some providers could be a front for criminal
organisations, or that both providers and users may unwittingly be involved in
illegality.11
The AIC also note that their estimated cost does not include factors such as tax
evasion and that therefore the economic cost of money laundering to the community
is likely to be higher than $4.5 billion per annum. While it is not possible to isolate
the extent of money remittance sector role within this level of activity, the case
studies presented in Box illustrate the links between the money remittance sector and
money laundering.
The costs of terrorism financing are more difficult to measure than money laundering.
Of the estimated US$1,000 trillion that is transferred annually within international
financial markets, only several hundred million dollars is estimated to be involved in
the general financing of terrorism annually, although much smaller sums are required
for the actual implementation of terrorist attacks.
In Australia, the Department of Foreign Affairs and Trade maintains a consolidated
list which, in January 2010, named 3533 individuals and groups to which the terrorist
asset freezing regime applied.12 At February 2006, Australia had only frozen assets
belonging to one group, the International Sikh Youth Federation, totalling $2197.13
9
World Bank and International Monetary Fund, 2003, Reference Guide to Anti-Money Laundering and
Combating the Financing of Terrorism.
10
Stamp, J. & Walker, J, 2007, 'Money Laundering in Australia, 2004' Trends and Issues in Crime and
Criminal Justice, Australian Institute of Criminology, No.342, August 2007.
11
Australian Institute of Criminology, 2010, Risks of money laundering and the financing of terrorism
arising from alternative remittance systems, Transactional crime brief no. 7, April, available at
http://www.aic.gov.au/publications/current%20series/tcb/1-20/tcb007.aspx, accessed 12 August 2010.
12
Department of Foreign Affairs and Trade, 2010. Consolidated list, available at
http://www.dfat.gov.au/icat/UNSC_financial_sanctions.html, accessed 12 August 2010.
13
Attorney-General's Department, 2006. Security legislation review submission,
18
Terrorist attacks are relatively inexpensive to implement. The September 11, 2001
terrorists spent between US$400,000 and US$500,000 to plan and conduct their
attack,14 while the 7 July 2005 London bombings cost approximately £8000 including
overseas trips, bomb-making equipment, rent, car hire and UK travel.15
In comparison, the costs of terrorist attacks are immense. The benefits provided by
government, insurance companies and charities to those killed in the attacks at the
World Trade Centre, the Pentagon and the Pennsylvania crash site and to businesses
and individuals in New York City affected by the attack on the World Trade Centre
was estimated to be approximately US$38.1 billion. This figure only includes the
quantifiable compensation for losses from the September 11 terrorist attacks, and not
the wider effects such as the costs of introducing increased security, intelligence and
defence measures in the US and globally.16 Similarly, by the second anniversary of
the London bombings, the Criminal Injuries Compensation Authority had offered
approximately £4.7 million in compensation awards to the bereaved and injured.17
The remittance sector itself provides reports to AUSTRAC that could be considered
an indication that the extent of the problem of suspected illegal activities in the sector
has been constant over recent years. As noted in Chapter 1, providers of remittance
services have a legal obligation to report to AUSTRAC if they form a suspicion that a
funds transfer may be related to an offence, tax evasion or the proceeds of crime.
The proportion of Suspicious Matter Reports (required under the AML/CTF Act) and
Suspect Transaction Reports (required under the FTR Act) is small relative to say the
volume of IFTIs, at around 0.2 per cent of transactions. This relationship has
remained reasonably consistent over the period 2004-05 to 2008-09, and has grown
along with the growth in the volume of IFTIs. This consistency is also notable given
that the AML/CTF Act, including registration requirements for designated remittance
service providers was introduced in this time period.
2.3 Current legislated approach to registration for provision of money transfer
services
Providers of remittance services have anti-money laundering and counter-terrorism
financing obligations under the Anti-Money Laundering and Counter-Terrorism
Financing Act 2006 (AML/CTF Act). This includes the requirement to register with
14
National Commission on Terrorist Attacks Upon the United States, 2004, Final report of the
National Commission on Terrorist Attacks upon the United States, chapter 5.4., available at
http://govinfo.library.unt.edu/911/report/911Report_Ch5.htm, accessed 12 August 2010.
15
House of Commons, 2006, Report of the Official Account of the Bombings in London on 7th July
2005, HC 1087, 11 May, paragraph 63, available at http://www.official-
documents.gov.uk/document/hc0506/hc10/1087/1087.pdf, accessed 12 August 2010.
16
Dixon and Stern, 2004, Compensation for losses from the 9/11 Attacks, RAND Institute for Civil
Justice, available at http://www.rand.org/pubs/monographs/2004/RAND_MG264.pdf, accessed 12
August 2010.
17
Stone, 2007, The response to victims of major incidents: A review of the Criminal Injuries
Compensation Authority's response to the applicants after the 7 July 2005 London bombings, and
recommendations for future major incident planning, November, available at
http://www.cica.gov.uk/Documents/Archived%20files/Report%20-
%20CICA%20response%20to%20London%20bombings.pdf, accessed 12 August 2010.
19
AUSTRAC before providing funds transfer services. The registration of remittance
affiliates and independent remittance businesses is currently addressed in Part 6 of the
AML/CTF Act. The key aspects of Part 6 are as follows:
· The AUSTRAC CEO must maintain a register of providers of designated
remittance services (section 75)
· A person commits an offence if they provide a remittance service without being
registered (section 74).
The registration process is set out in Section 76 of the AML/CTF Act:
"76 Registration
(1) If:
(a) a person makes a written application to the AUSTRAC CEO for:
(i) the person's name; and
(ii) the person's registrable details;
be entered on the Register of Providers of Designated Remittance
Services; and
(b) the person's name is not already entered on that register;
the AUSTRAC CEO must enter:
(c) the person's name; and
(d) the person's registrable details;
on that register.
(2) An application must be in the approved form."
Under section 76 all that is required for a remittance affiliate or independent
remittance business to become registered is a written application to the AUSTRAC
CEO in the approved form. When an application is received the AUSTRAC CEO
must enter the person's details on the register.
Part 6 does not provide the AUSTRAC CEO with the power to remove a person from
the register when the same concerns described above exist. The AUSTRAC CEO
recently implemented an interim solution to this issue by making a Rule which, inter
alia, allows the AUSTRAC CEO to remove a person's name and registrable details
from the Register, if the AUSTRAC CEO considers that having the person's name
and registrable details on the Register would constitute an unacceptable money
laundering or terrorism financing risk. However, it is desirable to ensure that this
mechanism is clearly set out in the legislation and that review mechanisms are
provided for decisions to refuse to register or cancel registration.
Providing remittance services without registering is an offence that carries a penalty
of imprisonment for two years, a $55,000 fine, or both. Providers must also identify
their customers, keep records, establish an AML/CTF Program, and report suspicious
matters, transactions above a certain threshold and international funds transfer
instructions.
2.4 Problems with the current approach
The intention of the proposed reforms is to ensure that AUSTRAC has the necessary
information about providers of remittance services to effectively regulate the
remittance sector and reduce the AML/CTF risk posed by the remittance sector.
20
The current regulation scheme for the remittance sector presents a number of
problems, namely:
· The registration scheme allows no discretion to determine suitability, thereby
increasing the risk that remittance services will be abused to facilitate illicit
activity including serious organised crimes such as people smuggling
· Regulatory and enforcement options are inflexible, and often do not allow for a
proportionate response and have no clearly outlined review mechanisms
· Regulation does not reflect current business practices between providers of
remittance networks (PRNs) and affiliate remittance dealers, increasing
compliance burden on dealers and decreasing regulatory efficiency for
Government
· The current system does not adequately take into account the relationship between
PRNs and affiliates and limits the effective flow of information with potential
legal consequences.
2.4.1 Lack of discretion determining suitability for registration
As noted in section 2.3, under section 76 all that is required for an ARD to become
registered is a written application to the AUSTRAC CEO in the approved form.
When an application is received the AUSTRAC CEO must enter the person's details
on the register. The CEO's powers have recently been extended to removing a
person's name and registrable details from the register if the CEO is of the opinion
that the consequences of keeping them on the register would constitute an
unacceptable money laundering or terrorism financing risk.18 However, the CEO still
has limited power to exercise discretion as to whether a person should be entered on
the register even in circumstances where the CEO believes that the person should not
be providing alternative remittance services, for example because they present a
significant money laundering, terrorism financing or people smuggling risk.
In allowing anyone to register to provide designated money remittance service, the
current approach presumes that anyone is suitable to provide these services. The
AML/CTF Act is predicated on a risk based approach. Extending this approach to
registration suggests that it is not the case that all members of the community are
suitable to manage the delivery of money remittance services. That is, some people
will be a higher risk of using money remittance services for money laundering or
terrorism financing than others. For example, people who have a criminal history of
money laundering or known terrorism links may not be suitable to provide these
services.
2.4.2 Lack of flexibility in response
The current legislation also does not provide the AUSTRAC CEO with the power to
remove a person from the register if they have concerns that a person on the register
should not be providing alternative remittance services. Nor is there a power to
suspend or restrict registration. The AUSTRAC CEO recently implemented an
interim solution to this issue by making a Rule which, inter alia, allows the
18
Chapter 44 of the Anti-Money Laundering and Counter-Terrorism Financing Rules Instrument 2007
(No. 1). Amended by the Anti-Money Laundering and Counter-Terrorism Financing Rules Amendment
Instrument 2010 (No. 1).
21
AUSTRAC CEO to remove a person's name and registrable details from the Register,
if the AUSTRAC CEO considers that having the person's name and registrable details
on the Register would constitute an unacceptable money laundering or terrorism
financing risk. However, it is desirable to ensure that this mechanism is clearly set
out in the legislation and that review mechanisms are provided for decisions to refuse
to register or cancel registration.
2.4.3 Higher compliance and enforcement burden
In terms of enforcement, it is difficult for AUSTRAC to effectively regulate the sector
because it must focus individually on a large community of more than 6000
remittance services, rather than seeking aggregated information from PRNs.
In addition, as regulatory obligations are currently imposed on the provider of a
remittance service, small businesses are required to shoulder the responsibility of
complying with AUSTRAC's regulatory requirements. In practice, some PRNs have
developed workarounds to support the compliance of their agents through developing
common programs and other infrastructure. However, in some cases some
arrangements may be in breach of the law, for instance where a PRN provides
assistance and advice to remitters about suspicious matter reporting, the remitter may
be in breach of the tipping off provisions of the AML/CTF Act.
Another issue is that the current regulatory arrangements prevent AUSTRAC from
disclosing breaches of the AML/CTF Act and other regulatory issues with the PRN of
a particular remittance agent.
2.4.4 Failure to reflect industry structure and practice
More broadly the current drafting of the Act is problematic because it focuses
regulatory obligations on the providers of remittance services (affiliates and
independent businesses), while largely ignoring the providers of remittance networks.
As outlined in Chapter 1, the PRNs play a key role in the industry. PRNs have a
reputational interest in ensuring that members of their network are not being utilised
for nefarious purposes. Principle and network providers also provided examples
where their own internal processes for vetting new affiliates were more stringent than
the current AUSTRAC registration process. For example, most principle or network
providers who took part in this consultation indicated that they required police checks
of applicants or owners. In some cases bankruptcy checks were also required.
In consultations with the sector, a number of parties commented that there was a
varied understanding of AML/CTF obligations by affiliates. The characteristics of
many affiliates' businesses meant that they were not well positioned to understand or
fully implement the current registration requirements. These characteristics include:
· Many affiliates are small businesses within which money remittance services are a
relatively small component of the overall business.
· Many affiliates are owned and operated by people who have English as a second
language. AUSTRAC produces information in a variety of languages.
Industry itself has recognised this as an issue and has developed approaches to
support their affiliates meet their legislated obligations. Some examples include
principle and network providers:
22
· effectively registering new affiliates
· providing guidance on AML/CTF Programs, including tools and templates
· providing on-going online and telephone training on risk and compliance issues
· co-ordinating or completing compliance reports for affiliates
· monitoring of transactions and reporting IFTIs, TTRs and SMRs to AUSTRAC.
It should be noted that not all principle and network providers undertook all of these
activities. However, it does reflect that the current regulatory obligations fall short of
what is for some current business practice.
Finally, in one regard the affiliates are not able to identify a potential serious risk -
when an individual customer engages in money remittance activity across different
locations. However, principle and network providers are better equipped it appeared
to monitor and report this behaviour.
2.5 The case for a regulatory response
There are two arguments for government initiating a regulatory response to the
regulatory problems outlined in section 2.4. The first is due to the externalities
associated with the activities of money laundering, counter terrorism financing and
people smuggling. The second is because it is in the public interest to more
effectively manage the risk associated with the remittance sector and the effective
management requires government regulation.
2.5.1 Remittance sector externalities
Negative externalities in the remittance sector arise where customers and/or providers
of remittance services do not incur all the costs of their actions. In the case of money
transfers being used to fund serious crime, the costs of crime borne by the responsible
party or parties is the financial penalties and/or imprisonment from a prosecution.
The costs do not reflect the impact on the community resulting from serious crime.
The externalities in this instance are:
· Costs incurred as a consequence of crime, such as increased access to illicit drugs
and the associated harm, harm that can occur as a result of people smuggling
activity, increased incidence of gambling, increased property loss and damage,
time off work and costs for police and health services, reduced feelings of safety
within the community that can inhibit social interaction and community
engagement
· Costs in response to crime, such as criminal justice system costs of investigating
and prosecuting offenders, dealing with offenders (e.g. prison), and criminal
injuries compensation
Providers of designated remittance services do not have a market incentive to manage
risks that do not affect them, which means that they do not address the public risk
presented by criminal and terrorist activity.
2.5.2 Unacceptable risk
There is also a clear case for government intervention where there is an unacceptable
hazard or risk and where government intervention may be in the public interest.
23
Section 2.4 highlighted a number of limitations with the current regulatory scheme
which affect AUSTRAC's ability to effectively regulate and supervise the remittance
sector. The Best Practice Regulation Handbook provides guidance that government
intervention is warranted if a risk to members of the community is unacceptable when
weighed against the costs of correcting for it.
The consequence of a serious crime within the remittance sector could be very
significant and potentially widespread. For example, criminal activity associated with
the remittance sector has ranged from drug trafficking and fraud, to the funding of
terrorist attacks.
In the case of the remittance sector, the likelihood of a serious crime occurring as a
result of a single remittance transaction is low. However, in practice it is known that
some transactions are higher risk than others. These include large value transactions,
international funds transfers and funds transfers to some countries, particular patterns
of transfers.
Using the risk assessment framework in Figure 2.1, at least some transactions are high
risk - with both a high likelihood of being associated with criminal activity with
potentially high detrimental consequences. The majority of transactions would be
considered medium risk with low likelihood of being associated with criminal activity
but still potentially high detrimental consequences.
The remittance sector itself is regarded by international AML/CTF bodies and by
AUSTRAC and Australian law enforcement agencies as carrying a high money
laundering and terrorism financing risk. In Australia, alternative remittance dealers
have been used to facilitate money laundering and terrorism financing for serious and
organised crime, including people smuggling ventures.
Figure 2.1: Risk assessment of remittance transactions
High
Medium risk High risk High risk
Likelihood
Medium Low risk Medium risk High risk
Low risk Low risk Medium risk
Low
Low Medium High
Consequence
Note: the level of risk associated with the likelihood and consequence of an incident from the misuse of funds in the remittance
sector represents a judgement and there is necessarily a degree of uncertainty surrounding this assessment.
24
The above evaluation of the likelihood and consequence of the risks associated with
remittance transactions has been applied to the risk matrix illustrated in Figure 2.1
above. Using the risk matrix, the overall risk associated with these transactions has
been determined to be medium.
The impact of the potential consequences of misuse of remittance funds (serious
crime, terrorism) is a sufficiently unacceptable risk to society as to warrant
government intervention in the public interest because any means of reducing this risk
is considered to be very desirable.
2.6 Case for government action
The case for intervention by Government is supported by the existence of externalities
associated with criminal activity. These negative externalities cannot be addressed
through a market mechanism. A stronger regulatory regime offers the opportunity to
reduce the negative externalities by first deterring the extent criminal activity through
increased threat of being detected and second by enforcement agencies identifying
and responding to criminal activity.
The case for Government intervention is also supported by the need for action to
reduce the risk of the services provided by the remittance sector from being misused
for the purposes of money laundering, terrorism financing, people smuggling or other
serious crimes.
In particular the proposal is consistent with ongoing Government efforts to combat
people smuggling by targeting funding sources for smuggling ventures. For example,
the recent Anti-People Smuggling and Other Measures Act 2010 makes it an offence
to provide material support or resources towards a people smuggling venture. The
new offence will apply in circumstances where money is provided to the person being
smuggled to deter those people from using people smugglers.
The challenge is to ensure that the proposed enhanced registration scheme imposes
costs that are less than the benefits associated with reducing the negative externalities
and risk that is associated with use of the remittance sector to support criminal
activities. The following chapters of this RIS provide an analysis of the relative costs
and benefits of the proposed enhanced registration scheme for the remittance sector.
3 THE OBJECTIVE OF GOVERNMENT ACTION
The objective of Government intervention is to reduce the incidence and risk of
misuse of remittance funds and serious crime related to remittance transactions. In
doing this the intended outcome is to protect the commercial significance of the
remittance sector as part of the critical infrastructure of Australia's financial system.
Any Government intervention is intended to improve the application of resources
(both business and Government), and improve the level of deterrence and disruption
to the misuse and abuse of the sector.
25
4 OPTIONS
4.1 Base case: Status Quo
The Base Case would maintain the current regulatory arrangements, as described in
Chapter 2.
4.2 Option 1: Enhanced registration for providers of designated remittance services
Option 1 would introduce an enhanced registration scheme for remittance affiliates
and independent remittance businesses (providers of designated remittance services).
The key measures proposed under Option 1 include:
· Enhancing the registration process to require applicants to submit a written
application addressing ML/TF risk covering matters such as an applicant's
criminal history, bankruptcy and beneficial ownership arrangements, and to apply
for registration renewal every 3 years.
· Giving the AUSTRAC CEO the power to refuse, cancel, suspend or impose
conditions on registration
· Extending the infringement notice scheme to enable the AUSTRAC CEO to
impose financial penalties for breaches of key registration requirements, namely
the requirement to be registered before providing a designated remittance service,
to comply with registration conditions and to advise AUSTRAC of material
changes in circumstances that affect registration.
The AUSTRAC CEO would be able to refuse a person's application for registration if
he or she is satisfied that allowing the person to provide a designated remittance
service would involve a significant money laundering, terrorism financing or people
smuggling risk, or that it is appropriate to take such action having regard to matters
specified in the AML/CTF Rules. The AML/CTF Rules will be developed in close
consultation with the remittance sector.
As outlined above, the proposed changes will require the AUSTRAC CEO to assess
the suitability of providers of designated remittance services for inclusion on the
register. The more detailed application information that is gathered will inform the
AUSTRAC CEOs decision as to whether an applicant is a suitable person to be
providing remittance services. It will also enable the AUSTRAC CEO to assess
whether the ML/TF risk could be addressed by imposing either a general condition on
registration (such as a requirement to notify AUSTRAC of material changes in
circumstances) or a specific condition (such as the volume of funds able to be
remitted).
The enhanced registration process will mean that some current operators will no
longer be able to provide remittance services. This reflects the intention of the
reforms, which is to ensure that people who pose a money laundering, terrorism
financing or people smuggling risk are not able to facilitate illicit activity through the
transfer of funds through the remittance sector.
The AUSTRAC CEO will be required to give written notice of a proposed registration
decision and give the person 28 days in which to make a submission in response. A
26
person affected by a decision may seek internal review of the decision which would
be carried out by an AUSTRAC officer who is senior to the original decision maker
and who was not involved in the original decision. The reviewer will be able to
affirm, vary or revoke the decision. A person may also seek merits review by the
Administrative Appeals Tribunal of an internal review decision, or a decision made
by the AUSTRAC CEO personally. In addition, a person may seek judicial review
under the Administrative Decisions (Judicial Review) Act 1977. A decision to cancel,
suspend or impose conditions on registration will also be reviewable.
4.3 Option 2: Enhanced regulation of the remittance sector--network providers and
providers of designated remittance services
Option 2 is to enhance regulation of the remittance sector by:
· Enhancing the registration process to require applicants to submit a written
application addressing ML/TF risk covering matters such as an applicant's
criminal history, bankruptcy and beneficial ownership arrangements, and to apply
for registration renewal every 3 years (consistent with Option 2)
· Giving the AUSTRAC CEO the power to refuse, cancel, suspend or impose
conditions on registration (consistent with Option 2).
· Extending the infringement notice scheme to enable the AUSTRAC CEO to
impose financial penalties for breaches of key registration requirements
(consistent with Option 2)
· Introducing the concept of a remittance network provider into the AML/CTF Act,
making PRNs subject to existing AML/CTF obligations relating to customer due
diligence, reporting, maintaining and developing AML/CTF programs and record
keeping
· Introducing a tiered registration scheme where PRNs would be responsible for
their registration as well as their remittance affiliates, and independent remittance
businesses would apply directly to AUSTRAC for registration
· Introducing a rule making power that would enable the AML/CTF Rules to make
provision for the reporting obligations imposed on remittance affiliates under the
AML/CTF Act to be imposed instead, or in addition, on the relevant PRN.
Option 2 would shift many of the existing regulatory burdens away from
approximately 6,100 remittance affiliates on to PRNs. PRNs already provide
AML/CTF support to their affiliates in the ordinary course of business, including the
development of AML/CTF compliance frameworks and transaction monitoring
systems. These form a large proportion of AML/CTF compliance costs for providers
of designated remittance services, which are overwhelmingly small businesses.
Option 2 would formalise existing relationships by requiring providers of remittance
networks to prepare AML/CTF Programs for use by their affiliates and to fulfil some
of the AML/CTF Act reporting obligations on behalf of their affiliates, for example,
compliance reports, international funds transfer instructions and threshold transaction
reports. The costs of complying with AML/CTF obligations are proportionately
larger for remittance affiliates than for PRNs, which have the benefit of specialising in
the provision of remittance network services and can benefit significantly from
economies of scale in compliance costs.
The majority of remittance affiliates are unsophisticated small businesses (for
example news agents and convenience stores) that offer customers access to
27
remittance networks (such as Western Union) as part of a wider range of services.
These businesses face significant challenges ain understanding and complying with
AML/CTF obligations. For example, it will take time for a family run newsagent to
develop the requisite knowledge of AML/CTF regulation. In contrast PRNs are
largely multi-national companies who have sophisticated systems and processes for
compliance with AML/CTF regimes all over the world. Shifting obligations to PRNs
will relieve the compliance burden on around 6,100 affiliates which will reduce
compliance costs across the sector.
Under Option 2, PRNs would have responsibility for registering their remittance
affiliates. Eligibility for assessing registration and overall effects on existing
remittance businesses would be the same as outlined in Option 1, and rights of review
would also apply. It is proposed that where a registration decision affects a particular
person, that person will have a right of review. This means that if the registration of a
remittance affiliate is refused, cancelled or if conditions are imposed on the
registration, then it would be open to both the network provider and the remittance
affiliate to seek review of the decision.
5 IMPACT ASSESSMENT
5.1 Nature of the expected impact
The groups affected by the regulatory proposals are the businesses in remittance
sector, the customers of the remittance sector and the community more broadly. The
discussion below identifies the significant impacts of the regulatory proposals on
these groups.
5.1.1 The remittance sector
As described in Chapter 2, there are four types of businesses in the remittance sector:
· Providers of remittance networks Tier 1 (PRN T1)
· Providers of remittance networks Tier 2 (PRN T2)
· Remittance affiliates
· Independent remittance businesses.
5.1.1.1 Expected benefits
A key benefit for the sector is that a strengthened AML/CTF regime that is able to be
more effectively enforced. This will result in a more consistent approach to
supervision across the sector. One consequence of this will be that businesses who
are currently directing more effort at managing risks will not be at a commercial
disadvantage compared to those who put less effort to managing risk. In addition, a
strengthened AML/CTF regime should assist in maintaining the strong reputation of
Australia's remittance sector which is essential for on-going use by both customers in
Australia and overseas.
In terms of compliance costs, there may be benefits for some parts of the industry in
Option 2. A potential benefit in some circumstances for the remittance sector is an
overall reduction in compliance costs, with remittance affiliates having their burden
28
significantly reduced. This is highly significant for the many small businesses in the
sector that depend are operating high-volume, low-margin business. However, this
benefit arises because the PRNs burden increases.
5.1.1.2 Expected costs
The regulatory options are associated with different types of compliance costs.
Currently, registered remittance affiliates and independent remittance businesses incur
a range of costs in complying with the AML/CTF Act. It should be noted that not all
remittance affiliates incur all costs - PRNs often support their affiliates by providing
access to tools and templates for different aspects of the regulatory requirements. So
independent remittance businesses are likely to incur costs for all the activities listed
below, while the extent of costs incurred by affiliates will depend on the activities of
their PRNs:
Registration
· Registration--including time spent on completing the registration application
initially and then time spent updating registration details such as when contact
details change
AML/CTF Program
· AML/CTF Program -including time spent developing maintaining and reviewing
an AML/CTF Program, including staff costs as well as the development,
maintenance and review of systems and infrastructure to support the program
· Risk Assessment --including time taken and systems developed to undertake risk
assessment reviews for new types of customers, new products, new channels and
jurisdictions
· Employee training --including staff costs to develop and deliver training, staff
costs to attend training and the cost of any material developed and presented at the
training
· Employee due diligence --including staff costs if you choose to apply for and
administer police checks and out-of-pocket costs such as police check application
fees
· Independent review -- including costs incurred for the regular independent review
include costs to engage a suitably qualified and independent person to review the
AML/CTF program and its implementation
· Monitoring -- including costs incurred for the staff costs and systems required to
monitor customers and their transactions
Reporting
· Compliance reporting -- including costs incurred for the staff costs for
completing and submitting an AML/CTF compliance report to AUSTRAC
Monitoring
· Transaction reporting - including costs incurred for the staff costs and systems
required to monitor and report on transactions, including the reporting of IFTIs,
TTRs and SMRs.
Customer due diligence activities are an important activity in the sector. The costs
associated with these activities are included in the AML/CTF Program elements of
29
risk assessment and monitoring as well as the monitoring element of transaction
reporting.
Consultation with PRNs identified how the proposed new regulatory requirements
could require that they undertake new activities and incur associated compliance
costs. In consultation, PRNs reported that while they do undertake some of these
activities now (ie they are business as usual) if they had a legislated obligation they
would need to develop more comprehensive and rigorous approaches to these
activities.
The nature of the new costs that may be incurred by PRNs are summarised in Table
5-1 below.
Table 5-1: Nature of the new activities and costs for PRNs
Proposed new New activities Associated costs
regulatory
requirement
Registration · Maintain information on · Additional staff
· Register as a registration as PRN and · New and enhanced IT
PRN registration of affiliates systems
· Register · Update systems to capture and · Development of systems
affiliates hold registration information and processes
· Develop a new methodology to · Staff training
register new affiliates and
renew registration
· Develop a new process to
register new affiliates and
renew registration
· Develop communication
materials for affiliates
· Develop support tools for
affiliates
· Develop IT systems, including
sourcing some data from central
systems
· Develop approach to
monitoring registration
· Develop approach to manage
enforcement of requirements
· Expand workforce to manage
the 3 year registration renewal
process.
AML/CTF · Revise and update existing · Additional staff
Program AML/CTF program documents/ · New and enhanced IT
· Maintain templates and training systems
AML/CTF · Enhance existing audit · Development of systems
Programs framework to undertake risk and processes
for assessments · Staff training
themselves · Develop and extend monitoring
and affiliates program to ensure programs are
implemented and maintained
30
Proposed new New activities Associated costs
regulatory
requirement
· Enhance IT systems
· Up-skill current workforce
· Develop framework to monitor
that all staff have completed
employee training
· Develop a framework and
approach for compliance
reporting.
· Potentially engage external
parties to undertake
independent reviews on a
sample of affiliates
Reporting · Investment in new systems and · Additional staff
· Manage additional personnel. · New and enhanced IT
reporting for systems
affiliates · Development of systems
and processes
· Staff training
Monitoring · Additional staff
· Manage · New and enhanced IT
monitoring systems
for network · Development of systems
and processes
· Staff training
The table below identifies where the businesses in the remittance sector would be
expected to experience additional costs under the options being considered.
Table 5-2: Additional costs for remittance sector by option
Remittance sector
businesses Option 1 Option 2a Option 2b Option 2c
PRNs T1 No Yes Yes No
PRNs T2 No Yes No Yes
Affiliates Yes No No No
Independent
Remittance
Businesses Yes Yes Yes Yes
5.1.2 Customers of remittance services
For customers of remittance services there are two areas of expected impact.
The first is that a strengthened AML/CTF regime should underpin their confidence
and on-going use of the sector. This is an important sector for many Australian's who
use it to transfer significant amounts of money -- $7.3 billion in the 12 months to
June 2010.
31
The second issue concerns potential cost impacts on services. If it is the case that
overall industry compliance costs are reduced, at a minimum, customers should see no
increase in the costs of using these services while experiencing the benefits. In a best-
case scenario, an overall reduction in compliance costs across the industry may
actually reduce the administrative charges associated with use of the services.
It has not been possible to quantify the benefits of the regulatory proposal to the
customers of remittance services in this RIS.
5.1.3 The community
As discussed in Chapter 3, the wider community is expected to be a beneficiary of the
proposed regulatory changes. These benefits stem from the reduced risk of remittance
services being used to facilitate illegal activity and the associated reduction in the
community wide impacts of criminal activity. These impacts can be both direct, if
community members are the victims of crime and indirect as community resources are
directed to law enforcement activities, criminal justice services or services to support
the victims of crime.
It has not been possible to quantify the benefits of the regulatory proposal to the
community in this RIS. However, Box 5.1 illustrates the benefits for individuals such
as avoiding injuries and death can be quantified and are of significant value.
Box 5.1: Willingness to pay estimate for avoided injury and death
In the wake of the September 11, 2001 attack and an increase in the development of a
regulatory policy response to terrorism and security and community preparedness measures,
a study was undertaken to determine the willingness to pay metrics to prevent injury and
death.
The willingness to pay estimates for avoided injury was calculated based on a study that
reviewed 40 other studies. These ranged from approximately US$20,000 - 70,000.
The willingness to pay estimate for avoided death was calculated using the value of a
statistical life. It used estimates of US$3 million to US$6 million which reflected
assumptions used by the U.S. Department of Transportation and U.S. Environmental
Protection Agency.
Source: Latourrette T, and Willis, H, (2007), Using Probabilistic Terrorism Risk Modelling For Regulatory Benefit-Cost
Analysis, Working Paper, Centre for Terrorism Risk Management Policy, available at
http://cbp.customs.gov/linkhandler/cgov/travel/vacation/ready_set_go/whti_bg/ref_mat/econ_analysis.ctt/econ_analysis.pdf,
accessed 9 August 2010.
32
5.2 Approach to analysis
5.2.1 Estimating the benefits
The proposed regulatory changes are expected to reduce the risk of people using
Australia's money remittance services for illegal activities including money
laundering and financing terrorism. This change offers benefits for customers of
remittance services and the wider community.
The qualitative assessment of these benefits identifies the following impacts:
· For customers of remittance services a strengthened AML/CTF regime should
underpin their confidence and on-going use of the sector. This is an important
sector for many Australian's who use it to transfer significant amounts of
money -- $7.3 billion in the 12 months to June 2010. Subject to final the
compliance costs there is also the potential for any reductions in compliance
costs to flow through to a lower-cost service.
· For the wider community, the benefits of the proposed reforms stem from the
reduced risk of remittance services being used to facilitate illegal activity and
the associated reduction in the community wide impacts of criminal activity.
These impacts can be both direct, if community members are the victims of
crime, and indirect as community resources are directed to law enforcement
activities, criminal justice services or services to support the victims of crime.
While it was not possible to quantitatively estimate the benefits for this regulatory
proposal, the available evidence points to a real value to individuals and the
community in being able to reduce the risk of money laundering and terrorism
financing. For example, in relation to financing terrorism, it is reported that terrorist
attacks are relatively inexpensive to implement. For example, the September 11 2001
terrorists spent US$400 000 and US$500 000 to plan and conduct their attack.19 In
comparison, the costs of terrorist attacks can be immense. The payments provided by
government, insurance companies and charities to those killed in the attacks at the
World Trade Centre, the Pentagon and the Pennsylvania crash site and to businesses
and individuals in New York City affected by the attack on the World Trade Centre
was estimated to be approximately US$38.1 billion. This figure only includes the
quantifiable compensation for losses from the September 11 terrorist attacks, and not
the wider effects such as the costs of introducing increased security, intelligence and
defence measures in the US and globally.20
19
National Commission on Terrorist Attacks Upon the United States, 2004, Final report of the National Commission on
Terrorist Attacks upon the United States, chapter 5.4., available at
http://govinfo.library.unt.edu/911/report/911Report_Ch5.htm, accessed 12 August 2010.
20
Dixon and Stern, 2004, Compensation for losses from the 9/11 Attacks, RAND Institute for Civil Justice, available at
http://www.rand.org/pubs/monographs/2004/RAND_MG264.pdf, accessed 12 August 2010.
33
5.2.2 Estimating the costs
Types of costs associated with the regulatory proposal were identified based on the
understanding of the AML/CTF legislative requirements faced by businesses and
discussions with the sector. The core components of the analysis of costs reflect the
four key elements of the proposed reforms, namely:
· Registration
· AML/CTF Programs
· Reporting
· Monitoring.
Compliance costs presented in this RIS are estimated using information gathered via a
web-based survey of affiliates and independent remittance businesses and
consultations with selected PRNs.
The web-based survey of affiliates and independent remittance collected information
used to estimate current compliance costs associated with Registration, AML/CTF
Program, Reporting, and Monitoring. It also collected information used to estimate
compliance costs expected with the regulatory proposal under Option 1. Cost
estimates for affiliates and independent remittance businesses were generated by
gathering information about time spent in regulatory activities and out-of-pocket costs
for those activities.
Consultation meetings were held with five PRNs to gather the cost information on the
expected impacts of the regulatory option 2 for businesses in that sector (details of
consultation are in Chapter 7). In consultation, PRNs reported additional costs due to
the need to formalise existing activities if they become regulatory requirements as
well additional categories of costs to implement the regulatory options being
considered.
The goal of the information collection was to generate the basis for estimating costs
that might be incurred if the AML/CTF regulatory regime is strengthened as per the
current regulatory proposal. Reflecting the current stage of regulatory development,
the consultation relied on asking broad questions. The responses provided during
consultation and in the survey should be considered in that context. With more detail
on the specific elements of the regulatory proposal, industry participants would be in a
position to provide more specific responses about impacts.
· During consultations the PRNs provided information that was used to estimate
indicative cost of additional staff requirements for the regulatory options.
However, it was not possible to estimate the impacts of all expected costs.
Specifically, it was not possible to generate cost estimates for new and enhanced
IT systems, development (including redesign) of systems and processes and some
staff training.
Table 5-3 illustrates the types of compliance costs the PRNs identified. (In New
Zealand, businesses identified similar cost categories for expected changes to
compliance costs due to changes in AML/CTF legislation.21) The Table identifies the
21
Deloitte (2008) New Zealand Ministry of Justice `Assessment of business compliance costs of the indicative antimony
laundering regulatory requirements' available at http://www.justice.govt.nz/policy-and-
consultation/crime/documents/fatf/AML-Costing-Final-Report.pdf/view?searchterm=AML%20CTF.
34
costs that are quantified in this RIS. It highlights that the PRN's compliance cost
estimates presented in the RIS are partial cost estimates only.
Table 5.3 PRN's compliance costs that are quantified in this RIS
Types of new costs Quantified in this RIS
expected for PRNs
Registration AML/CTF Reporting Monitoring
Program
Additional staff
New and enhanced IT
systems
Development of
systems and
processes
Staff training
Considering the costs that not quantified in this RIS, secondary sources were
considered as a potential source of information for new and enhanced IT system costs
and the development of new systems and processes. These items could potentially
involve significant costs for business. (In New Zealand, system costs were expected
to account for up to half the total estimated compliance costs.22) However, for the
reasons set out below, secondary sources have not been used to estimate costs for this
RIS.
First, the nature of IT system and other process changes depends significantly on the
nature of the change required. At this stage of the regulatory development process, it
is not possible to establish a detailed understanding of the IT requirements needed
under a new approach or therefore of the associated costs.
Second, the size of the cost impact depends on the existing IT infrastructure and
processes. For example, some IT platforms can accommodate change more easily
(and cost effectively) than others. A further complexity for costing IT system and
other process changes within this sector is that some PRNs are likely to operate on
global IT platforms while others will not. Indeed the PRNs range from highly
sophisticated global and national entities with an extensive geographic presence
through to small businesses with a local focus and limited support infrastructure. The
industry structure and nature of the proposed regulatory change precluded identifying
another Australian industry that could provide a suitable basis for cost comparisons.
Third, more broadly, the combination of industry structure and the particular
characteristics of this regulatory proposal meant that no comparable international
scenario was seen as a suitable basis for comparison.
With respect to the training costs that are not quantified, the detail available in the
current regulatory proposal did not allow a clear understanding of the extent of these
costs.
22
Ibid.
35
The process of introducing the regulatory changes considered in this RIS includes
specifying further detail in the subordinate regulation (Rules). Thus, for Option 2, the
RIS sets out a number of approaches that could be incorporated into future Rules and
the associated estimate of costs. Through the process of developing the Rules, it
should be possible to consult further with the sector and understand the size of the
costs not quantified in this RIS. In consultations, the PRNs indicated that they had a
strong interest in being involved in future consultation.
It must be noted that establishing an accurate measure of the likely costs of the
proposed AML/CTF regime is a difficult task for several reasons, including:
· The risk based approach embedded in the legislation allows for high degree of
variation in the approach businesses use to implement the regulatory regime. The
consequences of this legislative feature include:
o it is difficult for firms to precisely estimate the costs they will face
o there could be significant variation current and future costs across firms
o there is the potential for wide variation around industry average costs
· The difficulty separating estimated costs for the proposed reforms from `business
as usual' costs, that is, there are some types of costs that businesses would incur
even without the current regulatory requirements, for example collecting and
verifying customer identification.
· At this stage of the regulatory development process, it is not possible to establish a
detailed understanding of the changes to business systems and processes.23
Further detail will be included in future subordinate regulation (Rules).
· The combination of industry structure and the nature of the proposed regulatory
means that secondary data sources do not provide a suitable basis to estimate costs
where there are gaps in primary data.
5.3 Assumptions for the analysis
The key assumptions underpinning this analysis are:
· Cost data gathered through consultations and the survey is indicative for the
sector;
· Business-as-usual costs are excluded -- some activities that are proposed under
the enhanced regulatory arrangements are already being undertaken by some
businesses. These costs are considered business as usual and are not relevant in
estimating the regulatory burden.
· All businesses will comply with future regulatory requirements -- as noted
previously, there is a degree of non-compliance by remittance affiliates and
independent remittance businesses with the current regulatory arrangements. This
is borne out somewhat by the survey results (described below). The analysis
assumes that under the enhanced proposal all businesses comply with the
regulatory requirements.
Each option includes quantification of at least cost compliance costs. The specific
assumptions used to generate these estimates are described in each option.
23
A similar view was expressed in a consultation process in New Zealand to estimate the impacts of their proposed
changes to AML/CTF legislation. See Deloitte (2008) New Zealand Ministry of Justice `Assessment of business
compliance costs of the indicative antimony laundering regulatory requirements' available at
http://www.justice.govt.nz/policy-and-consultation/crime/documents/fatf/AML-Costing-Final-
Report.pdf/view?searchterm=AML%20CTF.
36
5.4 Base Case - retaining the status quo
The Base Case is simply the status quo. It is used as the basis against which to
compare the alternative options. This section describes the Base Case. As described
in Chapter 2, there are four types of businesses in the remittance sector:
· Providers of remittance networks Tier 1 (PRN T1)
· Providers of remittance networks Tier 2 (PRN T2)
· Remittance affiliates
· Independent remittance businesses.
The sections below describe in broad terms how each part of the sector operates. It is
important to note that PRN T1's and PRN T2's are not currently reporting entities
under the AML/CTF Act and do not have legislative obligations to provide AML/CTF
support and assistance to their remittance affiliates (although this is commonly part of
the business relationship).
5.4.1 PRN T1
PRN T1s operate the infrastructure needed to transfer funds transfers from Australia
to other countries and are involved in monitoring activities on behalf of network
providers and remittance affiliates. The primary purpose of the PRN T1s business is
likely to be the provision of remittance or related financial services. There are
approximately 25 PRN T1s in Australia's remittance sector.
PRN T1s are typically global organisations. The larger PRNs have well-developed
internal capabilities, including resources and IT. They operate with their global
counterparts in developing and implementing approaches to managing their
operations, including legislative compliance and risk issues.
As illustrated in Figure 1-1, PRN T1s usually have arrangements in place with PRN
T2s (sometimes called super agents). Sometimes there is an exclusive relationship
between one PRN T1 and one PRN T2. However this varies and it is more common
for PRN T1s to have arrangements in place with a number of PRN T2s.
PRN T1s vary in the number of affiliates that are use their networks. The largest PRN
T1 manages thousands of remittance affiliates, while the smaller PRN T1s manage
just a few affiliates.
In many cases, the relationship between the PRN T1 and the PRN T2 means that there
is a very limited relationship between the PRN T1 and their remittance affiliates. This
relationship usually extends to the monitoring of transactions only. There is no direct
contractual relationship. In consultations for this RIS it seemed that the smaller PRN
T1s had a detailed understanding of individual affiliates within their network.
37
5.4.2 PRN T2
PRNs T2 have a contractual relationship with both the PRN T1s and remittance
affiliates. Some PRN T2s have remittance and other financial services as their
primary activity. However, for others, remittance services are part of, but not the
primary purpose of their broader business activities.
There are approximately 40 PRN T2s in Australia's remittance sector. Some PRN
T2s have hundreds, and in one case thousands, of affiliates while some PRN T2s have
just a few affiliates.
The PRN T2s often `recruit' affiliates to be part of a network and therefore part of
their business. As such, they tend to engage in screening activities of prospective
affiliates prior to allowing them to join their network. They also tend to have regular
contact with their affiliates.
The PRN T2s may also provide support to their affiliates to assist the affiliates fulfil
their obligations under the AML/CTF Act. For example, they may provide templates
and tools to help meet AML/CTF Act requirements, provide updates on emerging
issues, monitor transitions for high risk activities, undertake coordinating functions
across their affiliates to meet regulatory requirements. However, the extent to which
theses activities are undertaken varies across the PRN T2s.
5.4.3 Remittance affiliate businesses
Remittance affiliate businesses provide fund transfer services to individuals and
businesses. Remittance affiliates are most often in a business relationship with at
least one and sometimes more than one PRN T2, and a PRN T1. This relationship
extends to sharing the `brand' of the PRN T1 and/or the PRN T2. There are
approximately 6100 remittance affiliates in Australia's remittance sector.
Some remittance affiliates offer remittance services as the main activity of their
businesses. However, the majority offer remittance services as part of a much wider
range of services. For example, remittance services that are provided at post offices,
newsagents, general stores. Remittance services are often provided by small
businesses.
Remittance affiliates receive different types of support to meet their AML/ CTF
obligations from their PRN T2s.
Providing remittance services has a varied degree of importance for remittance
affiliates and independent remittance agents. For some businesses, providing a
remittance service is the main business activity while for other businesses it is a minor
part of their operations. In some cases, providing remittance services is part of a
contractual obligation, where money remittance is a component of a bundle of
services that must be available.
38
5.4.4 Independent remittance businesses
It is not essential for providers of remittance services to belong to a remittance
network or have a business relationship with a PRN T1 or PRN T2. Independent
remittance agents provide remittance services using their own systems and processes.
There are approximately 400 in Australia's remittance sector. It is believed that many
independent remittance affiliates are essentially specialised providers for individual
cultural or ethnic groups within the Australian community and small businesses.
5.4.5 Observations about the Base Case
The remittance sector is recognised both in Australia and internationally as being
more vulnerable than other sectors to the risk of money laundering and terrorism
financing. In addition, AUSTRAC typologies and law enforcement experience have
identified remittance services as one of the methods employed to finance people
smuggling activities. To address this risk, and to comply with the Financial Actions
Task Forces' Special Recommendation IV, the AML/CTF Act has a registration
scheme in place so that AUSTRAC has a record of who is operating in the remittance
sector. As explained elsewhere in this RIS, the registration scheme allows no
discretion to determine suitability of those operating in the sector. This increases the
risk that remittance services will be abused to facilitate illicit activity including
serious organised crime such as people smuggling.
In general, the overall level of compliance with AML/CTF obligations by the
remittance sector is low.
As at 30 June 2010, approximately 94 per cent of the estimated remittance population
had registered with AUSTRAC. While the number of registered remittance dealers
has increased significantly in recent years due to a dedicated registration campaign
run by AUSTRAC, the sector is characterised by a lack of compliance with
AML/CTF Act obligations. Observations from AUSTRAC's supervisory activity are
that many businesses do not have a written or appropriate AML/CTF program, do not
have adequate customer identification procedures in place and do not conduct suitable
risk assessments.
In consultation, PRNs commented that across the sector there was significant
variation in the level of understanding of AML/CTF obligations. While some
affiliates are well versed in their obligations, others operate with a limited
understanding. The survey provides an indication that compliance may be an issue in
some areas. For each element of the AML/CTF Program, respondents were given the
option to identify if they had not undertaken a particular regulatory activity yet.
Within this group some businesses may be relatively new and therefore not yet
required to undertake a regulatory activity. However, some businesses would be non-
compliant. These results should also be considered as a best-case scenario as there is
likely to be `self-selection bias' as those who choose to respond to a survey may also
be more likely to comply with regulatory requirements.
39
Table 5-4: Survey respondents reporting that they had not undertaken a regulatory
requirement yet
AML/CTF program requirement Proportion who had not undertaken a regulatory
requirement yet
Reviewing and maintaining 5%
Risk assessment 7%
Monitoring 3%
Employee training (risk awareness) 14%
Employee due diligence 30%
Independent review 14%
Compliance report 5%
Source: Survey of remittance affiliates and independent remittance businesses July / August 2010
5.5 Option 1: Enhanced registration for providers of designated remittance services
5.5.1 Description of benefits
Implementing an enhanced registration scheme for providers of designated remittance
services would reduce the risk of services provided by remittance dealers of being
misused for money laundering and the financing of terrorism, people smuggling and
other criminal activity in the following ways.
Firstly, the more detailed application process for registration and the ability of the
AUSTRAC CEO to refuse, cancel or suspend a person's registration provides the
AUSTRAC CEO with the ability to control who is able to provide remittance services
and to prevent unsuitable persons from obtaining or retaining registration. By
requiring applicants to provide information about their criminal history, bankruptcy
and beneficial ownership, the AUSTRAC CEO can ensure that persons who pose
significant money laundering, terrorism financing or people smuggling risk are not
permitted to provide remittance services.
Secondly, the ability to impose conditions on a person's registration will allow
AUSTRAC to set parameters on how a registered remittance dealer can operate. For
example, restrictions may be placed on the volume of funds remitted by a provider of
a designated remittance service or the destination of funds. This enables the
AUSTRAC CEO to modify the AML/CTF Act's risk-based approach to regulation,
which ordinarily leaves it completely up to reporting entities to assess the AML/CTF
risk faced by their business and to put in place appropriate systems and controls to
address that risk. Given that the large majority of remittance dealers are small
operators with highly variable levels understanding of AML/CTF obligations who are
operating in a sector that is known to be vulnerable to money laundering and terrorist
financing, the ability to impose conditions on registration will assist remittance
providers to identify, mitigate and manage the risk of their services facilitating money
laundering or terrorism financing.
40
Finally, the introduction of an infringement notice scheme to cover breaches of
certain registration obligations will give AUSTRAC additional enforcement options
which will enable it to take enforcement action that is proportionate to the breach.
The main enforcement options in the existing AML/CTF Act are civil penalties,
criminal offences and enforceable undertakings. These are often costly and time
consuming for both AUSTRAC and reporting entities, and in effect act as a barrier to
enforcement. The ability to issue infringement notices for failures to comply with
registration requirements--particularly conditions imposed on registration--will have
a positive effect on AML/CTF compliance by reporting entities as the possibility of
being issued with a pecuniary penalty for non-compliance gives providers of
remittance services greater incentive to comply with their registration obligations.
5.5.2 Estimate of costs
The costs for Option 1 include the additional costs of moving to an enhanced
registration system that includes providing more information to AUSTRAC and
registration renewal every three years. Under the regulatory proposal, these
additional costs would be borne by remittance affiliates and independent remittance
businesses.
The survey of affiliates and independent remittance businesses asked respondents to
estimate how much time it would take them to review information, record it and
submit it to AUSTRAC associated with:
· confirming that key personnel who provide remittance services have National
Police Certificates
· providing information about whether key personnel who provide remittance
services have taken advantage of the laws of bankruptcy
· providing information about the structure of the business including beneficial
ownership and control arrangements.
These questions are reasonably broad in nature and the responses suggest that a
significant amount of time may be required to meet them. It is possible that with more
detailed information, survey respondents would provide different answers, and
possibly estimate less time.
The approach used is to estimate the costs to complete the registration renewal
activities is based on information from the survey. Respondents estimated how long it
would take them to complete the new activities. For affiliates the estimate was 5.5
hours. For independent remittance businesses the average estimate of time they
would require was 7.5 hours.
These average time estimates were multiplied by an average wage rate plus 20 per
cent on-costs to estimate the cost of time spent that would be spent undertaking the
new regulatory activities. The wage rate used for the affiliates and independent
remittance businesses is the average weekly earnings for a full-time adult ordinary
time earnings in the retail trade.24 That cost is $36 per hour.
24
Australian Bureau of Statistics (ABS) 2010, Average Weekly Earnings, Australia Feb 2010, cat.
6302.0.
41
The average cost per activity (estimated average time required X wage rate) was
multiplied by the frequency of activities per year to estimate the total cost per
business per year. In this case, it was assumed that the renewal would occur once
every three years.
Out-of-pocket costs were assumed to include the cost of National Police Certificates
at $32.50 for two key personnel. The actual number of personnel who would require
a National Police Certificate would be established in future subordinate legislation.
Option 1 also assumes that the same proportion of affiliates and independent
remittance businesses that currently complete their own registration would continue to
do so. That is, 89 per cent of affiliates and 85 per cent of independent remittance
businesses.
As the registration renewal is expected every three years, the NPV is estimated
assuming the renewal occurs in year 1 (when all independent remittance businesses
and affiliates obtain registration under the new system then again at 4, year 7 and year
10). The estimate of compliance costs assumes that the initial registration process in
year 1 and the subsequent registration processes require the same information.
Table 5-5 shows the expected absolute total compliance costs of the new registration
approach would be an additional $264 per registration renewal per affiliate and $335
per registration renewal per independent remittance businesses.
Table 5-5: Option 1 absolute compliance total costs for affiliates and independent businesses
Regulatory Affiliates Independent
requirement remittance
businesses
Cost per Sector costs NPV over 10 Cost per Sector costs NPV over 10
entity in in years entity in in years
year 1 year 1 year 1 year 1r
($) ($) ($) ($) ($) ($)
Registration $264 $1,360,000 $3,850,000 $335 $120,000 $340,000
renewal
Source: Analysis of data from the survey of remittance affiliates and independent remittance businesses July / August 2010.
Note: a. Numbers above 100,000 have been rounded.
Note: b Assumes registration/registration renewal takes place in years 1, 4, 7 and 10.
42
Table 5-6 shows that this is a total cost of $1.48 million in the first year which is
equivalent to a NPV cost of $4.19 million over 10 years.
Table 5-6: Option 1 total compliance total costs for affiliates and independent businesses
Regulatory requirement Total industry costs
Cost in NPV over 10 years
year 1 ($)
($)
Registration renewal $1,480,000 $4,190,000
Source: Analysis of data from the survey of remittance affiliates and independent remittance businesses July / August 2010.
Note: a. Numbers above 100,000 have been rounded.
Note: b Assumes registration/registration renewal takes place in years 1, 4, 7 and 10.
There are no additional costs to PRNs T1 or T2 in option 2.
5.5.3 Summary of impacts
Option 1 delivers some benefits while also increasing compliance costs for affiliates
and independent remittance businesses.
The key benefit of Option 1 is that an enhanced registration scheme for providers of
designated remittance services would reduce the risk of the services they provide
being misused for money laundering, the financing of terrorism, people smuggling
and other criminal activity. This would occur as the AUSTRAC CEO would be able
to:
· Control who is able to provide remittance services and to prevent unsuitable
persons from obtaining or retaining registration
· If necessary, set parameters on how a registered remittance dealer can operate
· Enact expanded enforcement options that provide stronger incentives for
providers of remittance services to comply with their registration obligations.
However, many of the enforcement challenges that are present within the current
arrangements would continue in Option 1. Thus, the extent to which Option 1 would
reduce the relevant risks is uncertain.
Table 5-7 show the net cost of introducing the enhanced registration scheme for
affiliates and independent remittance businesses. This is the cost associated with
introducing Option 1 less the costs already being incurred, as estimated in the Base
Case. The table shows that the net cost impact per entity in year 1 is $260 for
affiliates and $331 per independent remittance business. The NPV of the net cost of
compliance for Option 1 is $3.7 million for affiliates and $330 000 for independent
remittance businesses.
43
Table 5-7: Net total compliance total costs for affiliates and independent businesses
Regulatory Affiliates Independent
requirement remittance
businesses
Cost per Sector NPV over 10 Cost per Sector NPV over 10
entity in costs in years entity in costs in years
year 1 year 1 year 1 year 1r
($) ($) ($) ($) ($) ($)
Base Case $4 $19,025 $130,000 $4 $1,375 $9,655
Registration
Option 1 $264 $1,360,000 $3,850,000 $335 $120,000 $340,000
Registration
Net Compliance $260 $1,340,000 $3,720,000 $331 $120,000 $330,000
Cost Option 1
Source: Analysis of data from the survey of remittance affiliates and independent remittance businesses July / August 2010.
Note: a. Numbers above 100,000 have been rounded.
Table 5.7 shows the net cost of introducing the enhanced registration scheme for the
sector. This is the cost associated with introducing Option 1 less the costs already
being incurred, as estimated in the Base Case. The net costs of the enhanced
registration scheme in year 1 is $1.5 million, with the NPV of the cost over 10 years is
$4 million.
Table 5.8 Net Compliance costs for both affiliates and independent businesses
Total industry costs
Nature of proposed regulatory change Cost over 1 year NPV over 10 years
Units ($) ($)
$20,400 $140,000
Base Case: Registration
$1,480,000 $4,190,000
Option 1: Registration Renewal
$1,460,000 $4,050,000
Net Compliance Cost Option 1
Source: Analysis of data from the survey of remittance affiliates and independent remittance businesses July / August 2010.
Note: a. Numbers above 100,000 have been rounded.
The net impact of Option 1 is $1.5 million in the first year when all affiliates and
independent remittance businesses are registered under the enhanced arrangements.
The NPV of the cost of this Option over 10 years is $4 million. This assumes all
businesses are registered in year 1, 4, 7 and 10.
In summary the analysis of Option 1 presents a qualitative assessment of benefits and
quantitative assessment of costs. The benefit is a reduced risk of misuse of remittance
services for money laundering, the financing of terrorism and other criminal activity
through stronger controls over providers of remittance services. However, the
challenges of enforcement that are present within the current arrangements would
continue in Option 1. Thus, the extent to which the option would reduce the risks
44
would be limited. Nevertheless, this is an important benefit and is assessed as
outweighing the modest increase in compliance costs for affiliates and independent
remittance businesses. The result of considering qualitative and quantitative
information leads to the conclusion that Option 1 is expected to deliver a net benefit.
5.6 Option 2: Enhanced regulation of the remittance sector--network providers and
providers of designated remittance services
5.6.1 Description of benefits
This option extends the enhanced registration outlined in Option 1 to introduce the
concept of a PRN into the AML/CTF Act. The benefits of the enhanced registration
scheme apply equally to this proposal. In addition, extending AML/CTF obligations
to PRNs enables the support already offered by PRNs to their affiliates to be
formalised, which will have an overall effect of boosting compliance by the sector.
As such, there will be better controls in place to mitigate the risk of money
laundering, the financing of terrorism and people smuggling.
The remittance sector is recognised by the international AML/CTF community and
domestically by law enforcement authorities as being vulnerable to money laundering
and terrorism financing. The high AML/CTF risk inherent in the provision of
remittance services is compounded by the fact that there is non-compliance with
AML/CTF obligations within the sector. The majority of operators that provide
remittance services are small businesses who are less likely to have the AML/CTF
knowledge and organisational capacity necessary to implement their AML/CTF
obligations. Observations from AUSTRAC's supervisory activity are that many
businesses do not have a written or appropriate AML/CTF program, do not have
adequate customer identification procedures in place and do not conduct suitable risk
assessments. The proposal to introduce legal obligations for PRNs requiring them to
undertake certain obligations on behalf of their affiliates--such as the creation of an
AML/CTF program for use by their affiliates and the reporting of threshold
transactions and international funds transfer instructions--will have the effect of
increasing AML/CTF compliance within the sector. Affiliates will be able to focus on
mitigating and managing the AML/CTF risk associated with the provision of
remittance services, rather than conducting AML/CTF research themselves and
working out where the AML/CTF risk lies for their business. AUSTRAC's
supervisory strategy for the remittance sector notes that the likelihood of individual
businesses being targeted for ML/TF is moderated when sufficient programs and
controls are in place. As such, transferring some of the AML/CTF obligations that
currently fall on affiliates to their PRN will have a positive effect on the risk faced by
the sector.
The purpose of registration is to ensure that AUSTRAC has sufficient knowledge
about who is operating in the sector so that it can better carry out its regulatory
functions and provide assistance to reporting entities. By having PRNs register their
affiliates with AUSTRAC, it is expected that the AUSTRAC register will be more
representative of the sector. PRNs carry out detailed due diligence on their affiliates
as part of establishing contractual obligations. Utilising the knowledge held by PRNs
will ensure that the information on the AUSTRAC register is more robust and
accurate. As an understanding of the remittance sector is key to AUSTRAC's
45
supervision, involvement by PRNs in the registration process for affiliates will reduce
the AML/CTF risk in the sector.
The remittance sector is both large and notoriously fragmented. The current
AML/CTF regulatory framework does not reflect current business practice between
many PRNs and their affiliates. This has increased the compliance burden on
remittance dealers and decreased regulatory efficiency for AUSTRAC which has to
engage with thousands of remittance dealers despite the fact that PRNs are already
providing significant AML/CTF support to their affiliates. Regulating PRNs and
requiring them to carry out certain AML/CTF responsibilities on behalf of their
affiliates will increase the standard and level of compliance with AML/CTF
obligations.
Under Option 2, affiliates would have significantly reduced compliance costs. The
compliance burden will not be completely removed, as affiliates will continue to
engage with their PRNs. This is expected to particularly be the case where regulatory
requirements involve information about employees. For the purpose of the RIS it is
assumed that affiliates will continue to incur 10 per cent of the compliance costs they
incur in the Base Case (the approach used to estimate the Base Case costs is described
in Appendix A and the results are in Appendix B).
It is assumed that compliance costs will largely follow the responsibilities. The
assumption of 10 per cent is based on the fact that regulatory arrangements will be
designed to that PRNs will be able to undertake almost all of the AML/CTF
regulatory functions currently undertaken by affiliates. However, some compliance
costs will remain. For example, in consultation PRNs indicated they would have
difficulty taking full responsibility for employee due diligence. On the basis of the
survey results, employee due diligence represents around 13 per cent of the current
cost of compliance for affiliates and 10 per cent for independent remittance
businesses. Even in areas where affiliates continue to incur compliance costs, there
may be some scope for efficiencies as PRNs provide stronger guidance and support
(for example, through templates) about what is required. These were the factors that
led to the use of an assumption of 10 per cent. The RIS also presents costings using
the 15 per cent assumption. This reduction in compliance costs is a benefit for
affiliates. Independent remittance businesses will not experience a reduction in
compliance costs as their regulatory burden will not change.
Table 5-9 sets out the quantified benefits for affiliates. When compliance costs under
the enhanced regulatory arrangement are 10 per cent of the Base Case compliance
costs, savings per affiliate are around $6,700 per year, around $28 million across the
sector per year. Over 10 years, the NPV of compliance cost savings (benefits) is
around $198 million.
46
Table 5-9: Option 2 estimated compliance cost savings for affiliates (benefits)
Regulatory requirement Savings when compliance costs are 10% of Base Case
Benefit per entity Sector benefit in year 1 Reduced cost of NPV
per year over 10 years
($) ($) ($)
Registration $3 $17,122 $120,000
AML/CTF Program $5,759 $24,960,000 $175,320,000
Reporting $47 $210,000 $1,490,000
Monitoring $884 $2,950,000 $20,710,000
Total $6,694 $28,140,000 $197,640,000
Source: Analysis of data from the survey of remittance affiliates and independent remittance businesses July / August 2010.
Note: Numbers above 100,000 have been rounded.
The estimate that affiliates will continue to incur 10 per cent is an important
assumption. Estimates are also presented if compliance costs are higher, at 15 per
cent of the current costs. If this is the case, then the benefits are less. These results
are presented in Table 5-10.
Table 5-10: Option 2 estimated cost savings for affiliates (benefits)
Regulatory requirement Savings when compliance costs are 15% of Base Case
Benefit per entity Sector benefit in year 1 Reduced cost of NPV
per year over 10 years
($) ($) ($)
Registration $3 $16,171 $110,000
AML/CTF Program $5,439 $23,580,000 $165,580,000
Reporting $44 $200,000 $1,400,000
Monitoring $835 $2,780,000 $19,560,000
Total $6,322 $26,580,000 $186,660,000
Source: Analysis of data from the survey of remittance affiliates and independent remittance businesses July / August 2010.
Note: Numbers above 100,000 have been rounded.
Independent remittance business compliance costs would remain unchanged from the
Base Case.
5.6.2 Estimate of costs
Option 2 involves introducing a registration scheme where PRNs would be
responsible for their registration as well as their remittance affiliates, and independent
remittance businesses would apply directly to AUSTRAC for registration. As
mentioned above, the costs of this proposal depend on how a PRN is defined and then
how the responsibilities sit amongst PRNs.
47
There are a number of possible implementation approaches for this option. The
definition of PRN that is included in future subordinate legislation will determine the
actual implementation approach. The approach used will determine the regulatory
responsibilities of the PRNs T1 and T2. Thus, each implementation approach is
expected to result in a different incidence of costs for the PRN T1s and T2s and also
result in different total compliance costs.
To accommodate the potential implementation approaches, the approach used is to
estimate a range of compliance costs. This is done by estimating the implementation
costs of the three possible implementation approaches to generate the top and bottom
of the compliance cost range for Option 2. It is worth noting that the intention of this
approach is not to compare costs between the three implementation approaches.
To estimate the range of costs associated with Option 2 the first stage was to describe
the three most likely implementation approaches. They are:
· Option 2a: reflects the sorts of arrangements that currently exist in the industry.
Under this sub option, it is assumed that there is no duplication of responsibility
across the PRNs T1 and T2. It assumes that it will be possible to define PRNs so
that:
· Where PRNs T1 and PRNs T2 work together this will continue with
regulatory responsibilities divided. For example, often the PRN T2s have
direct relationships with affiliates and this could be extended to make them
responsible for their affiliates registration and AML/CTF programs, while
PRN T1s could be responsible for monitoring and reporting. This style of
arrangement seems to be operating now for larger PRN T1s.
· Where PRN T1s currently have a direct relationship with their affiliates
they would continue to do so, without their PRN T2s taking on any
additional responsibilities. This style of arrangement seems to be
operating now for medium and smaller PRN T1s.
· Option 2b: assumes PRNs T1 are entirely responsible for their affiliates
registration and compliance with AML/CTF requirements. Under this sub option,
PRNs T2 have no regulatory responsibilities for their affiliates and there is no
duplication of responsibility across the PRNs T1 and T2 and no additional
compliance costs for PRNs T2.
· Option 2c: assumes PRNs T2 are entirely responsible for their affiliates
registration and compliance with AML/CTF requirements. Under this option
PRNs T1 have no regulatory responsibility for their affiliates and no additional
compliance costs.
48
The three sub options are illustrated below in Figure 5.1.
Figure 5.1: Possible implementation approaches under Option 2
Option 2a Option 2b Option 2c
T1s
Large Med/small T1
Flow of responsibility
T2 T2
Affiliates Affiliates Affiliates
To model the range of potential costs of Option 2 involved using the data available on
additional staff costs to estimate the cost impacts for PRNs T1 and PRNs T2. There
are differences in cost by business size. PRNs T1 costs were estimated in three
groups:
· Large PRNs were those with more than 800 affiliates; there is 1 large PRN T1
· Medium PRNs were those with between 40 and 800 affiliates; there are 4 medium
PRNs T1
· Small PRNs were those with fewer than 40 affiliates; there are 20 small PRNs T1.
For each T1 size category, there was at least one PRN that had participated in the
consultations and that provided cost data to use in the model. The cost data collected
in consultations was used to calculate an average cost of compliance for Option 2 for
large PRN T1s, medium PRN T1s and small PRN T1s.
These averages were then multiplied by the total number of PRNs T1 in that size
category.
Total PRN T1 compliance cost = average cost of large PRN T1 X total number
of large PRN T1s
+ average cost of medium PRN T1 X total number of
medium PRN T1s
+ average cost of small PRN T1 X total number of
small PRN T1s
49
Cost data was also obtained from one PRN T2 through consultations. This was a
large PRN T2. The sector includes businesses that range from small, through medium
and large.
It is difficult to determine the representativeness of the data from the large PRN T2
for the entire sector. On the one hand, as a large business changes to systems and
processes typically involve considerable upfront costs. Consultation with PRN 1s for
this RIS suggested that systems and processes used by small business could be very
readily changed with little or no upfront cost. To the extent that this is the case for
PRN T2s the cost estimates in the RIS may over-estimate PRN T2 sector costs.
However, equally plausible is the prospect that the PRN T2 costs of a large business
could under-estimate compliance costs. This scenario could arise because the method
used assumes that it is possible for each PRN T2 to employ small increments of
additional staff time to meet the changing regulatory requirements. If this is not
possible and additional labour is required in step changes (for example, a minimum
of, say, an extra day per week) then the current estimates may under estimate PRN T2
costs.
Total PRN T2 compliance cost = average cost per PRN T2 affiliate X total number
of affiliates
Table 5-11 shows how the estimated total PRN T1 and T2 compliance costs were
used to calculate the estimated costs for each sub-option.
Table 5-11: Calculation of estimated compliance costs for each sub-option
Sub-option Approach to estimating compliance costs
Option 2a (½ X Total Large PRN T1 compliance costs)
+ (½ X Total PRN T2 compliance costs)
+ Total Medium PRN T1 compliance costs
+ Total Small PRN T1 compliance costs
Option 2b Total PRN T1 compliance cost
Option 2c Total PRN T2 compliance cost
PRNs are familiar with the existing regulatory requirements and so were able to
provide indicative estimates about the additional staff required to undertake the
regulatory activities if responsibility was shifted from their affiliates to their
organisation. The staff estimates were in addition to existing staff currently involved
in regulatory compliance efforts. The wage rate used to estimate the cost of the
additional staff was $79,061.25
Cost information was collected on a confidential basis. To avoid the possibility of
individual business' information being identified, PRN cost information in the RIS is
presented in aggregate.
25
This figure is based on private sector full-time adult total earnings (seasonally adjusted). Twenty per
cent was also added to cover on-costs. Australian Bureau of Statistics Average Weekly Earnings,
Australia, February 2010, cat. 6302.0
50
In providing cost information, PRNs distinguished between one-off staff costs and on-
going costs. One-off costs reflected the PRN's view that if they were made legally
responsible for regulatory activities they would need to invest effort to revise and
possibly update existing documentation, processes or procedures around AML/CTF
Program activities to ensure suitability. The analysis suggested that cost impacts of
the proposals under Option 2 are expected mainly for activities relating to the
AML/CTF Program, and within this regulatory area, the following activities are
estimated to be the most costly:
· Reviewing, maintaining and monitoring AML/CTF programs
· Independent review of AML/CTF programs
· Employee training.
PRNs reported that they would be unlikely to undertake regulatory functions that
required direct contact with their affiliate's employees. T his is due to privacy issues
and that the PRN has no legal relationship with an affiliate's employees.
Registration renewal and compliance reporting were also estimated to have regulatory
compliance costs, while monitoring was not seen to have any additional costs for
PRNs compared to status quo.
PRNs were not able to provide cost estimates of the associated changes to IT systems,
communication/information strategies, or changes to other systems or processes.
Thus, the quantified cost estimates refer to additional staffing costs to comply with a
new regulatory arrangement, not all costs.
Table 5-12 shows the results of estimating the compliance costs for the three
implementation approaches for Option 2. It identifies that the range of the NPV of
compliance costs NPV over 10 years for all PRNs is $14 million to $28 million. This
is a wide range and reflects the broad nature of the proposal. Table 5-12 also indicates
that the incidence of costs across PRN T1s and T2s varies significantly between the
options.
Table 5-12: Option 2 estimated NPV of compliance costs over 10 years
Sub-option Discounted cost over Discounted cost over Discounted cost over
10 years (T1s)($) 10 years (T2s)($) 10 years (T1s & T2s)
($)
Option 2a $9,920,000 $14,190,000 $24,110,000
Option 2b $14,000,000 0 $14,000,000
Option 2c 0 $28,380,000 $28,380,000
Note: Numbers above 100,000 have been rounded.
Under Option 2, it is assumed that affiliates and independent remittance businesses
would continue to incur 10 per cent and 100 respectively of their current compliance
costs. However, as these costs are already being incurred they are not additional costs
due to the regulatory proposal.
51
The net compliance costs estimated in Option 1 are treated as follows:
· For affiliates, it is assumed that any new compliance costs due to the operation
of the enhanced registration scheme are accommodated within the scope of
PRN activities and the continuing 10 per cent of current compliance costs
allowed for in Option 2. The consequence is that no costs for affiliates
estimated in Option 1 are included in Option2.
· Independent remittance businesses will incur new compliance costs associated
with the enhanced registration scheme. The consequence is that the net cost to
independent remittance businesses estimated in Option 1 is included in Option
2.
Table 5.12 presents the range of the estimated partial compliance costs for Option 2.
These costs include the estimated additional staff costs for PRN T1s and T2s. The
analysis shows the quantified compliance cost for Option 2 ranges from a low of $14
million (NPV over 10 years) to a high of $29 million (NPV over 10 years).
Table 5-13: Option 2 Estimated partial PRN compliance cost range and independent remittance
businesses net cost of enhanced registration
Sector NPV of compliance costs over 10 years
Lower bound estimate Upper bound estimate
($) ($)
PRNs T1 & T2 $14,000,000 $28,380,000
Independent remittance businesses
$330,000 $330,000
(Option 1 net compliance cost)
Est. Partial compliance cost $14,330,000 $28,710,000
Note: a The PRN compliance cost estimates included in this table are partial estimates only. They do not include the expected
additional costs for new or enhanced IT systems, the development of other systems and processes and in some cases for staff
training.
Note: b Numbers above 100,000 have been rounded.
5.6.3 Summary of impacts
Option 2 presents a significant opportunity to address the acknowledged weaknesses
with the existing regulatory approach. The benefits outlined in Option 1 are also
present in Option 2. The additional benefits of this option are that extending
AML/CTF obligations to PRNs formalises the support already offered by many PRNs
to their affiliates. This will have the effect of boosting compliance by the sector and
putting in place better controls to mitigate the risk of money laundering, the financing
of terrorism and other criminal activity. As a result, this option is viewed as being
highly likely to substantially reduce the risk of the misuse of remittance services to
facilitate illegal activity.
This benefit arises as regulatory responsibilities are largely transferred from more
than 6000 affiliates, many of which are small businesses, to the larger PRNs. The
PRNs are considered to be well positioned to encourage a high degree of regulatory
compliance, adopting a risk-based approach tailored to their own network of affiliates.
For the purpose of this RIS it is assumed that affiliates will continue to incur only 10
per cent of their current compliance costs and no new compliance costs due to the
52
operation of the enhanced registration scheme. As presented in Table 5-13, achieving
this outcome would represent a significant benefit for affiliates. This benefit is
estimated to be approximately $28 million in year 1, with an NPV of $198 million
over 10 years.
For Option 2 as PRNs assume new regulatory responsibilities they also incur new
compliance costs. As discussed above, some PRN compliance costs were able to be
quantified. However, these estimates do not include all costs that PRNs would incur
under this regulatory proposal. Thus, the compliance costs presented are only a partial
estimate of the costs of Option 2. Further, the PRN compliance cost estimates that are
available are based on a range of estimates and high level assumptions.
Table 5-14 shows a partial quantification of the net impact of Option 2. The table
shows a net benefit of between $169 million and $183 million in NPV terms over 10
years. Based on the information available in this analysis, the shifting of the
regulatory burden from affiliates to PRNs could offers cost efficiencies within the
industry, although this will depend on the size of the PRN's compliance costs that
could not be identified and the extent to which the regulatory burden is removed from
affiliates.
Table 5-14: Option 2 estimated net benefit range (partial PRN compliance costs)
Sector NPV of compliance costs over 10 years
Lower bound PRN cost Upper bound PRN cost estimate
estimate ($)
($)
Estimated compliance cost range for
PRNs (partial costs) and
$14,330,000 $28,710,000
Independent Remittance
Businesses
Estimated benefit - reduction in
$197,640,000 $197,640,000
compliance costs for affiliates
Net benefit $183,300,000 $168,930,000
Note: a The PRN compliance cost estimates included in this table are partial estimates only. They do not include the expected
additional costs for new or enhanced IT systems, the development of other systems and processes and in some cases for staff
training.
Note: b This estimate is based on an assumption that affiliates continue to incur 10 per cent of their existing compliance costs
under Option 2. Note: Numbers above 100,000 have been rounded.
Table 5-15 shows how the estimate of net impact of Option 2 changes if affiliates
incur 15 per cent of their Base Case costs under this proposal. This results show the
smaller net benefit range of $158 million to $172 million.
53
Table 5-15: Option 2 estimated net benefit range (partial PRN compliance costs)
Sector NPV of compliance costs over 10 years
Lower bound PRN cost Upper bound PRN cost estimate
estimate ($)
($)
Estimated compliance cost range for
PRNs (partial costs) and
$14,330,000 $28,710,000
Independent Remittance
Businesses
$186,660,000 $186,660,000
Estimated benefit - reduction in
compliance costs for affiliates
$172,330,000 $157,950,000
Net benefit
Note: a The PRN compliance cost estimates included in this table are partial estimates only. They do not include the expected
additional costs for new or enhanced IT systems, the development of other systems and processes and in some cases for staff
training.
Note: b This estimate is based on an assumption that affiliates continue to incur 15 per cent of their existing compliance costs
under Option 2.
Even if affiliates continue to incur 50 per cent of their current compliance costs, the
net benefit estimated on the basis of the available partial PRN compliance costs would
be in the range of $81 million to $95 million.
In summary, given the types of costs that could not be quantified, the estimated net
benefit of between $169 million and $183 million in NPV terms over 10 years is
clearly an over-estimate of the expected final net benefit. The extent of the over-
estimate depends on:
· The costs borne by PRNs for IT system changes, other process changes and staff
training (these costs are not estimated in this RIS) and
· The extent to which the affiliates' regulatory burden is reduced under the new
arrangements (a 90 per cent reduction is assumed).
In this situation, an important question to ask is if estimates of all compliance costs
were available, or if affiliates compliance costs did not decrease by 90 per cent would
Option 2 deliver a net benefit or a net cost?
The conclusion is that Option 2 offers benefits in the form of reduced risk of misuse
of remittance services for money laundering, the financing of terrorism and other
criminal activity leading to benefits for individuals, the industry and the community,
alongside the reduced compliance costs for affiliates. It also potentially offers
quantitative benefits.
In combination, the qualitative assessment identifies significant benefits and the
quantitative assessment of costs could also deliver a net benefit in the form of reduced
compliance costs for the industry (although this is uncertain at this time). The
assessed benefits are expected to outweigh the increased compliance costs for PRNs.
The result of considering qualitative and quantitative information leads to the
conclusion that Option 2 is expected to deliver a net benefit.
54
6 PREFERRED OPTION
6.1 Comparison of options
On the basis of the analysis of benefits and costs, Option 2 is the preferred option.
This option proposes the introduction of enhanced regulation of the remittance sector
by introducing the concept of a remittance network provider into the AML/CTF Act
and operating an enhanced registration scheme.
As illustrated in Table 6-1 relative to Option 1, Option 2 offers:
· A larger benefit to individuals, industry and the community through putting better
controls in place to mitigate the risk of money laundering and the financing of
terrorism and other criminal activity. In addition, depending on the final approach
to implementing the arrangement, it may be the case that overall the remittance
sector will experience reduced compliance costs.
· Significantly reduced compliance costs for around 6000 affiliates -- mostly small
businesses. There is also the potential for compliance cost reductions to flow
through into lower costs for consumers, although this is dependent on a range of
other factors.
· Formalises and extends existing relationships between PRNs and affiliates to
improve compliance and make enforcement of regulatory requirements more
straightforward for Government.
Table 6-1: Comparison of options - qualitative assessment of impacts
Option Qualitative benefits
Reduced risk of Small business Ease of enforcement
ML/TF & competition
Option 1
Option 2
Where: = a positive impact; and = a negative impact.
Table 6-2 presents a summary of the partial compliance cost estimates estimated for
this RIS.
Table 6-2: Comparison of options - partial quantified costs/benefits
Option NPV of quantified net benefit/ (cost) over 10 years
Option 1 $4,046,000
Range:
Option 2 $ 168,930,000 to This figure is based on partial cost estimates, thus the final
$ 183, 300,000 net benefit will be lower than this figure.
The figure does not include the expected additional costs for
PRN's new or enhanced IT systems, the development of
other systems and processes and in some cases for staff
training
This estimate is based on an assumption that affiliates
continue to incur only 10 per cent of their existing
compliance costs.
Note: Numbers above 100,000 have been rounded.
55
In summary, Option 2 offers more substantial benefits than Option 1 in the form of
reduced risk of money laundering and the financing of terrorism leading to benefits
for individuals, the industry and the community. In addition Option 2 offers
significant reduced compliance costs for affiliates, compared to a modest increase in
compliance costs under Option1. However, under Option 2 PRNs would face
increased compliance costs, both one-off and on-going. PRNs would not experience
increases in compliance costs under Option 1.
The result of considering qualitative and quantitative information leads to the
conclusion that Option 2 is expected to deliver a net benefit that is greater than the net
benefit expected from Option 1.
7 CONSULTATION
7.1 Consultation
To develop an understanding of the role of network providers within the remittance
sector and the potential impact of the proposed reforms on network providers,
consultations with five PRNs were held. These discussions were held face-to-face and
over the telephone.
7.1.1 Targeted interviews with network providers
7.1.1.1 Purpose of consultations
The purpose of the consultations was to understand the nature and extent of the cost
impacts on PRNs of the proposed reforms.
The Government considers that PRNs are well placed to ensure that network members
do not pose a significant money laundering or terrorism financing risk. Accordingly,
the Government is contemplating the introduction of specific registration
requirements for PRNs, including:
· Lodging their own applications for registration and applications of their affiliates
· Establishing an AML/CTF Program that will put in place processes and
procedures for:
· Assessing the ML/TF risk in providing the network service
· Identification and verification of their affiliates
· Ongoing due diligence of their affiliates
· Due diligence of the PRN's employees.
· Preparing AML/CTF Programs for use by their affiliates
· Fulfilling some of the AML/CTF Act reporting obligations on behalf of their
affiliates, for example, compliance reports, international funds transfer
instructions and threshold transaction reports.
The Government believes PRNs already provide AML/CTF support to their affiliates
in the ordinary course of business, including the development of AML/CTF
compliance frameworks and transaction monitoring systems and has proposed that
these existing relationships be formalised.
56
The consultation process also sought to confirm with PRNs about the support they
currently provide to their affiliates and on their role within the remittance sector.
7.1.1.2 Consultation approach
The timeframe for the consultation process was relatively short and the Department
provided contact details for 5 of the 65 PRNs in Australia, comprising a cross section
of the sector, involving varying sizes (including contacts from both tiers of providers)
and level of AML/CTF activity. Invitations were sent to the 5 PRNs, and 90-minute
discussions were scheduled between 4 and 10 August. Some follow-up discussions
also took place. The discussions with PRNs were held using a combination of face-
to-face meetings and telephone discussions.
To ensure that these discussions were as productive as possible and remain focused on
the relevant issues a guide to the discussion was distributed prior to the meetings (see
Appendix C).
7.1.1.3 Structure of consultation discussion
The structure of the discussion involved the following:
· Asking the PRN to describe their current activities and processes for obtaining
membership of their network, due diligence, AML/CTF strategies employed and
the degree of support provided to remittance affiliates to assist them to comply
with their AML/CTF Act obligations
· Asking the PRN to describe the new processes or activities needed in their
business to meet the proposed regulatory changes, noting that these activities may
vary through a transition to the new arrangements
· Discussing the estimated costs per annum associated with any new processes or
activities, including discussion about time taken to complete activities, costs such
as additional personnel, IT enhancements, other capital outlays
· Inviting the PRN to raise any other issues they considered to be relevant.
After the discussions, further contact was made when necessary to seek to clarify the
discussion points.
The PRNs were informed that any information they provided in the course of the
discussion would not be provided to either the Attorney-General's Department or
AUSTRAC unless the PRN gave their consent to this occurring. The information
provided has been used in an aggregated form to analyse the regulatory impacts
arising from the proposed enhancements.
7.1.2 Consultation observations
In general, the PRNs consulted could see the merit of the purpose of the proposed
reforms. Some PRNs noted that many smaller affiliates are not well placed to deal
with the current AML/CTF obligations and that PRNs are better equipped to deal with
the obligations on behalf of the affiliates.
57
PRNs were able to provide broad quantitative cost estimates in accordance with the
broad detail provided for the proposed options by the Attorney-General's Department
in the discussion papers. They would be able to provide more detailed cost estimates
when further detail on the proposed options is made publicly available by the
Attorney-General's Department.
One key outcome of the consultations is that different-sized PRNs currently have
different levels of interaction with their affiliates and provide different levels of
AML/CTF support to their affiliates in the ordinary course of business. Accordingly,
the PRNs will have different levels of ability to accommodate the proposed reforms.
Currently, all PRNs already provide AML/CTF support to their affiliates in the form
of transaction monitoring systems and so the proposed requirements on monitoring
seem as though they will have minimal impact on the current operations. However,
the other functions of PRNs vary considerably across the sector and the impacts of the
proposed obligations on the sector's PRNs will similarly vary from small to
significant impacts, depending on the individual PRN.
Although no single PRN involved in the consultations undertook all of these
activities, some PRNs, particularly PRNs with a smaller network of affiliates already
provide considerable AML/CTF support to their affiliates in the ordinary course of
business, including facilitating registration, providing AML/CTF compliance
frameworks, and providing other tools and guidance. There is also apparent
acceptance from smaller PRNs with regards to taking on additional AML/CTF
responsibility subject to guidance from AUSTRAC.
Other PRNs, particularly those with larger networks of affiliates currently provide
some AML/CTF support to their affiliates in the form of tools and templates; however
they still require the affiliates to take responsibility for the majority of the AML/CTF
obligations. The proposed additional AML/CTF obligations will have a much greater
impact on the larger PRNs for two reasons. Firstly, these PRNs may not currently
provide the level of AML/CTF support to their affiliates as the smaller PRNs do and
so would have to develop and implement the required systems and processes to
comply with the proposed additional obligations and responsibilities. Secondly, the
larger PRNs approach to AML/CTF obligations is risk-based and so the proposed
AML/CTF obligations may have significant impacts on the businesses of larger
PRNs.
Many discussions concluded that even with the proposed new AML/CTF obligations
on PRNs, there would not be a wholesale shift of responsibility from affiliates to
PRNs, and that affiliates would still be relied upon to provide information to PRNs,
such as for registration and re-registration applications. Accordingly, the
administrative burden would not be lifted entirely from affiliates. Given the level of
regulation already imposed on the remittance sector, concern was raised during
consultation discussions that the proposed reforms will add to, and not reduce, the
sector's current overall regulatory burden.
New types of costs could also be introduced with the enhanced registration scheme,
particularly delay costs if a registration decision made by the AUSTRAC CEO is
58
subject to appeal. The PRNs expressed a high level of interest in understanding how
any adverse decisions about registration would be communicated and implemented.
Furthermore, discussions indicated that enforceability would remain an issue as there
is concern that many affiliates remain unaware of the full extent of their current
AML/CTF obligations or the risks involved in remittance services.
Finally, PRNs expressed interest in the timing of the proposed reform process,
particularly concerning transition arrangements, and are very keen to be kept fully
informed by the Attorney-General's Department of the reform process moving
forward and to be involved in developing the proposed rules.
7.2 Survey
To develop an understanding of the impact the possible reforms will have on
remittance affiliates, a survey was prepared. The survey was distributed by
AUSTRAC to register remittance affiliates. This section outlines the approach used to
undertake the survey.
7.2.1 Purpose of survey
The purpose of the survey was to understand the impacts on remittance affiliates as a
result of the proposed enhancements to the AML/CTF registration scheme.
Additionally, survey respondents were asked general questions on the type, size and
employment numbers of their business as the business nature of remittance affiliates
is varied.
7.2.2 Remittance affiliates surveyed
A web-based survey was conducted using an online delivery platform. AUSTRAC
distributed the survey by email to approximately 4,500 remittance affiliates and
independent remittance affiliates for whom they have contact details. Of these emails,
740 were returned with a non-delivery notification. Survey participants were issued
user IDs in order to maintain anonymity.
The survey was `live' from 26 July 2010 and was open for 14 days, closing on 9
August 2010. During this time, AUSTRAC sent one reminder email to remittance
affiliates on. The survey received 348 completed responses. Figure 7.1 and 7.2
describe the key characteristics of the survey respondents.
59
Figure 7.1 Type of business
120
101
100
84
80
62
60
47
40
40
20 14
0
Currency General Newsagency Other Postal Providing a
exchange store services remittance
service service
Figure 7.2 Nature of the remittance service
250
207
200
150
100 85
56
50
0
A combination of the A remittance af f iliate (f or Independent remittance
above example, part of Western dealer
Union)?
The Department was available to answer queries regarding the proposed reforms and
content described in the survey. Additionally, remittance affiliates completing the
survey could receive 24/7 technical support.
7.2.3 Structure of survey
The survey comprised 46 questions. Survey respondents may not have had to answer
all 46 questions as the survey design directed remittance affiliates to skip questions
that were not relevant to their business.
The initial four questions focused on the business nature of the remittance affiliate.
Questions in this section sought information on the primary activity of the business,
the type of business structure (for example, belonging to a network or independent
provider) and the number of employees.
60
The remainder of the survey collected information from survey respondents regarding
their current regulatory requirements for:
· Registering with AUSTRAC
· Providing an AML/CTF Program
· Completing and submitting AUSTRAC reporting requirements.
Across these three areas, survey respondents were asked to:
· Identify who is responsible for the regulatory requirement
· Quantify the time spent meeting the regulatory requirement
· Quantify the cost of meeting the regulatory requirement.
Survey respondents answered these questions by selecting answers from defined
brackets (for example, 1 minute - 30 minutes, 31 minutes - 1 hour, 1 hour - 4 hours,
4 hours - 8 hours, 8 hours - 12 hours). The final four questions asked survey
respondents about meeting the proposed enhanced regulatory requirements. Survey
respondents were asked to estimate the impacts of providing further information about
their business and employs on either a new AUSTRAC registration form or as part of
an expanded online registration process.
8 OTHER ISSUES
8.1 Competition assessment
8.1.1 Definition of the market
The remittance sector is defined as including four main types of businesses:
· Providers of remittance networks Tier 1 (PRN T1)
· Providers of remittance networks Tier 2 (PRN T2)
· Remittance affiliates
· Independent remittance businesses.
Within this sector, providers of remittance networks compete with each other and
independent remittance businesses compete with remittance affiliates.
61
8.1.2 Restrictions on competition
A legislative measure is likely to restrict competition if the answer to any of the
following questions is `yes'.
Question Assessment
Would the regulatory proposal restrict or reduce the number and range of businesses in the
sector, i.e. would it change the ability of businesses to provide a good or service; change the
requirement for a licence, permit or authorisation process as a condition of operation; affect
the ability of some types of firms to participate in public procurement; significantly alter costs
of entry to, or exit from, an industry; or change geographic barriers for businesses? Yes
Would the regulatory proposal restrict or reduce the ability of businesses to compete, i.e.
would it control or substantially influence the price at which a good or service is sold; alter
the ability of businesses to advertise or market their products; set significantly different
standards for product/service quality; or significantly alter the competitiveness of some
industry sectors? Possibly
Would the regulatory proposal alter the incentives for business to compete, i.e. would it
create a self-regulatory or co-regulatory regime; impact on the mobility of customers
between businesses; require/encourage the publishing of data on company outputs/price,
sales/cost; or exempt an activity from general competition law? No
The proposed enhanced registration scheme under options 2 and 3 may:
· Significantly alter costs of entry to the sector
· Restrict or reduce the ability of businesses to compete.
However, the proposed scheme under options 2 and 3 will also deliver benefits to the
community that outweigh its costs and it has been determined that there are no
alternative means of achieving the same objective without restricting competition.
8.1.2.1 Altered costs of entry to the sector
Affiliate and independent remittance businesses
The proposal to enhance the registration process to require applicants to submit a
written application addressing matters such as an applicant's criminal history,
bankruptcy and beneficial ownership arrangements changes the regulatory
requirements to begin operating in the sector. New entrants will be subject to higher
entry requirements, and through the process of registration renewal, existing operators
will also be subject to these increased requirements over time.
The proposal also gives the AUSTRAC CEO the power to refuse, cancel, suspend or
impose conditions on registration. This introduces a power to prevent certain people
from entering the sector and can also be used to restrict the operations of some people
in the sector.
This proposed change may reduce the rate at which new businesses enter the sector
and could also see some businesses leave the sector if they are unable to meet the
requirements.
62
However, the proposal for an enhanced registration scheme is intended to reduce the
risk of remittance services being used to facilitate illegal activity. In particular, the
proposal is to prevent individuals operating in the sector if they are assessed as being
a high risk of potential involvement in providing remittance services that are used to
facilitate illegal activity. The benefits of a reduction in the risk of illegal activity,
while difficult to quantify directly in relation to this proposal, are of significant value
to the community more generally when considerations such as avoiding injury and
death are taken into account, as discussed in Chapter 5.
Negative licensing has been considered as an alternative means of reducing the risk of
remittance services being used to facilitate illegal activity. In some sectors, negative
licensing is used as a mechanism to prevent certain individuals from operating in an
industry. In the case of the remittance sector, Chapter 2 identified the potential for
high risk with individual transactions and individual people. A negative licensing
scheme would not achieve the regulatory objective and could be a considerable
weakness in managing the inherent risk of the sector. For this reason, the assessment
is that the objective cannot be met without restricting competition, and that there is
not an alternative way of achieving the objective.
Providers of remittance networks
Option 2 introduces the definition of a PRN and makes PRNs legally responsible for
the regulatory compliance of their affiliates for some AML/CTF Act obligations. For
PRNs this proposal will increase the compliance costs for existing participants and
any new entrants.
As identified in the analysis, in some respects this approach formalises what is
business as usual in the industry, in other respects it significantly extends current
activities and increases compliance costs. This change will also increase the costs to
enter the market for any new PRNs.
The final definition of a PRN may have other implications for the relationships and
relativities between PRN T1s and PRN T2s.
Increasing PRN responsibility for the regulatory compliance of affiliates which would
occur under Option 2 would increase the costs of becoming a PRN and thus would
increase the barriers to entry into the remittance sector for potential PRNs.
On the other hand, the combined effect of the changes proposed in Option 2 on PRNs
and affiliates has the potential to reduce overall compliance costs experienced across
the industry, because the savings enjoyed by affiliates exceed the compliance costs
faced by the PRNs. It is possible that a reduction in overall compliance costs will
result in lower costs for customers of remittance affiliates. Equally, the approach
increases the compliance costs for PRNs and this may be passed onto affiliates and
their customers.
Again, like for the affiliates and independent remittance businesses, the purpose of the
proposal to shift responsibility from affiliates to PRNs is to reduce the risk of
remittance services being used to facilitate illegal activity. The benefit from the
reduction in this risk outweighs the costs associated with the increased responsibilities
63
for PRNs. There are no alternative means of achieving the same objective without
restricting competition.
8.1.2.2 Restrictions on competition
As demonstrated in option 2, the enhanced registration scheme is expected to increase
the compliance costs for affiliates and independent remittance businesses by an
estimated $125 to $146 per entity. This is a small increase relative to the existing
level of compliance costs. However, in consultations for the RIS, PRNs reported that
the affiliates are predominantly small businesses offering a product that is high
volume, low margin and are reportedly highly sensitive to additional AML/CTF
regulatory requirements and costs.
For affiliates and independent remittance businesses, Option 2 has the potential to
significantly reduce the direct compliance costs incurred by affiliates, while
independent remittance businesses compliance costs will remain unchanged.
The regulatory proposal is likely to have different impacts on affiliates and
independent remittance businesses. Theoretically, this situation has the potential to
adversely impact on competition in a market.
One factor that will influence the extent to which this scenario impacts on competition
is the size of the expected decrease in affiliates direct compliance costs. At this time,
that impact is unclear. It may be that PRNs recover some of their increased
compliance costs from their affiliates. A smaller decrease in compliance costs will
reduce any competitive advantage that affiliates may gain over independent
remittance businesses.
More importantly, it is understood that many independent remittance businesses
provide services for specific ethnic communities. While the independent remittance
businesses are offering the same product as an affiliate, by working to meet the needs
of specific ethnic communities they have a differentiated service offering. In effect,
there may be distinct markets operating for remittance services, with limited
substitution between them. To the extent that there are different markets, the impact
of a decrease in compliance costs for affiliates will not necessarily leave independent
remittance businesses at a competitive disadvantage.
The assessment is that there are unlikely to be any significant impacts on competition
between affiliates and independent remittance businesses as a result of the regulatory
proposal. Even if there are significant competition impacts, the benefit from the
reduction in the risk of remittance services facilitating illegal activity outweighs the
costs associated with any reduced competition between affiliates and independent
remittance businesses. There is also no alternative means of achieving the same
objective without restricting competition.
8.1.3 Competition assessment
Given the outcomes of the competition assessment, it has been determined that the
proposed enhanced registration scheme under options 2 and 3 does not contain a
restriction on competition.
64
8.2 Implementation strategy
AUSTRAC is Australia's AML/CTF regulator and specialist financial intelligence
unit. In its regulatory role, AUSTRAC oversees compliance with the AML/CTF Act.
The enhanced AML/CTF regulation of the remittance sector will be an extension of
AUSTRAC's existing oversight of the remittance sector.
Under the current registration regime set out in the AML/CTF Act inclusion on the
register is automatic on application and the applicant is not required to satisfy any
entry criteria. Implementation of option 2 will require the AUSTRAC CEO to assess
the suitability of independent remittance dealers and PRNs and their affiliates for
inclusion on the register. Because the lodging of an application is no longer
determinative of registration there will be significant changes to the way AUSTRAC
currently operates which will have associated resourcing implications. The cost to
Government of option 2 is estimated to be $14.9 million over four years. This
estimate covers:
· increased staffing to process and review applications and manage
correspondence and enquiries;
· information technology hardware and software
· advertising and outreach to the remittance sector
· enforcement costs
The government intends to release an exposure draft Bill and accompanying
explanatory memorandum to facilitate consultation on the proposed reforms. The
AML/CTF Rules, which will contain the operational detail, will be developed in
consultation with the remittance sector.
The new registration process under option 2 will require persons currently registered
with AUSTRAC and those seeking to operate in the remittance sector to complete an
application form that would seek information on matters such as an applicant's
criminal history (accompanied by a National Police Certificate for all key personnel),
bankruptcy, as well as confirmation of beneficial ownership arrangements. The
AML/CTF Rules may require applicants to provide additional information.
Independent remittance businesses will have to register themselves. PRNs will be
responsible for registering themselves as well as their affiliates.
PRNs will also become subject to the usual AML/CTF Act obligations relating to
customer due diligence, reporting, maintaining and developing an AML/CTF Program
and record keeping. In addition PRNs will be responsible for preparing AML/CTF
Programs for use by their affiliates and to fulfil some of the AML/CTF Act reporting
obligations on behalf of their affiliates, for example, compliance reports, international
funds transfer instructions and threshold transaction reports.
Transitional arrangements will be put in place to ensure that regulated entities have
sufficient time to adjust to the changes and can continue to operate their business as
usual as they prepare to comply with the new regulatory arrangements. AUSTRAC
will also conduct an outreach campaign so that the remittance sector is aware of the
new responsibilities and the mechanics of the enhanced registration process.
65
The AML/CTF Act has a range of enforcement powers that can be exercised by the
AUSTRAC CEO in instances of non-compliance. These include issuing civil
penalties, taking criminal action and accepting enforceable undertakings. The
proposed extension of the existing infringement notice scheme over the registration
regime will mean that AUSTRAC will be able to respond to breaches in a more
efficient and proportionate way.
Section 251 of the AML/CTF Act requires that the Minister conduct a review of the
AML/CTF Act before the end of 2013. The proposed reforms will be reviewed as
part of that process.
8.3 Small Business impacts
The OBPR Best Practice Regulation Handbook directs that analysis of regulatory
proposals specifically consider the impact on small businesses.
As noted above, the remittance sector is defined as including four main types of
businesses:
· Providers of remittance networks Tier 1 (PRN T1)
· Providers of remittance networks Tier 2 (PRN T2)
· Remittance affiliates
· Independent remittance businesses.
Within these groups, many remittance affiliates and independent remittance
businesses are known to be small businesses. That is a business with less than 20
employees. This is consistent with the characteristics of many post offices,
newsagents and general stores where remittance services are frequently provided.
The composition of PRNs includes both large and small businesses. However, even
PRNs operating as small businesses in Australia are likely to be operating as part of a
multi-national company.
Figure 8.1 shows that of the remittance affiliates and independent remittance dealers
responding to the survey, almost all (98 per cent) had less than 20 employees. More
than 60 per cent of businesses responding to the survey were very small, with up to
two employees.
66
Figure 8.1 Size of businesses responding to the survey
70%
60%
50%
40% A remittance af f iliate
30%
Independent remittance
20% dealer
10% Grand Total
0%
1 - 2 3 - 4 5 - 10 11 - 50 - 100 -
19 99 200
No. of employees
8.3.1 Assessment of impacts
The proposals considered in this RIS will have varying impacts on small business.
The Base Case (maintaining the status quo) will not change the current regulatory
impact on small business operating as remittance affiliates or independent remittance
businesses.
Option 1 is expected to increase the compliance costs for remittance affiliates and
independent remittance businesses, many of which are small businesses. This
outcome is expected as the status quo remains unchanged and the regulatory scheme
is extended to include an enhanced registration scheme.
Option 2 is expected to reduce the compliance costs faced by around 6100 remittance
affiliates. As noted above, many of these businesses are understood to be small
businesses. This outcome is the result of PRNs assuming a significant portion of
regulatory responsibility currently managed by their affiliates. Independent remittance
businesses will not experience this benefit and will be subject to increased regulatory
costs associated with the enhanced registration scheme.
Under Option 2, the regulatory burden will increase for PRNs including those that are
small businesses.
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RIS Appendix A: Analysis of affiliate and independent remittance businesses
The approach to estimating the Base Case compliance costs for affiliates and
independent remittance businesses is described in this Appendix.
Costs for affiliates and independent remittance businesses were calculated separately.
This was done to reflect that affiliates with some support from their PRNs would be
expected to have lower average costs than independent remittance businesses. The
survey results did reflect this, with independent remittance businesses taking longer
on average to complete regulatory activities and spending more on out-of-pocket costs
to complete regulatory activities.
Only the survey responses from businesses reporting themselves as a `remittance
affiliate' or an `independent remittance dealer' were included. There were 207
responses from remittance affiliates and 85 responses from independent remittance
businesses, making a total of 292 responses included in the survey analysis. There
were survey responses from `a combination of the above' and these are excluded.
A number of respondents indicated that they were `Postal services' and `Independent
remittance businesses'. As all Australia Post outlets are part of the Australia Post
network, these were treated as `remittance affiliates'. In some cases independent
remittance businesses responded `My principal or remittance network provider'
undertook a regulatory activity. In these cases, it was assumed that the respondent
was referring to their business owner as the `principal', rather than a remittance
network provider.
The survey data was tested at a high level against industry knowledge as a means of
`common sense' checking. In aggregate, the responses to all questions except one
seemed reasonable (this is discussed below).
Using the survey results, for each regulatory requirement the average time spend
undertaking each activity was calculated. With regards to the different requirements:
· registration took approximately 30 minutes
· each AML/CTF program element took from one hour to just over two hours for
affiliates, and from just over two hours to four hours for independent remittance
businesses
· the compliance report required around 1½ hours to complete by affiliates, and
more than two hours by independent remittance businesses
· monitoring (reporting of IFTIs and TTRs) took around 11 minutes per report to
AUSTRAC for both affiliates and independent remittance businesses. It is
understood that some large businesses report their IFTIs to AUSTRAC on a daily
basis, while other businesses report every two to three days. To generate an
estimate of costs it was assumed that affiliates and independent remittance
businesses report to AUSTRAC twice a week (or 104 times per year) for IFTIs,
and once a week (52 times per year) for TTRs.
The average time per activity was multiplied by an average wage rate plus 20 per cent
on-costs to estimate the cost of time spent in regulatory activities. The wage rate used
for the affiliates and independent remittance businesses is the average weekly
68
earnings for a full-time adult ordinary time earnings in the retail trade.26 That cost is
$36 per hour.
The average cost per activity (average time X wage rate) was multiplied by the
frequency of activities per year to estimate the total cost per business per year. With
regards to the different frequency assumptions used:
· registration was assumed to have occurred already, however in consultation it was
suggested that there is approximately 20 per cent turnover in businesses in the
sector. When this occurs new owners would be required to amend registration/
register. Thus, the frequency for registration activities in the Base Case is 0.2 per
annum.
· the AML/CTF Program regulatory requirements were assumed to occur once a
year with the following exceptions. Employee due diligence occurs in line with
the survey responses to the question how many employees (Current and
prospective) do you spend time screening per year. This was four employees per
year for affiliates and six employees per year for independent remittance
businesses
· the compliance report was assumed to be completed occur once a year
· monitoring and reporting IFTIs was assumed to occur twice a week, while
reporting TTRs was assumed to occur once a week.
The average out-of-pocket costs per year for the AML/CTF Program was calculated
from the survey responses with an adjustment made to the response on the monitoring
activity. As expected costs for affiliates were lower than the costs for independent
remittance businesses. For the AML/CTF Program the total average annual out-of-
pocket cost was around $4000 for affiliates and around $10,000 for independent
remittance businesses.
With regards to monitoring, the responses to the question about what were the out-of-
pocket costs to a business in a normal week of undertaking monitoring were very
high. The survey responses suggest that affiliates and independent remittance
businesses were spending over $400 per week and $800 per week respectively on
these costs. Per annum, this would be out-of-pocket costs of over $20,000 for
affiliates and $40,000 for independent remittance affiliates. Industry experience
suggests that this figure does not reflect practice. Also, these out-of-pocket costs are
not the same order of magnitude as the out-of-pocket costs for the other AML/CTF
Program elements. Given these factors, it is assumed that this question was misread
by respondents who reported what they spend over a year, rather than a week. We
have therefore used the survey results as the estimate of out-of-pocket costs to
businesses of monitoring over a year.
The cost per affiliate/ independent business per year is calculated as:
Cost per affiliate/independent business per year = (Average cost p.a. X Frequency
p.a.) + out-of-pocket costs
The next step was to calculate the cost for the sector per year.
26
Australian Bureau of Statistics (ABS) 2010, Average Weekly Earnings, Australia Feb 2010, cat.
6302.0.
69
To do this it was necessary to recognise the different approaches used to completing
regulatory activities and the level of non-compliance. The survey results were used to
calculate the proportion of affiliates and independent remittance businesses that
undertook each regulatory activity within their own business. For example, more than
90 per cent of affiliates and independent remittance businesses deliver employee
training themselves. While 60 per cent of affiliates and around 90 per cent of
independent remittance businesses review and maintain their AML/CTF program
themselves. When businesses are not undertaking an activity themselves they could
have a PRN undertake the activity, employ an external consultant (and therefore incur
out of pocket costs) or non compliant.
It was also necessary to assume the number of affiliates and independent remittance
businesses in the sector. Advice from AUSTRAC indicates that there are around
6100 affiliates and 400 independent remittance businesses in the sector. These figures
were used to estimate the cost for the sector in year one. The RIS assumes that the
size of the sector remains constant over the next 10 years.
The cost per sector per year is calculated as:
Cost by sector per year = Cost per affiliate/independent business per year
X per cent of affiliates and independent remittance businesses
that undertook each regulatory activity themselves
X number of affiliates / independent businesses
The final step was to calculate the Net Present Value (NPV) of the cost over 10 years.
This was done by determining the how frequently each regulatory activity occurred
over 10 years. The calculations are based on each activity occurring each year except,
registration which only occurs once. To calculate the NPV a discount rate of 7 per
cent was used, in line with OBPR's recommendation.
NPV Cost by sector 10 years = Cost by sector per year
X Frequency of regulatory activity over 10 years
Discounted by 7%
Appendix B presents the results of the Base Case analysis of costs for affiliates and
independent remittance businesses.
70
RIS Appendix B: Summary Base Case compliance costs
Table B1: Affiliates - Base Case Compliance Costs
Source of Survey data Survey, Survey Input: ABS Calculation Input: Survey data Calculation Industry Calculation Calculation
column data industry data AUSTRAC practice /
practice regulatory
requirement
Nature of Average Time Frequency of Out of Average Total cost per Total Proportion of Total cost Frequency over Total cost NPV over 10
proposed taken per activities per pocket salary per affiliate per affiliates affiliates who over 1 year 10 years years
regulatory activity year costs per hour (inc year undertake the
change (minutes) year ($) on-costs) activity
themselves
Units (minutes) (no.) ($) ($) ($) (no.) ($) (no.) ($) ($)
Registration
Registration 31 0.2 0 0.60 4 6100 85% 19,025 10 190,247 133,621
AML/CTF
Program
Risk assessment 83 1 572 0.60 622 6100 70% 2,638,480 10 26,384,802 18,531,581
Reviewing and 130 1 842 0.60 920 6100 60% 3,388,883 10 33,888,828 23,802,095
maintaining
Employee 115 1 836 0.60 905 6100 97% 5,344,770 10 53,447,704 37,539,431
training
Employee due 108 4 760 0.60 1,034 6100 67% 4,206,222 10 42,062,225 29,542,747
diligence
Independent 88 1 599 0.60 652 6100 45% 1,805,786 10 18,057,860 12,683,085
review
Monitoring 59 52 424 0.60 2,266 6100 75% 10,351,651 10 103,516,506 72,705,662
Reporting
Compliance 86 1 0 0.60 52 6100 74% 234,933 10 2,349,325 1,650,068
Report
Monitoring
IFTIs 10 104 0 0.60 653 6100 48% 1,904,116 10 19,041,164 13,373,717
TTRs 11 52 0 0.60 330 6100 68% 1,371,587 10 13,715,873 9,633,455
Total cost $7,438 $31,265,453 $312,654,534 $219,595,462
71
Table B2: Independent Remittance Businesses - Base Case Compliance Costs
Source of column data Survey Survey, Survey data Input: ABS Calculatio Input: Survey Calculation Industry Calculation Calculation
data industry AUSTRAC data practice /
practice regulatory
requireme
nt
Nature of proposed Average Average Out of pocket Average Total cost Businesses Remitters Total cost Frequency Total cost NPV over 10
regulatory change Time Frequency costs per year salary per er business who over 1 over 10 over 10 years
taken of minute (inc er year undertak year years years
per activities on-costs) e the
activity per year activity
themselve
s
Units (minutes) (no.) ($) ($) ($) (no.) (%) ($) (no.) ($) ($)
Registration
Registration current process 32 0.2 0 0.60 4 400 89% 1,375 10 13,746 9,655
AML/CTF Program
Risk assessment 167 1 1,131 0.60 1,231 400 89% 440,313 10 4,403,131 3,092,575
Reviewing and maintaining 239 1 2,244 0.60 2,387 400 88% 842,473 10 8,424,728 5,917,176
Employee training 186 1 1,577 0.60 1,689 400 91% 613,270 10 6,132,698 4,307,351
Employee due diligence 134 6 1,304 0.60 1,782 400 76% 545,024 10 5,450,242 3,828,022
Independent review 186 1 2,720 0.60 2,832 400 79% 892,767 10 8,927,672 6,270,423
Monitoring 186 52 827 0.60 6,633 400 93% 2,465,907 10 24,659,068 17,319,498
Reporting
Compliance Report 127 1 0 0.60 76 400 89% 27,247 10 272,470 191,372
Monitoring
IFTIs 11 104 0 0.60 700 400 81% 227,202 10 2,272,018 1,595,771
TTRs 11 52 0 0.60 358 400 80% 114,537 10 1,145,369 804,459
Total cost $17,687 $6,175,613 $61,756,129 $43,374,921
72
Table A3: Providers of remittance networks - summary of consultation data
Regulatory area Option Discounted cost over 10 years
(T1s & T2s)($)
Registration Option 2a 2,640,000
Option 2b 3,330,000
Option 2c 290,000
AML/CTF Program Option 2a 20,210,000
Option 2b 9,320,000
Option 2c 28,000,000
Reporting Option 2a 1,260,000
Option 2b 1,350,000
Option 2c 90,000
Monitoring Option 2a 0
Option 2b 0
Option 2c 0
73
RIS Appendix C - Survey of Remittance Providers and Affiliates
Survey of remittance service providers
Understanding the impacts on your business of specific proposals for an
enhanced AML/CTF registration scheme for the remittance sector
July 2010
Why did you receive this survey?
You are receiving this survey because you are registered with the Australian
Transaction Reports and Analysis Centre (AUSTRAC) as a provider of remittance
services.
Proposed enhancements to the regulation of the remittance sector are being
considered
Since April 2010, the remittance sector has been engaged in consultation about ways
to more effectively manage the risk that remittance services could be used to facilitate
money laundering, terrorism financing and other transnational and serious crime.
Information provided by the remittance services sector has helped shape a set of
specific regulatory reforms for more detailed consideration. These reforms are set out
in the paper `Specific proposals for an enhanced AML/CTF registration scheme for
the remittance sector' which is available at
http://www.ag.gov.au/www/agd/agd.nsf/Page/Anti-money_laundering.
It is important to understand how the possible reforms will impact on the
remittance services sector
Where regulatory reform is being considered, government departments and agencies
must analyse the expected impacts of any proposed changes on businesses. They do
this by preparing a Regulatory Impact Analysis.
In this case, the Attorney-General's Department is seeking information to inform a
possible Regulatory Impact Analysis. That analysis must include information about
how the specific regulatory reforms are expected to impact on the remittance sector.
The information collected in this survey and from remittance network service
providers will be analysed and available to use in any future Regulatory Impact
Analysis.
74
Information you provide in this survey will be used to understand the impacts of
the possible regulatory reforms
This survey collects information from remittance services about meeting the current
regulatory requirements for:
· AUSTRAC registration
· the AML/CTF Program and
· AUSTRAC reporting requirements.
The survey also collects information from remittance services about meeting the
proposed enhanced regulatory requirements that are under consideration. Information
will also be collected from network service providers.
Who will see my survey information?
Your answers to the survey will remain anonymous.
Your individual answers will not be provided to the Attorney-General's Department
or AUSTRAC.
The information you provide will be included with responses from other remittance
service providers and presented in an aggregate form.
What should I do?
Complete this online survey by 6 August 2010.
Answer the questions as accurately as you can.
If you require technical assistance with this survey, please contact
For queries regarding the proposed reforms, please contact amlreform@ag.gov.au.
Terms used in the survey
Independent remittance dealer - a person that provides remittance services to
customers using his or her own systems and processes, independent of a remittance
network
Remittance affiliate - a person that provides remittance service to customers as part of
a remittance network facilitated by a remittance network provider
Remittance network provider - a person that facilitates networks of remittance
affiliates, providing the systems and services that enable his or her affiliates to
provide remittance services
THANK YOU FOR YOUR TIME
75
Section 1: Your business
In this section the questions will ask you about your business. This information will
help us understand if costs are different for different type of businesses.
1) What is the primary activity of your business?
a) Providing a remittance service
b) Postal services
c) Newsagency
d) General store
e) Currency exchange service
f) Other [go to question 2]
2) Which of the following best describes the operation of your remittance service
business?
a) A remittance affiliate (for example, part of Western Union)? [go to
question 3]
b) Independent remittance dealer [go to question 4]
c) Remittance network provider [end survey]
d) A combination of the above [go to question 3]
3) How many remittance networks providers are you a part of?
a) One
b) Two
c) More than two [go to question 4]
4) How many people work in your business (including you)?
a) 1-2
b) 3-4
c) 5 - 10
d) 11 - 19
e) 20 - 49
f) 50 - 99
g) 100 - 200
h) 201 - 500 [go to question 5]
5) How many people working in your business (including you) provide
remittance services?
a) 1-2
b) 3-4
c) 5 - 10
d) 11 - 19
e) 20 - 49
f) 50 - 99
g) 100 - 200
h) 201 - 500 [go to question 6]
76
Section 2: Your costs of having AUSTRAC registration
In this section the questions are about the costs to you and your business of having to
register with AUSTRAC as a provider of a designated remittance service.
6) Did you or someone in your business complete the online registration or fill in
the form to register with AUSTRAC?
[YES/NO]
[if yes, go to question 7]
[if no, go to question 8]
7) How long did it take to complete the AUSTRAC registration form or online
registration?
This includes time spent by you or other people in your business to gather the
information AND time to enter the information into the form.
a) 1 minute - 10 minutes
b) 11 minutes - 20 minutes
c) 21 minutes - 40 minutes
d) 41 minutes - 1 hour [go to question 8]
Section 3: Your costs related to having an AML/CTF Program
As a provider of remittance services you are required to have and maintain an
AML/CTF Program. The questions in this section are about the costs to you and your
business of having that AML/CTF Program.
Risk Assessment
You are required to undertake risk assessment reviews when you have new types of
customers, new products, new channels and jurisdictions.
8) When you need to review your risk assessment who does it?
a) I do [go to question 9]
b) Someone else in my business [go to question 9]
c) My principal or remittance network provider [go to question 9]
d) An external consultant [go to question 9]
e) We have not undertaken one yet [go to question 12]
9) When you or someone in your business reviews your risk assessment how
much time does it take? (for example, this could include time spent with a
remittance network provider/external consultant if applicable)
a) 1 minute - 30 minutes
b) 31 minutes - 1 hour
c) 1 hour - 4 hours
d) 4 hours - 8 hours
e) 8 hours - 20 hours [go to question 10]
77
10) How many times do you review your risk assessment in a normal year?
a) Less than once a year
b) Once a year
c) More than once [go to question 11]
11) When you need to review your risk assessment what are the out of pocket
costs in a normal year? (for example, to pay an external consultant)
a) My principal pays all the costs
b) $0
c) $1 - $500
d) $501 - $1,000
e) $1,001 - $2,000
f) $2,001 -$5000 [go to question 12]
Reviewing and maintaining your AML/CTF Program and supporting policies
and procedures
You or someone in your business may spend time reviewing and updating your
AML/CTF Program. Or, if you are part of a network of remittance providers, it's
possible that a Program may be provided for you.
12) When you need to review or update the AML/CTF Program who does it?
a) I do [go to question 13]
b) Someone else in my business [go to question 13]
c) My principal or remittance network provider [go to question 13]
d) An external consultant [go to question 13]
e) We have not undertaken one yet [go to question 15]
13) When you or someone in your business reviews or updates the AML/CTF
Program how much time does it take? (for example, this could include time
spent with a remittance network provider/external consultant if applicable)
a) 1 minute - 30 minutes
b) 31 minutes - 1 hour
c) 1 hour - 4 hours
d) 4 hours - 8 hours
e) 8 hours - 20 hours [go to question 14]
14) When you need to review your AML/CTF Program what are the out of pocket
costs in a normal year? (for example, to pay an external consultant)
a) My principal pays all the costs
b) $0
c) $1 - $500
d) $501 - $1,000
e) $1,001 - $2,000
f) $2,001 - $5,000
g) $5,001 - $10,000
h) $10,001 - $20,000 [go to question 15]
78
AML/CTF Risk Awareness Training
The AML/CTF Act requires all employees involved in providing a remittance service
to have regular risk awareness training covering money laundering, terrorism
financing and other transnational and serious crime.
15) When you or your employee undertakes risk awareness training who provides
the training content?
a) I do [go to question 16]
b) Someone else in my business [go to question 16]
c) My principal or remittance network provider [go to question 16]
d) We engage an external provider [go to question 16]
e) We have not undertaken risk awareness training yet [go to question 20]
16) When you or your employee undertakes risk awareness training who delivers
the training content?
a) I do [go to question 17]
b) Someone else in my business [go to question 17]
c) My principal or remittance network provider [go to question 19]
d) We engage an external provider [go to question 19]
e) We have not undertaken risk awareness training yet [go to question 20]
17) How much time does the risk awareness training take per employee in a
normal year?
a) 1 minute - 30 minutes
b) 31 minutes - 1 hour
c) 1 hour - 4 hours
d) 4 hours - 8 hours
e) 8 hours - 20 hours [go to question 19]
18) How many people in your business are involved in providing remittance
services complete risk awareness training in a normal year?
a) Everyone
b) About three quarters of people involved in providing remittance
services
c) About half the people involved in providing remittance services
d) About a quarter of people involved in providing remittance services
[go to question 19]
19) For your business' risk awareness training what are the out of pocket costs in
a normal year (for example, to pay a training course provider, to purchase
training materials)?
a) My principal pays all the costs
b) $0
c) $1 - $500
d) $501 - $1,000
e) $1,001 - $2,000
f) $2,001 - $5,000
g) $5,001 - $10,000
79
h) $10,001 - $20,000 [go to question 20]
Undertaking employee due diligence
Your business must put in place systems and controls to decide if and how to screen
any prospective and current employees who may be involved in providing remittance
services.
20) What steps does your business undertake to screen any prospective and
current employees who may be involved in providing remittance services?
a) Personal or professional reference checks [go to question 21]
b) National Police Certificates [go to question 21]
c) Other activities [go to question 21]
d) A combination of the above [go to question 21]
e) We have not undertaken screening of prospective or current employees
yet
[go to question 26]
21) Would you undertake the same screening / due diligence of prospective and
current employees if you did not provide remittance services?
a) Yes, we would continue with the same screening activities
b) No, we would reduce our current screening activities [go to question
22]
22) When you or your employees undertake screening / due diligence of new or
current employees who does it?
a) I do [go to question 23]
b) Someone else in my business [go to question 23]
c) My principal or remittance network provider[go to question 25]
d) An external consultant [go to question 25]
e) We have not undertaken employee or agent due diligence yet
[go to question 26]
23) When you or someone in your business undertakes screening / due diligence
of new or current employees how much time does it take per employee?
a) 1 minute - 30 minutes
b) 31 minutes - 1 hour
c) 1 hour - 4 hours
d) 4 hours - 8 hours
e) 8 hours - 20 hours [go to question 24]
24) How many prospective and current employees do you spend time undertaking
screening / due diligence of in a normal year?
a) 1-2
b) 3-4
c) 5 - 10
d) 11 - 19
e) 20 - 49
f) 50 - 99
g) 100 - 200 [go to question 25]
80
25) For your business' screening / due diligence activities of new and current
employees what are the out of pocket costs in a normal year?
a) My principal pays all the costs
b) $0
c) $1 - $500
d) $501 - $1,000
e) $1,001 - $2,000
f) $2,001 - $5,000
g) $5,001 - $10,000
h) $10,001 - $20,000 [go to question 26]
Independent review
Under the AML/CTF Act all reporting entities need their Part A AML/CTF programs
reviewed on a regular basis by a suitably qualified and independent person.
26) When you have an independent review of your Part A AML/CTF program
who does it?
a) I do [go to question 27]
b) Someone else in my business [go to question 27]
c) My principal or remittance network provider [go to question 27]
d) An external consultant [go to question 27]
e) We have not undertaken an independent review yet [go to question 29]
27) When you or someone in your business undertakes the independent review
how much time does it take? (for example, this could include time spent with a
remittance network provide/external consultant if applicable)
a) 1 minute - 30 minutes
b) 31 minutes - 1 hour
c) 1 hour - 4 hours
d) 4 hours - 8 hours
e) 8 hours - 20 hours [go to question 28]
28) For your business' independent review what are the out of pocket costs in a
normal year?
a) My principal pays all the costs
b) $0
c) $1 - $500
d) $501 - $1,000
e) $1,001 - $2,000
f) $2,001 - $5,000
g) $5,001 - $10,000
h) $10,001 - $20,000 [go to question 29]
81
Monitoring
Under the AML/CTF Program, you are required to monitor customers and their
transactions. This monitoring is to help you quickly identify and respond to any
potential money laundering or terrorism financing risks.
29) Who does your regular monitoring of customers and their transactions?
a) I do [go to question 30]
b) Someone else in my business [go to question 30]
c) My principal or remittance network provider [go to question
31]
d) We have not undertaken monitoring yet [go to question 32]
30) When you or someone in your business does the monitoring how much time
does it take each week?
a) 1 minute - 30 minutes
b) 31 minutes - 1 hour
c) 1 hour - 4 hours
d) 4 hours - 8 hours
e) 8 hours - 20 hours [go to question 31]
31) When you or someone in your business undertakes the monitoring what are
the out of pocket costs in a normal week?
a) My principal pays all the costs
b) $0
c) $1 - $500
d) $501 - $1,000
e) $1,001 - $2,000
f) $2,001 - $5000 [go to question 32]
Section 4: Your costs for reporting to AUSTRAC
In this section the questions are about the costs to you and your business of reporting
to AUSTRAC.
Threshold Transaction Reports (TTRs)
As a provider of remittance services, if a transaction involves AUD$ 10,000 or more
of physical currency or e-currency then you must submit a threshold transaction report
(TTR) to AUSTRAC.
32) When you need to report a threshold transaction to AUSTRAC who completes
the report?
a) I do [go to question 33]
b) Someone else in my business [go to question 33]
c) My principal or remittance network provider [go to question 34]
d) We have not undertaken threshold transaction reporting yet [go to question
36]
82
33) Who submits the threshold transaction report to AUSTRAC?
a) I do
b) Someone else in my business
c) My principal or remittance network provider [go to question 34]
34) When you or someone in your business completes / submits one threshold
transaction report how much time does it take per report?
a) 1 - 5 minutes
b) 6 - 10 minutes
c) 11 - 15 minutes
d) 16 - 20 minutes [go to question 35]
35) How many threshold transaction reports does your business submit in a
normal month?
a) 0 - 5 reports
b) 6 - 10 reports
c) 11 - 50 reports
d) 51 - 100 reports
e) 101 - 500 reports [go to question 36]
International Funds Transfer Instruction (IFTIs)
As a provider of remittance services, you may be responsible for submitting
International Funds Transfer Instruction (IFTIs) reports to AUSTRAC.
36) When you need to report an IFTI to AUSTRAC who completes the report?
a) I do [go to question 38]
b) Someone else in my business [go to question 38]
c) My principal or remittance network provider [go to question 39]
d) We have not undertaken international funds transfer reporting yet
[go to question 40]
37) Who submits the IFTI report to AUSTRAC?
a) I do
b) Someone else in my business
c) My principal or remittance network provider
d) Other[go to question 39]
38) When you or someone in your business completes / submits one IFTI report to
AUSTRAC how much time does it take?
a) 1 - 5 minutes
b) 6 - 10 minutes
c) 11 - 15 minutes
d) 16 - 20 minutes [go to question 39]
83
39) How many IFTI reports does your business submit to AUSTRAC in a normal
week?
a) 1 - 10 reports
b) 11 - 50 reports
c) 101 - 500 reports
d) 501 - 1,000 reports
e) 1,001 - 5,000 reports
f) 5,001 - 10,000 reports
g) 10,001 - 50,000 reports [go to question 40]
Compliance Report
A business that provides remittance services is required to submit an AML/CTF
compliance report to AUSTRAC
40) Who completes your business' Compliance Report to AUSTRAC?
a) I do [go to question 41]
b) Someone else in my business [go to question 41]
c) My principal or remittance network provider [go to question 42]
d) We have not submitted an Compliance Report yet [go to question 42]
41) How much time did it take to complete the 2009 Compliance Report to
AUSTRAC?
This includes time spent by you or other people in your business to gather the
information AND time to enter the information into the form
a) 1 minute - 30 minutes
b) 31 minutes - 1 hour
c) 1 hour - 4 hours
d) 4 hours - 8 hours [go to question 42]
Other costs
42) Are there other costs to your business because of the AML/CTF registration,
AML/CTF Program or Reporting? (for example employing sub-agents to
carry out your AML/CTF obligations)
FREE TEXT RESPONSE
[go to question 43]
84
Section 5: Estimating additional time needed to complete enhanced registration
In the future, to obtain registration as a designated provider of remittance services you
may be required to provide more information about yourself, your employees and
your business to AUSTRAC.
This information may include:
· A signed declaration relating to any criminal history (National Police
Certificate for all key personnel) or bankruptcy
· The structure of your business including beneficial ownership and control
arrangements
You would record this information either on a new AUSTRAC registration form or as
part of an expanded online registration process.
43) Do you and the employees in your business who provide remittance services
already have National Police Certificates (valid from the last 3 years)?
a) Yes
b) Some do
c) No [go to question 44]
44) Please estimate, how much time it would take to prepare advice for
AUSTRAC to confirm that key personnel who provide remittance services
have National Police Certificates.
This includes time taken to discuss this with your employees, record it and
submit it.
a) 1 minute - 30 minutes
b) 1 minutes - 1 hour
c) 1 hour - 4 hours
d) 4 hours - 8 hours [go to question 45]
45) Please estimate, how much time it would take to provide AUSTRAC with
information about whether key personnel who provide remittance services
have taken advantage of the laws of bankruptcy.
This includes time taken to review information, record it and submit it.
a) 1 minute - 30 minutes
b) 31 minutes - 1 hour
c) 1 hour - 4 hours
d) 4 hours - 8 hours [go to question 46]
85
46) Please estimate, how much time it would take to provide AUSTRAC with
information about the beneficial ownership arrangements and managerial
control of your business (if it is a company). For example, a copy of relevant
information from the most recent ASIC annual return, a copy of a certificate of
incorporation or an organisation or corporate structure chart.
This includes time taken to review information, record it and submit it.
a) 1 minute - 30 minutes
b) 31 minutes - 1 hour
c) 1 hour - 4 hours
d) 4 hours - 8 hours
e) 8 hours - 20 hours
86
RIS Appendix D - Discussion guide used in consultation with PRNs
Guide to consultation: impacts of proposals to enhance the registration scheme for the
remittance sector
Background
The paper `Specific proposals for an enhanced AML/CTF registration scheme for the
remittance sector' describes a set of proposed measures to enhanced the regulation of
remittance dealers.
This paper is available at http://www.ag.gov.au/www/agd/agd.nsf/Page/Anti-
money_laundering.
As described in the paper, the proposals include defining providers of remittance
networks (PRNs) and placing specific regulatory obligations on PRNs to develop
processes and procedures for:
· assessing the money laundering / terrorism financing risk in providing
designated services
· customer identification and verification (remittance affiliates)
· ongoing customer due diligence
· employee due diligence
The general approach is to allow PRNs to establish the most appropriate way to meet
these obligations within their own business context.
However, there are a number of specific requirements associated with the proposed
changes. These include requirements to:
· obtain registration as a PRN and to register all affiliates
· prepare and maintain an Anti-Money Laundering and Counter-Terrorism
Financing (AML/CTF) Program as a PRN (including employee due diligence)
and provide an AML/CTF Program for registered remittance affiliates
· provide advice to AUSTRAC about material change in circumstances
(changes of name, address, changes to beneficial ownership of a company and
bankruptcy)
· fulfil certain reporting obligations on behalf of their remittance affiliates
including compliance reports, international funds transfer instructions and
threshold transaction reports.
Guide for discussion
You have been invited to take part in a discussion that will assist in assessing the
likely impacts on of the proposed enhanced registration scheme for the remittance
sector.
The purpose of the discussion is to gather information that can be used to inform the
regulatory impact assessment and will be taken into account when further considering
the current proposals.
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To achieve this, we propose to structure the discussion by:
· Asking you to describe your activities and processes for obtaining membership
of your network, due diligence, AML/CTF strategies employed and the degree
of support provided to remittance affiliates to assist them to comply with their
AML/CTF Act obligations
· Asking you to describe the new processes or activities needed in your business
to meet the proposed regulatory changes, noting that these activities may vary
through a transition to the new arrangements
· Discussing the estimated costs per annum associated with any new processes
or activities, this could include discussion about time taken to complete
activities, costs such as wages, IT enhancements, other capital outlays
· Inviting you to raise any other issues you consider to be relevant.
The table on the follow page provide a guide to the types of information we would
like to discuss.
Any information you provide to in the course of the discussion will not be provided to
either the Attorney-General's Department or AUSTRAC unless you give your consent
to this happening. We will use the information you provide in an aggregated form to
analyse the regulatory impacts arising from the proposed enhancements.
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ACRONYMS
ADI Authorised Deposit-taking Institution
AML/CTF Act Anti-Money Laundering and Counter-Terrorism
Financing Act 2006
AUSTRAC Australian Transaction Reports and Analysis Centre
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NOTES ON CLAUSES
Clause 1: Short Title
This clause provides that when the Bill is enacted, it is to be cited as the Combating
the Financing of People Smuggling and Other Measures Act 2011.
Clause 2: Commencement
This clause sets out when the various parts of the Act are to commence.
Clause 3: Schedule(s)
This is a formal clause that enables the Schedules to amend Acts by including
amendments under the title of the relevant Act.
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Schedule 1 - Remittance Dealers
Part 1 - Amendments
Anti-Money Laundering and Counter-Terrorism Financing Act 2006
Item 1
This item updates the simplified outline to Part 1 of the Act to reflect that providers of
registrable remittance network services must be registered with the AUSTRAC CEO.
Item 2
This item introduces a definition of AAT reviewable decision.
Item 3
This item introduces a definition of infringement notice provision.
Item 4
This item repeals the definition of Register of Providers of Designated Remittance
Services. This register is replaced by a new register under the new section 75 (see
item 31).
Items 5 to 7
Together these items introduce definitions for the three main classes of industry
participants:
· Registered remittance network provider - typically large organisations that
operate networks of remittance affiliates by providing the systems and services
that enable their affiliates to provide remittance services.
· Registered remittance affiliate - businesses that provide remittance services to
customers as part of a remittance network facilitated by a remittance network
provider.
· Registered independent remittance dealer - businesses that provide remittance
services to customers using their own systems and processes, independent of a
remittance network.
Each of the definitions is tied to the requirement for industry participants in each of
these classes to be registered before providing a relevant service. The requirement for
registration is addressed by item 24.
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Item 8
This item introduces a definition of `registrable remittance network service'. The
definition includes the network services set out in the new item 32A of table 1 in
section 6 of the AML/CTF Act (see item 12). The AML/CTF Rules will be able to
exempt certain services from this definition.
Item 9
This item introduces a definition of `registration'.
Item 10
This item introduces a definition of `Remittance Sector Register' by cross reference to
new section 75 (see item 31).
Item 11
This item introduces a definition of `reviewable decision'. In summary the definition
includes a decision to refuse an application for registration as a remittance network
provider, a remittance affiliate or an independent remittance dealer; or a decision to
cancel or impose conditions on a person's registration in one or more of those classes.
It also includes situations where an application is deemed to have been refused
because it was not determined within the specified time period (see item 31, proposed
subsection 75B).
Reviewable decisions are made in relation to a person. This means that where a
decision is made in relation to a particular person that person can seek review of the
decision. In the case where a decision is made to refuse an application to register a
person as a remittance affiliate, paragraph (b) of the definition of reviewable decision
has the effect that the person who was to be the remittance affiliate is taken to have
had a reviewable decision made in relation to them. Subparagraph (e)(i) of the
definition has the effect that the registered remittance network provider who made the
application is also taken to have had a reviewable decision made in relation to them.
This means that both would be able to have the decision reviewed.
Item 12
A person who provides a designated service to a customer becomes a reporting entity
for the purposes of the AML/CTF Act. The tables set out in section 6 of the
AML/CTF Act define designated services as itemised in the tables and also define
who the customer is for each itemised service.
This item adds a new designated service to table 1 in section 6 of the AML/CTF Act.
The new item 32A covers the services provided by remittance network providers in
operating a network of remittance affiliates who undertake the services in items 31
and 32 of table 1 using the systems, processes and other support provided by the
network provider. The customer is defined as the person who provides designated
services as part of the network.
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Item 32A(b) excludes a non-financier, which is defined in section 5 of the AML/CTF
as a person who is not an authorised deposit-taking institution27, bank, building
society, credit union, or person specified in the AML/CTF Rules. This approach is
consistent with the existing approach to the provision of remittance services in items
31 and 32 of the table from which those business types are also excluded.
Item 13
This item excludes the new designated service of operating a network of remittance
affiliates (who provide services set out in items 31 and 32 of table 1, section 6) from
the geographical link requirements that generally apply to reporting entities. This
exemption is necessary because the global nature of remittances means that many
remittance network providers are based in other countries. It ensures that providers of
remittance networks that operate extensively in Australia are subject to AML/CTF
regulation, despite the fact that they may not have a permanent establishment in
Australia.
Item 14
Section 36 of the AML/CTF Act and the related AML/CTF Rules impose obligations
on reporting entities to monitor customers and their transactions on an ongoing basis.
This item will enable providers of remittance networks to monitor the customers of
their remittance affiliates and discharge this obligation on behalf of their affiliates.
This change is consistent with item 20 which will enable the AML/CTF Rules to
require providers of remittance networks to undertake some AML/CTF Act
obligations on behalf of their affiliates. In the case of suspicious matter reports for
example, it would be necessary for remittance network providers to monitor the
transactions of their affiliates' customers for the purposes of submitting the reports.
Item 15
This item is consequential to the amendment set out in item 13. It will ensure that
remittance network providers who provide a designated service at or through a
permanent establishment in a foreign country are still subject to the suspicious matter
and threshold transaction reporting requirements set out in Part 3 of the AML/CTF
Act.
Items 16 - 18
Section 49 of the AML/CTF Act empowers the AUSTRAC CEO to request further
information from a reporting entity when the reporting entity has communicated
information to the AUSTRAC CEO about a suspicious matter (section 41), a
threshold transaction (section 43), or an international funds transfer instruction
(section 45). Request for further information must be by written notice.
27
An Authorised Deposit-taking institution (ADI) is defined in section 5 of the AML/CTF Act and
means a body corporate that is an ADI for the purposes of the Banking Act 1959; the Reserve Bank of
Australia or a person who carries on State banking within the meaning of paragraph 51(xiii) of the
Constitution.
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These items will amend subsection 49(1) and paragraphs 49(1)(h) and (i) to enable the
AUSTRAC CEO to request further information from a reporting entity or any other
person. This is consistent with the information gathering powers of a number of
government agencies.28 This will improve AUSTRAC's ability to assess the financial
intelligence it receives in the reports submitted by reporting entities. For example, if a
casino submitted a suspicious matter report to AUSTRAC on the presentation by a
customer of a large bank cheque in exchange for chips, the Act as currently drafted
limits AUSTRAC to seeking further information only from the casino as the reporting
entity. The amendments in items 16 - 18 will mean that AUSTRAC can also seek
further information from the bank that issued the cheque so that it is better able to
evaluate the matter.
When the AUSTRAC CEO issues a written notice requesting further information, the
recipient will be required to produce the information set out in the notice, or
documents in the possession or control of the reporting entity or other person, within
the period specified in the notice.
Item 19
Section 49(2) states that a reporting entity must comply with a notice under
subsection 49(1). This item amends subsection 49(2) to extend the compliance
obligation to any person who has been given a notice under subsection 49(1) and
reflects the amendment made to subsection 49(1). Subsection 49(3) creates civil
liability for failure to comply with the terms of the notice issued under subsection
49(1).
Item 20
This item states that the AML/CTF Rules may make provision for obligations to
provide reports that are imposed on registered remittance affiliates to be imposed
instead, or in addition, on the relevant registered remittance network provider. In most
instances it will be the remittance network providers that have the majority of the
reporting obligations. However, this provision will give AUSTRAC the ability to
work with affected remittance networks to develop efficient and effective reporting
arrangements.
Item 21
This item amends the heading of Part 6 of the AML/CTF Act to reflect the new
measures. It also inserts the first of several new Division headings to enhance the
clarity of Part 6.
Item 22
This item repeals the current simplified outline in section 73 and replaces it with a
new outline summarising the new measures that are to be contained in Part 6.
28
For example, the Australian Competition and Consumer Commission, the Australian Securities and
Investment Commission and the Australian Taxation Office all have statutory powers to enable them to
obtain information associated with the performance of their statutory functions.
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Item 23
This item inserts a second new Division heading which reflects the new arrangements.
Item 24
Subsection 74(1) of the Act provides that a person must not provide a registrable
designated remittance service if the relevant details are not entered on the Register of
Providers of Designated Remittance Services.
This item repeals the existing subsection 74(1) and replaces it with new subsections
which reflect the three classes of industry participants discussed in items 5-7 above.
In summary the new subsections 74(1), 74(1A) and 74(1B) provide that a person must
not provide a registrable remittance network service or a designated registrable
remittance service unless they are registered as a remittance network provider, a
remittance affiliate of a registered remittance network provider, or an independent
remittance dealer. Paragraph 74(1)(b) further provides that a person must not provide
a registrable remittance network service to a person other than someone who is one of
their registered affiliates.
Subsection 74(1C) provides that a registered person must not breach a condition
imposed on their registration. This reflects the new power for the AUSTRAC CEO to
impose conditions on registration (see new section 75E).
Items 25 - 28
These items amend the existing offence provisions in the AML/CTF Act to take
account of the registration obligations imposed on each of the three classes of industry
participants.
Item 29
Section 175 of the AML/CTF Act provides that the Federal Court may order a person
to pay a pecuniary penalty to the Commonwealth where it is satisfied that a person
has contravened a civil penalty provision. This item updates the existing subsection
74(10) to designate new subsections 74(1), (1A), (1B) and (1C) as civil penalty
provisions. This means that a person may be subject to a civil penalty instead of
being charged with a criminal offence under section 74. These offences relate to the
provision of services without being registered and breaching conditions of
registration.
Under subsection 175(4) of the AML/CTF, the maximum civil penalty that can be
imposed by the Court for breaches of these provisions is 100,000 penalty units
(currently $11 million) for a body corporate and 20,000 penalty units ($2.2 million)
for a person other than a body corporate.
Under the expanded infringement notice scheme set up under items 35-47 it will also
be possible for infringement notices to be issued for breaches of subsections 74(1),
(1A), (1B) and (1C).
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Item 30
Under the current requirements of the AML/CTF Act, a person must not provide a
registrable designated remittance service unless the person's name is entered on the
AUSTRAC register. Doing so is an offence under subsection 74(2) of the
AML/CTF Act.
Currently, under subsection 74(11) of the AML/CTF Act it is a defence if the
defendant proves that he or she had made an application for registration prior to the
offence. Under subsection 74(12) of the AML/CTF Act a defence lies if the person
can prove that he or she had informed the AUSTRAC CEO in writing of their
registrable details prior to the contravention.
The defences in subsections 74(11) and (12) will be repealed because they are based
on the existing registration processes in which entry on the register is determinative of
registration. The current registration processes will be discontinued in favour of the
new registration system set out in the Bill in which the decision of the AUSTRAC
CEO will be determinative of registration.
Item 31
This item repeals sections 75, 76, 77, 78, 79 and 79A which together establish the
registration system for remittance dealers and introduces new sections 75, and 75A-
75S, which together introduce an improved registration system which enhances
AUSTRAC's ability to effectively regulate the remittance sector.
All of the powers and functions set out in the new Division 3 may be delegated by
virtue of section 222 of the AML/CTF Act. This section gives the AUSTRAC CEO
the power to delegate his or her functions or powers to AUSTRAC staff members. In
exercising such powers and functions under the delegation, the delegate must comply
with any directions of the AUSTRAC CEO.
Division 3 - Registration of persons
This new Division heading will improve the clarity of Part 6.
75 Remittance Sector Register
The new section 75 states that the AUSTRAC CEO must maintain a Remittance
Sector Register which may be maintained by electronic means.
The Remittance Sector Register is not a legislative instrument within the meaning of
section 5 of the Legislative Instruments Act 2003. Accordingly, subsection 75(3),
which states that the register is not a legislative instrument, has been included to assist
readers. This means that the Remittance Sector Register does not need to be tabled in
Parliament and is not subject to disallowance by either House.
Subsection 75(4) provides for processes relating to the correction of entries in the
Remittance Sector Register, the publication of the Remittance Sector Register or
certain information contained in it, and other administrative or operational matters to
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be set out in the AML/CTF Rules. This will enable AUSTRAC to publish
information which ensures that the Remittance Register is easily accessible by
interested members of the public.
75A Information to be entered on the Remittance Sector Register
Subsection 75A(1) lists the information that the AUSTRAC CEO must enter on the
Remittance Sector Register if the CEO decides to register a person. Subsection
75A(2) makes it clear that a person may be entered on the Remittance Sector Register
in different capacities. For example a person may be registered as both a remittance
affiliate and an independent remittance dealer.
75B Applications for registration
Section 75B provides the basis for a new three tier registration scheme.
Paragraphs 75B(1)(a) and 75B(1)(b) provide that a person may apply directly to the
AUSTRAC CEO for registration as a remittance network provider or an independent
remittance dealer. Applications for registration as a remittance affiliate are governed
by paragraph 75B(1)(c) and subsections 75B(2) and 75B(5). It is envisaged that the
majority of affiliate applications will be lodged by registered remittance network
providers on behalf of their affiliates. However, if a person is already, or is seeking to
become, registered as an independent remittance dealer they will be allowed to make
a direct application for registration as a remittance affiliate, providing that their
registered remittance network provider gives their consent.
Under subsection 75B(3) applications for membership in all classes must be in the
approved form and contain the information required by the AML/CTF Rules.
Subsection 75B(4) specifies the information that the AML/CTF Rules may require.
Subsection 75B(6) provides for the deemed refusal of an application if the AUSTRAC
CEO has not made a decision within 90 days of receiving the application, or if further
information has been sought from the applicant to assist in the making of a decision,
deemed refusal commences 90 days after the day that information was provided.
Subsection 75B(7) allows the AUSTRAC CEO to extend the period by a further 30
days by giving notice in writing to the applicant. This provision ensures that an
applicant has access to both the internal and AAT review procedures which are
created by this item (see proposed Division 4) in the event that there is an excessive
delay in processing their application.
Under this new registration system AUSTRAC will have responsibility for
undertaking appropriate inquiries to ascertain whether a person who has applied for
registration should be able to operate a remittance service. Remittance network
providers that apply for registration of their remittance affiliates will have a key role
in ascertaining whether a prospective remittance affiliate is suitable for registration as
part of the provider's network. As reporting entities with AML/CTF Act obligations,
remittance network providers will be required to have an AML/CTF program set up
that will put in place processes and procedures for:
· assessing the ML/TF risk in providing designated services
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· customer identification and verification (their customers are their remittance
affiliates)
· ongoing customer due diligence, and
· employee due diligence.
Consistent with the AML/CTF Act's risk based approach to regulation, the Act does
not prescribe how remittance network providers must comply with their obligations.
Rather, they will be able to put in place systems that suit their existing business
practices and contractual arrangements, business size and level of money laundering
and terrorism financing risk. Remittance network providers already conduct
extensive due diligence as part of their normal business practice before enabling a
person to join their network. The reforms will effectively give legislative force to an
existing business practice being undertaken by industry.
75C Registration by the AUSTRAC CEO
Subsection 75C(2) states that the AUSTRAC CEO must register a person if satisfied
that it is appropriate to do so having regard money laundering, terrorism financing or
people smuggling risk involved and to any additional matters specified in the
AML/CTF Rules. Subsection 75C(3) provided a non-exhaustive list of the matters
that may be specified in the AML/CTF Rules. The remittance sector is particularly
vulnerable to misuse for money laundering and terrorism financing, and for funding
other serious and transnational crime such as people smuggling. It is appropriate that
the AUSTRAC CEO is provided with specific information about an applicant relevant
to determining their suitability as a remittance network provider, an independent
remittance dealer, or a remittance affiliate.
The inability of the AUSTRAC CEO to refuse the registration of a remittance dealer
is a serious weakness in the existing Act. This amendment is central to the policy
objective of reducing the risk of money transfers by remittance dealers being used to
fund people smuggling ventures and other serious crime because it will help to ensure
that unsuitable persons are not permitted to operate remittance businesses.
A decision by the AUSTRAC CEO to refuse registration is a `reviewable decision'
and the AUSTRAC CEO must notify the person of the decision in accordance with
subsection 75R(1). A person who is adversely affected by a decision on registration
will be entitled to seek review of the decision in accordance with the review
provisions in the new Division 4.
If the AUSTRAC CEO decides to register a person subsection 75C(4) requires that a
notice be given to the person specifying the matters set out in subsection 75C(5). In
the case of a decision to register a person as a remittance affiliate, subsection 75C(4)
requires that the notice be given to both the remittance network provider that made the
application and the relevant remittance affiliate.
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75D Spent convictions scheme
Section 26 preserves the primacy of the spent convictions scheme. Any Rules made
by the AUSTRAC CEO may make under paragraph 75B(3)(b) or 75C(2) cannot
override the spent convictions scheme.
75E Registration may be subject to conditions
This provision enables the AUSTRAC CEO to impose conditions on the registration
of a person as a remittance network provider, remittance affiliate, or independent
remittance dealer. The AUSTRAC CEO may impose a condition at the time of
registration to address issues identified during the pre-registration due diligence
process, or at a later time to address issues that may arise during the course of
registration.
Examples of the types of conditions that may be imposed include the following:
· The registration is not transferable.
· The holder of the Registration cannot, under any circumstances, remit any
monies or currency or good(s) or benefit(s), or arrange for the remittance of
any funds or currencies or good(s) or benefit(s) to any person who is a resident
in a designated country or countries.
A decision by the AUSTRAC CEO to impose conditions on the registration of a
person is a `reviewable decision' under section 5 of the AML/CTF Act (see item 11).
Review of the decision can be sought in accordance with the review provisions in the
new Division 4.
75F When registration of a person ceases
This item specifies when registration as a remittance network provider, remittance
affiliate, or independent remittance dealer ceases. Paragraph 75F(1)(a) deals with
cessation when a registration has been cancelled by the AUSTRAC CEO under
section 75G. Paragraph 75F(1)(b) will apply in circumstances where a person has
requested the removal of an entry from the register under section 75K.
The effect of paragraph 75F(1)(c) is that registration will cease after 3 years unless it
has already ceased for another reason. This reflects the Government's view that the
registration of industry participants in the remittance sector should be reviewed on a
regular basis to ensure each person's ongoing suitability for involvement in the sector.
The Government recognises that there may be circumstances in which it would be
unreasonable to require a person whose application ceases under section 75F(1)(c) to
undertake a full application process. Accordingly subsection 75F(2) cross refers to
section 75J which enables arrangements for renewal of registration to be set out in the
AML/CTF Rules.
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75G Cancellation of registration
The inability of the AUSTRAC CEO to cancel the registration of a remittance dealer
is a serious weakness in the existing Act. Subsection 75G(1) allows registration to be
cancelled if the AUSTRAC CEO is satisfied that not doing so would involve a
significant money laundering, terrorism financing or people smuggling risk. As with
registration decisions, in the vast majority of cases where such an opinion is formed
registration would be cancelled. However, it is important the AUSTRAC CEO retain
this discretion as refusal could potentially jeopardise or impact on law enforcement
inquiries or investigations. Under subsection 75G(2) the AUSTRAC CEO may
exercise discretion, having regard to whether a person has breached a condition of
their registration and other such matters specified in the AML/CTF Rules. Together
these amendments give the AUSTRAC CEO greater control over who may participate
in the remittance sector. These provisions are therefore central to the policy objective
of reducing the risk of money transfers by remittance dealers being used to fund
people smuggling ventures and other serious crime.
Subsection 75G(3) states that cancellation of registration takes effect on the date
specified in the notice of cancellation of registration and cross refers to paragraph
75R(1) which requires the AUSTRAC CEO to include the date of effect in a notice.
Subsection 75G(4) empowers the AUSTRAC CEO to publish a list of the names of
persons whose registration has been cancelled and the date of cancellation. This will
enhance the transparency of the remittance sector and enable consumers to access
information about cancellation.
A decision by the AUSTRAC CEO to impose cancel a person's registration is a
`reviewable decision' under section 5 of the AML/CTF Act (see item 11). Review of
the decision can be sought in accordance with the review provisions in the new
Division 4.
75H Suspension of registration
Subsection 75H(1) provides that arrangements for the suspension of registrations may
be set out in the AML/CTF Rules. Subsection 75H(2) provides a non-exhaustive list
of the matters which may be included in the Rules. The ability to suspend
registrations is an important regulatory tool for AUSTRAC and complements the
power to cancel or impose conditions on registration.
The suspension powers will give the AUSTRAC CEO the ability to respond to a wide
range of operational circumstances. For example, suspension of registration of an
independent remittance dealer or a remittance affiliate may be appropriate in
circumstances where the CEO has formed a suspicion that the registrant is complicit
in transferring funds offshore for people smuggling ventures and more time for
investigation is required. In this situation cancellation of registration may be too
extreme if investigations are at an early stage, and the imposition of conditions would
not achieve the desired goal of immediately stopping suspect remittances until the
matter can be investigated further.
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75J Renewal of registration
This section is related to paragraph 75F(1)(c) which provides that registration ceases
after 3 years. The Government recognises that there may be circumstances in which it
would be unreasonable to require a person whose application ceases under paragraph
75F(1)(c) to undertake a full application process. Accordingly section 75J enables
arrangements for renewal of registration to be set out in the AML/CTF Rules.
The Rule making power set out in this section will give the AUSTRAC CEO the
ability to design and implement a registration renewal process which strikes a balance
between ongoing due diligence on participants in the remittance sector and the
efficient conduct of business. Importantly, subsection 75J(3) will enable the
implementation of a renewal system that will allow affected businesses to continue
providing remittance services to customers while applications for renewal are being
considered by AUSTRAC.
75K Removal of entries from the Remittance Sector Register
Section 75K addresses removal from the Remittance Sector Register in several
circumstances.
Subsections 75K(1) and (2) deal with removal upon request.
Subsection 75K(3) addresses the circumstance where a person has ceased to be
registered as a remittance network provider, and requires the AUSTRAC CEO to
remove both the entry relating to the remittance network provider and each entry
relating to the network provider's remittance affiliates. This process of automatic
removal is consistent with the new tiered system of registration in which a remittance
network provider applies for registration of its affiliates, undertakes appropriate due
diligence procedures on prospective affiliates, and discharges some of the reporting
obligations of their affiliates. In view of the relationship between these entities, it
would not be appropriate for the registration of a remittance affiliate to be maintained
independently if the registration of its remittance network provider ceases.
Subsection 75K(4) deals with removal of an independent remittance dealer or
remittance affiliate upon cessation of registration.
Subsections 75K(5) and 75K(6) outline the notification obligations that the
AUSTRAC CEO has if a person is removed from the remittance sector register. The
requirement is necessary given that providing a remittance network service to
someone other than a person who is a registered affiliate is an offence under proposed
subsection 74(1). Similarly, it is an offence for a person who is part of a network to
provide a remittance service if they are not a registered remittance affiliate of a
remittance network provider (see item 24).
75L AML/CTF Rules - general provision
This item clarifies the Rule making powers in Part 6 by stating that Rules may set out
different provisions for each of the three tiers of registered entities.
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75M Registered persons to advise of material changes in circumstance
Section 75M requires a registered person to advise the AUSTRAC CEO of material
changes in their circumstances within the specified timeframe and in the approved
form (section 5 of the AML/CTF Act requires that it is in a form approved by the
AUSTRAC CEO in writing).
The timeframe and process for notification that must be followed differs depending on
what registration stream a person is in, and who lodged the application for registration
with the AUSTRAC CEO.
Remittance network providers, independent remittance dealers and affiliates that
applied for registration on their own behalf under paragraph 75B(1)(c) must notify the
AUSTRAC CEO within 14 days of the change in circumstance.
The notification process is different for registered remittance affiliates whose
remittance network provider applied for their registration. People in this category
have 14 days in which to notify their network provider, who in turn must notify the
AUSTRAC CEO within 7 days of receiving the advice from the affiliate
The type of information that the AUSTRAC CEO should be made aware of includes
matters such as a changes of name or address, changes to the beneficial ownership of
a company and bankruptcy. This obligation will support AUSTRAC's regulation of
the remittance sector by ensuring that AUSTRAC is kept informed of information
relevant to registration over the entire period of a person's registration. The provision
of information about changed circumstances enables the AUSTRAC CEO to consider
whether ongoing registration is appropriate and, if so, on what basis. This is
consistent with the objective of strengthening the regulation of remittance dealers and
the providers of remittance networks to ensure that their services are not misused to
commit or fund serious crimes.
Section 175 of the AML/CTF Act provides that the Federal Court may order a person
to pay a pecuniary penalty to the Commonwealth where it is satisfied that a person
has contravened a civil penalty provision. Subsection 75M(3) provides that
subsection 75M(1) is a civil penalty provision. A person who fails to report
information to the AUSTRAC CEO may be liable to civil penalty action by the
AUSTRAC CEO.
Under subsection 175(4) of the AML/CTF, the maximum civil penalty that can be
imposed by the Court for breaches of these provisions is 100,000 penalty units
(currently $11 million) for a body corporate and 20,000 penalty units ($2.2 million)
for a person other than a body corporate.
Under the expanded infringement notice scheme set up under items 35-47 it will also
be possible for an infringement notices to be issued to a person who fails to advise
AUSTRAC of material changes in their circumstances.
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75N AUSTRAC CEO may request further information
This section empowers the AUSTRAC CEO to request further information from any
person for the purpose of making a decision under Part 6 of the AML/CTF Act and
makes it clear that the CEO is not required to consider an application until the further
information has been provided.
The intention of this provision is to enable the AUSTRAC CEO to require additional
information from another person to verify the information submitted by the applicant.
For example AUSTRAC may request the AFP to verify information submitted by the
applicant about convictions. Similarly AUSTRAC may wish to seek information
from ASIC to verify information provided by a corporate applicant about company
ownership.
75P Immunity from suit
This item confers immunity from suit upon the Commonwealth, the AUSTRAC CEO
and AUSTRAC staff who exercise functions in relation to the publication of the
remittance sector register or list of persons whose registration has been cancelled.
Division 4 - Notice and review of decisions
This new Division heading will improve the clarity of Part 6.
75Q Steps to be taken by AUSTRAC CEO before making certain reviewable decisions
75R Internal review of reviewable decisions
75S AAT review of decisions
Together these new sections set out the system of review for `reviewable decisions',
which are defined in section 5 to include decisions to refuse, cancel, or impose
conditions on registration, as well as situations where an application is deemed to
have been refused because a decision was not made within the timeframes specified
under proposed subsections 75B(6) and 75B(7) (see items 11 and 31). These are
decisions which may have a significant impact on a person's business or livelihood
and the Government has sought to ensure that the Bill contains a robust system of
review which supports fair and equitable application of the new laws.
In summary the new system of review operates as follows:
· The AUSTRAC CEO must (except in cases of urgency) give written notice of
a proposed decision and provide an opportunity for the person to make a
submission in response (subsection 75Q(1)).
· After making a reviewable decision in relation to a person the AUSTRAC
CEO must ensure that the person is given a written notice containing key
information about the decision, including rights of review (subsection 75R(1)).
· A person in relation to whom a decision is made may seek internal review of
the decision. The AUSTRAC CEO must ensure independent review by an
AUSTRAC officer who is senior to the original decision maker and who was
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not involved in making the original decision. The reviewer may affirm, vary
or revoke the decision (subsections 75R(3), (4), (5) and (6)).
In the majority of cases, registration decisions will be delegated by the AUSTRAC
CEO to an AUSTRAC staff member in accordance with a delegation under section
222 of the AML/CTF Act. It is envisaged that instances where the AUSTRAC CEO
would make a decision personally would be limited to circumstances where there
were particular sensitivities - such as law enforcement operational issues - that
required a decision to be made by the most senior person in the organisation.
A person to whom a reviewable decision relates may apply to the AAT for review of a
decision made by a person on review of the original decision, or a decision made by
the AUSTRAC CEO personally (section 75S).
There may be some instances where it is necessary for a registration decision to have
immediate effect-- for example, if the AUSTRAC CEO is aware that a serious
criminal offence is about to occur. In such cases the AUSTRAC CEO is not required
to give notice before making a reviewable decision in relation to a person (subsection
75Q(2)).
Division 5 - Basis of Registration
75T Basis of registration
This provision summarises the grounds on which registration is based, and in
particular makes it clear that registration is defeasible and therefore subject to future
modification or extinguishment, by or under later legislation, without compensation.
Item 32
The purpose of new subsection 84(5A) is to make remittance network providers
responsible for preparing and maintaining an AML/CTF program for their registered
remittance affiliates. A network provider may develop a single program which can be
adopted by all of its affiliates, or separate programs which are tailored to the
requirements of one or more affiliates.
The AML/CTF programs developed by a network provider under this section are
entirely separate from the AML/CTF program that a network provider must maintain
itself as a reporting entity that provides the remittance network facilitation services
described in the new designated service in item 32A (see item 12 above). A key
difference between the network provider's own AML/CTF program and the program
that it develops for adoption by one or more affiliates is that the former will focus on
registered remittance affiliates as the customers of the network provider's service,
while the latter will focus on the customers of affiliates to whom affiliates are
providing the money transfer services listed in items 31 and 32 of table 1, section 6 of
the Act.
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Item 33
The tipping off offence in section 123 prohibits a person from communicating
information about a suspicious matter to anyone other than an AUSTRAC staff
member. The new subsection 123(7A) will provide an exception to the tipping off
offence for disclosures made between registered remittance network providers and
their registered remittance affiliates, and vice versa. It does not allow disclosure
between remittance affiliates which remains a breach of section 123 of the
AML/CTF Act.
This exception is necessary to ensure that remittance network providers have the
ability to operate their network in an efficient manner, including by providing advice,
support and information on suspicious matters to their affiliates.
Item 34
This item amends subparagraph 167(1)(a)(iii) so that it refers to the new Remittance
Sector Register.
Items 35 - 47
Part 15, Division 3 of the AML/CTF Act establishes an infringement notice scheme
which applies to the unreported cross-border movements of physical currency and
bearer negotiable instruments. Together, items 35-47will extend the infringement
notice scheme to cover breaches of new subsections 74(1), (1A), (1B), (1C) (which
relate to the provision of services without being registered or in breach of a
registration condition) and 75M(1) (failing to advise AUSTRAC of material changes
in circumstances).
The main enforcement options in the existing Act are civil penalties, criminal
offences and enforceable undertakings. In many cases, particularly where minor
breaches are involved, civil penalty or criminal action against the reporting entity may
not be a proportionate response to the alleged breach. Further, these processes can be
costly and time consuming for all parties involved. AUSTRAC is able to accept
enforceable undertakings from regulated entities and this enforcement option has
already been used in a number of cases. However, enforceable undertakings may not
be the most appropriate enforcement tool for discrete instances of non-compliance,
such as failure to advise AUSTRAC of a change in circumstances under new section
75M.
Enabling AUSTRAC to issue infringement notices will mean that the regulator can
respond to breaches in a more efficient and proportionate way. The ability to impose
infringement notices for non-compliance with obligations is consistent with the
powers and approach of other regulators of Commonwealth legislation.
Proposed section 186A provides for the amount of the penalty that is to be set out in
an infringement notice for breaches of certain provisions in Part 6 of the AML/CTF
Act. The penalty payable will depend on whether or not the contravention is by a
body corporate or a person other than a body corporate, and whether it is of a kind
specified in the AML/CTF Rules.
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Under proposed paragraphs 186A(1)(a) and 186(2)(a) the AML/CTF Rules may set
out one or more kinds contraventions of subsections 74(1), 74(1A), 74(1B), 74(1)(C)
or 75M(1) and specify for each contravention the number of penalty units that will
apply. Proposed subsection 186A(5) provides that the maximum penalty that may be
specified in the Rules must not exceed 120 penalty units for body corporate and 24
penalty units for a person other than a body corporate.
It is intended that the Rules would specify the provisions to be subject to higher
pecuniary penalty amounts where it is likely that the lower default amounts of 60/12
penalty units would be an insufficient deterrent to comply with the provision, or to
take into account instances where there have been a number of alleged contraventions
of a Part 6 infringement notice provision, or where a reporting entity has previously
been given an infringement notice in relation to an alleged contravention of a Part 6
infringement notice provision.
Item 48
Subsection 190(1) of the AML/CTF Act provides that the AUSTRAC CEO is to
monitor compliance by reporting entities with their obligations under the Act.
Subsection 190(2A) clarifies AUSTRAC's compliance monitoring obligations with
respect to the remittance sector. AUSTRAC considers that the most effective
regulatory approach in the remittance sector will be for it to work closely with
remittance network providers to monitor the activities of their remittance affiliates.
This section makes it clear that AUSTRAC is not required to individually monitor
every reporting entity registered as a remittance affiliate.
Part 2 - Transitional provisions relating to reporting entities
Items 49-52
There are two main sets of transition arrangements in the Bill. Items 49-52 set out
which of the new measures in the Bill will apply to providers of remittance networks
once they become reporting entities for the purposes of the AML/CTF Act. This will
occur on Royal Assent and will be before the new registration scheme takes effect.
This Part also provides for the delayed application of some of the obligations
contained in the AML/CTF Act. Items 53-57 provides for the transition between the
current registration scheme and the new registration scheme.
The transitional provisions in items 48-51 apply the reforms relating to ongoing
customer due diligence (refer to item 14), imposition of Part 3 reporting obligations
on remittance network providers (refer to item 20) and the exception to the `tipping
off' offence (refer to item 33).
With the introduction of the designated service of operating a remittance network (see
item 12), remittance network providers will become subject to all of the obligations
in the AML/CTF Act including conducting customer due diligence, reporting
obligations, developing and maintaining an AML/CTF Program and record keeping.
Item 52 delays for 12 months from the date of Royal Assent certain AML/CTF Act
obligations. This will give businesses preparation time to ensure that they are able to
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comply with their new obligations, and is consistent with the approach taken when the
AML/CTF Act was first introduced in 2006 (the Act provided for the staggered
commencement of obligations over a two year period).
Part 3 - Transitional provisions relating to other matters
Items 53 - 57
The amendments in this Bill implement significant changes to the regulation of the
remittance sector in Australia. The transitional provision set out in items 53 to 57
will ensure that remittance network providers, remittance affiliates and independent
remittance dealers have sufficient time to adjust to the new registration requirements
and can continue to operate their businesses as they prepare for compliance with the
new arrangements.
In summary, the transition arrangements for moving from the old to the new
registration scheme operate as follows:
· The Minister for Home Affairs and Justice will, by Proclamation, set a
registration commencement day.
· A person providing a remittance network services immediately before the
registration commencement day will be given 12 months to make an
application for registration as a remittance network provider. Such persons
will be able to continue operating their business without committing an
offence under proposed section 74(1) until such time as their application is
finally determined.
· The old register will continue in existence until it becomes obsolete by virtue
of registration applications under the new law being finally determined. Until
this occurs, a person who wants to provide a designated registrable remittance
service may be added to the old register providing that the AUSTRAC CEO
has given his consent, having regard to matters specified in the AML/CTF
Rules. Keeping the old register operative recognises that during the
registration transition period there may be a need to register a person on the
old register because it would not be possible to register them on the new one.
For example, there may be circumstances where a network provider is not yet
registered but has a new affiliate join their network.
· People who are on the old register (whether as at, or after, the registration
commencement day) must apply for registration under the new law within 6
months of the registration commencement day if they wish to be registered as
an independent remittance dealer, and within 12 months if seeking registration
as an affiliate. A person who does not make an application within these
timeframes will be committing an offence under subsections 74(1A) or
74(1B). Once an application is made, a person can provide a remittance
service without breaching these offence provisions until such time as the
application has been finally determined.
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· The AUSTRAC CEO will be able to cancel the registration of a person who is
listed on the old register if satisfied that not to do so would involve significant
money laundering, financing of terrorism or people smuggling risk.
· A decision by the AUSTRAC CEO to refuse to consent to a person being
registered on the old register, and a cancellation decision are reviewable
decisions.
The transitional provisions will cease to have any application once applications made
during the transition period are finally determined, Accordingly, the transitional
provisions will remain in the amending Act and will not be incorporated into the
consolidated text of the AML/CTF Act.
Part 4 - Transitional regulations
Item 58
This item enables the Governor General to make regulations prescribing matters of a
transitional nature relating to the amendments or repeals in the Bill.
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Schedule 2- Designated agencies
Item 1
This item introduces a definition of `Defence Department'. The term is included
because a few of the new designated agencies prescribed by this Bill are part of the
Defence Department (see items 6, 7, 8 and 9)
Item 2
This item defines the term `defence intelligence agency' and comprises of terms
defined by items 7, 8 and 9.
Item 3
This item defines the term `Defence Minister'.
Item 4
This item defines the term `Department of Foreign Affairs and Trade' (DFAT). This
term is included because under this Bill DFAT is a new designated agency (see
item 5).
Items 5 and 6
The definition of `designated agency' in section 5 of the AML/CTF Act lists certain
Federal, State and Territory agencies which have access to AUSTRAC information
under Part 11 of the Act.
These items add the Department of Foreign Affairs and Trade, Defence Imagery and
Geospatial Organisation (DIGO), Defence Intelligence Organisation (DIO), Defence
Signals Directorate (DSD) and the Office of National Assessments (ONA) to the
definition of designated agency.
More detailed definitions of these agencies are included at items 7, 8, 9 and 11.
Items 7, 8 and 9
These items define the acronyms DIGO, DIO and DSD. These terms are included
because under the Bill these agencies become designated agencies for the purposes of
the AML/CTF Act (see item 6).
Item 10
This item defines the term `Foreign Affairs Minister' which forms part of the
definition of Department of Foreign Affairs and Trade (see item 4).
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Item 11
This item defines the acronym `ONA'. This term is included because under the Bill
the Office of National Assessments becomes a designated agency for the purposes of
the AML/CTF Act (see item 6)
Items 12 and 13
Section 127 of the AML/CTF Act makes it an offence for an official of a designated
agency to disclose AUSTRAC information (known as `accessed information') unless
one of the exceptions in subsection 127(3) applies. For instance, disclosure is
permitted if it is for the purposes of, or in connection with, the performance of official
duties, or specifically authorised under the AML/CTF Act.
This item amends subsections 127(3) to include as an exception to the disclosure
offence, disclosure by the Directors of DIO and DSD and the Director-General of
ONA to foreign intelligence agencies in accordance with proposed sections 133B and
133C (see item 16).
Item 14
Section 128 of the AML/CTF Act sets out the circumstances where AUSTRAC
information can be passed on by an official of a designated agency.
This item inserts provisions to allow defence intelligence agency and ONA officials to
disclose AUSTRAC information to certain persons, most notably to an Inspector-
General of Intelligence and Security (IGIS) official, Ministers with responsibility for
those agencies and the Minister responsible for administering Telecommunications
(Interception and Access) Act 1979. In addition, because an official of DIGO or DSD
may be required under the Intelligence Services Act 2001 to disclose information to
the Prime Minister, Minster for Foreign Affairs or the Attorney-General, proposed
paragraph 128(13B)(d) makes specific reference to such disclosure for the purposes of
exercising a power under section 9A of the Intelligence Services Act 2001.
Proposed subsections 128(13A) and 128(13B) are necessary because the IGIS, which
reports annually on intelligence agencies' AUSTRAC access compliance, is extending
its oversight to DIGO, DIO, DSD and ONA. In order to properly oversee these
agencies, the IGIS may need to have access to AUSTRAC information. Enabling
disclosure to be made to the Defence Minister (in the case of a defence intelligence
agency) and the Prime Minister (in the case of ONA) will ensure that they are able to
obtain all relevant information necessary to carry out their responsibilities in respect
of those agencies.
Item 15
Section 128 of the AML/CTF Act sets out circumstances in which AUSTRAC
information can be passed on by an official of a designated agency.
This item is a consequential amendment to item 6, which expands the members of the
Australian intelligence community that have access to AUSTRAC information to
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include DIGO, DIO, DSD and ONA. It amends subsection 128(19) which outlines
the circumstances and to whom an IGIS official can disclose AUSTRAC information.
Item 16
Subdivision 5 of Part 11 of the AML/CTF Act governs the communication of
AUSTRAC information to foreign countries, and is an exception to the disclosure
offence in section 127 of the Act.
This item inserts provisions that will allow the Director of DIGO, DIO or DSD as
well the Director-General of ONA to communicate AUSTRAC information to a
foreign intelligence agency providing that the foreign agency has given appropriate
undertakings surrounding confidentiality and use.
The proposed sections 133B and 133C replicate sections 133 and 133A of the
AML/CTF Act which give such a power to ASIO and ASIS. The ability to
communicate AUSTRAC information to a foreign intelligence agency is necessary to
enable international coordination of financial intelligence.
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Schedule 3 - Verification of Identity
Anti-Money Laundering and Counter-Terrorism Financing Act 2006
Items 1 - 5
These items insert new definitions into section 5 of the AML/CTF Act.
Item 6
This item inserts a new Division 5A into the AML/CTF Act which makes provision
for the use and disclosure of personal information by reporting entities and credit
reporting agencies for the purposes of verifying an individual's identity.
Subsection 35A(1) authorises a reporting entity to provide an individual's name
and/or residential address and/or date of birth to a credit reporting agency and to
request the reporting agency to provide report on whether the information matches
that in the relevant credit information file held by the credit reporting agency.
Importantly, subsection 35A(2) provides that a reporting entity must not make a
verification request unless it has first given the individual information about the
proposed process, obtained the individual's express consent and made available an
alternative means of identity verification. Each of these requirements is important to
ensure that consumers are able to make a real and informed choice before consenting
to a reporting entity verifying their identity by reference to the personal information
held on their credit information file. Further, the requirement for a reporting entity to
provide an alternative means of verification will ensure that individuals who do not
have a credit profile will not be prevented from obtaining designated services from
reporting entities.
National Privacy Principle 2 in Schedule 3 of the Privacy Act 1988 relates to the use
and disclosure of personal information. Paragraph 2.1 states that an organisation must
not use or disclose personal information about an individual for a secondary purpose
other than the primary purpose of collection unless the disclosure meets one of several
exceptions. Paragraph 2.1(g) provides an exception for a use or disclosure that is
required or authorised by or under law. Subsection 35A(3) deems disclosure by a
reporting entity of personal information in accordance with paragraph 35A(1)(a) to be
authorised by law for the purposes of the Privacy Act.
In addition, the requirement for express consent set out in paragraph 35A(2)(b) will
mean that the disclosure of information by a reporting entity also comes within
paragraph 2.1(b) of Schedule 3 of the Privacy Act 1988 which provides for an
exception where the individual has consented to the use or disclosure.
Section 35B sets out what a credit reporting agency may do with the information that
it receives from a reporting entity or its authorised agent, and the information that it
may provide in response.
Subsection 35B(1) enables a credit reporting agency to prepare a report for a reporting
entity or its authorised agent as to whether the personal information it was provided
matches information it holds on a credit information file. It is important to note the
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nature of the process undertaken by the credit reporting agency which is a simple
matching process focused on the name, address and date of birth details provided by
the reporting entity. A credit reporting agency that has received a verification request
from a reporting entity is not permitted to consider other aspects of a person's credit
file beyond the details that correspond with the information provided by the reporting
entity.
Paragraph 35B(1)(b) permits a credit reporting agency to use both personal
information about the individual, and the names, residential addresses and dates of
birth contained in credit information files of other individuals for the purpose of
providing the assessment for the reporting entity. It is necessary for the credit
reporting agency to be able to have regard to information held on other individuals in
order to undertake an effective matching process by ruling out similar but non-
matching individuals.
The purpose of subsection 35B(2) is to limit the information that a credit reporting
agency may provide to a reporting entity as part of an assessment in response to a
verification request. A credit reporting agency may only provide an overall
assessment of the extent of the match between the personal information. It is not
permitted to provide a separate assessment of the match between the name, address
and date of birth information provided by the reporting entity.
In practice this is likely to mean that a credit reporting agency will provide a
requesting reporting entity with an assessment containing an aggregate score or
ranking which reflects the extent of the match across all fields of personal information
that were checked. For example where a credit reporting agency has identified a
complete match for all personal information provided, the assessment may specify a
`complete match' or `100% match' depending on how the credit reporting agency has
chosen to express its assessments. Similarly, where a match is incomplete due to a
minor mismatch of information the assessment may specify a `strong match' or `90%'
match depending on how the credit reporting agency has chosen to express and
calibrate its assessments. Further, where a match is incomplete due to a significant
mismatch of information, the assessment may specify a `no match' result or, for
example, a `25%' match.
The requirement for credit reporting entities to provide aggregated results will limit
the ability of criminals to use a `trial and error' approach to obtain designated services
using a false or stolen identity by analysing the results of identity verification
requests.
Part IIIA of the Privacy Act deals with credit reporting. Subsection 18K(1) prohibits
a credit reporting agency from disclosing personal information contained in a credit
reporting file unless one of a number of exceptions applies. Subparagraph 18K(1)(m)
provides for an exception when the disclosure is required or authorised by or under
law. Under subsection 35B(3) of the Bill a disclosure of personal information by a
credit reporting agency in the course of providing an assessment to a reporting entity
is taken to be authorised by law for the purposes of the Privacy Act.
Section 35C will require a reporting entity to provide an individual with written notice
of a failed attempt at identity verification using credit reporting data. Under
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subparagraph 35C(2)(b) the information that must be provided includes the name of
the credit reporting agency that provided the assessment. This will enable affected
individuals to make enquiries as to the accuracy of personal information held by a
credit reporting agency should they wish to do so.
Under subparagraph 35C(2)(c) if a reporting entity is unable to verify the identity of
an individual using credit reporting data it must offer the individual an alternative
means of verifying the individual's identity. This requirement will ensure that
individuals who do not have a credit profile will not be precluded from obtaining
designated services from reporting entities.
Ordinarily, by virtue of subsection 18K(5) of the Privacy Act 1988, a credit reporting
agency is required to make a file note of any disclosure of personal information
contained in an individual's credit information file. However, section 35D prohibits a
credit reporting agency from including on an individual's credit information file
personal information that relates to a verification request or assessment in relation to
the individual. A credit reporting agency will not be permitted to use information
related to identity verification requests for any purpose other than the verification of
the identity of an individual requested by a reporting entity. The prohibition in
section 35D will assist to ensure that information about identification requests is not
used for an unauthorised purpose, including the assessment of credit worthiness.
Sections 35E and 35F address the retention and destruction of information about
verification requests by credit reporting agencies and reporting entities respectively.
Verification information must be deleted after 7 years. The retention and destruction
requirements enhance the transparency of the identity verification process by ensuring
that credit reporting agencies and reporting entities retain records that can be reviewed
to ensure compliance with the Act, and that individuals who are the subject of
verification requests may seek access to verification information under section 35G to
understand how their information has been used. The seven year retention period is
consistent with existing records retention requirements under the AML/CTF Act.
Subsection 35E(3) and 35F(4) provide that the information retention and deletion
requirements for credit reporting agencies and reporting entities are civil penalty
provisions. Accordingly the AUSTRAC CEO may apply for a civil penalty order
under section 176 of the AML/CTF Act in the event of a breach.
Section 35G requires credit reporting agencies and reporting entities to take
reasonable steps to ensure that individuals can obtain access to personal and other
information about verification requests or assessments.
Sections 35H, 35J and 35K establish the offences of unauthorised access to
verification information, obtaining access to verification information by false
pretences, and unauthorised use or disclosure of verification information. Each of the
offences carries a penalty of 300 penalty units which will act as a powerful
disincentive to misuse of verification information. The offences and penalties also
reflect the seriousness with which the Government views any breach of privacy
through the misuse of verification information.
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Section 35L provides that a breach of a requirement of Division 5A by a credit
reporting agency or a reporting entity constitutes an interference with the privacy of
the individual for the purposes of the Privacy Act. An individual affected by an
alleged breach may complain to the Australian Information Commissioner in
accordance with section 36 of the Privacy Act. This process will provide a further
safeguard against the misuse of verification information.
Items 7 - 10
Items 7, 8 and 9 amend subsections 37(1), 37(2) and 37(3) respectively to clarify that
a reporting entity may authorise an agent to undertake both customer identification
and verification procedures.
Item 10 adds a new subsection 37(4) which seeks to reaffirm the Government's view
that the principle of agency operates broadly across the Act.
Privacy Act 1988
Items 11 - 12
These items insert definitions for `authorised agent of a reporting entity' and
`reporting entity'.
Item 13
This item amends subsection 6E(1A) to make it clear that a small business acting as
an authorised agent of a reporting entity will be subject to the Privacy Act in the
circumstances set out in that section.
Item 14
AML/CTF Act reporting entities are currently subject to the Privacy Act 1988 in
regard to how they collect and handle personal information in complying with their
AML/CTF obligations. This includes reporting entities that are small businesses that
may be exempt from obligations under the Privacy Act in relation to their other
business activities.
This item amends subsection 6E(1A) to ensure that the Privacy Act will apply to a
small business in a situation where its activities are related to the AML/CTF Act, its
Rules or regulations, but are not in compliance with it. For example, the amended
subsection 6E(1A) would apply to a small business that is collecting personal
information in purported compliance with the AML/CTF Act even if the collection is
not authorised by the AML/CTF Act. In that case the small business would be subject
to the Privacy Act in respect of the activities undertaken in purported compliance with
the AML/CTF Act. Without this amendment a business that is acting unlawfully may
not be subject to obligations under the Privacy Act.
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Items 15-18
Under proposed section 35L a breach of a requirement of the Division will be an
interference with the privacy of the individual for the purposes of sections13 and 13A
of the Privacy Act 1988.
These items insert notes under sections 13 and 13A of the Privacy Act to alert users of
the legislation to these new provisions in the AML/CTF Act.
Items 19 - 20
Section 49 of the Privacy Act provides for cessation of an investigation by the
Australian Information Commissioner into an interference with privacy when the
Commissioner forms the opinion that a tax file number offence or a credit reporting
offence may have been committed. These items add the commission of an AML/CTF
verification offence as a further basis for the cessation of an investigation.
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Schedule 4 - Amendment of the Financial Transaction Reports Act
1988
Item 1
Section 248 of the AML/CTF Act enables the AUSTRAC CEO to exempt, by way of
a written instrument, a specified person from one of more provisions of that Act.
There is no similar power under the FTR Act and in some circumstances, particularly
where there are duplicate obligations on individual businesses or classes of business,
it can result in an unnecessary regulatory and administrative burden.
This item provides that the AUSTRAC CEO may, by written instrument, exempt a
specified person from one or more provisions of the FTR Act. An exemption may
apply unconditionally or be subject to conditions. A copy of the exemption must be
published on the AUSTRAC internet site.
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