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Key concepts

What is a 'designated service'?

Australia's AML/CTF legal framework is activities based; it prescribes those business activities that are regulated under the AML/CTF regime. These activities or 'designated services' are listed in tables 1-4 of section 6 of the AML/CTF Act:


What is a 'reporting entity'?

A reporting entity under the AML/CTF Act must be a 'person' and must provide a 'designated service'. For a service to be considered a 'designated service' under the AML/CTF Act, it must also fulfil a 'geographical link' test. This test is explained below.

Reporting entities include providers of financial services (including remittance dealers and digital currency exchanges), bullion dealers and entities that provide gaming or gambling activities.


What is a 'geographical link' and why is it important?

The AML/CTF Act regulates only those designated services with a connection with Australia. Specifically, a reporting entity only has AML/CTF obligations for designated services that satisfy one of the following 'geographical link' tests:

  • the designated service is provided to the customer at or through a permanent establishment of the person in Australia, or
  • the person is a resident of Australia and the designated service is provided at or through a permanent establishment of the person in a foreign country (foreign branch), or
  • the person is a subsidiary of a company that is a resident of Australia and the service is provided at or through a permanent establishment of the subsidiary in a foreign country (foreign subsidiary) (see subsection 6(6) of the AML/CTF Act).

Table A, below, summarises the geographical link requirements.

Table A: Summary of the 'geographical link' tests

Residency of the 'person' providing the designated service

Location of 'permanent establishment' of the person where the designated service is provided

Geographical link satisfied?

Relevant provision in the AML/CTF Act

'Person' is an Australian resident

Australia

Yes

Paragraph 6(6)(a)

'Person' is an Australian resident

Foreign country

Yes

Paragraph 6(6)(b)

'Person' is a subsidiary of an Australian resident company

Foreign country

Yes

Paragraph 6(6)(c)

'Person' is not an Australian resident

Australia

Yes

Paragraph 6(6)(a)

'Person' is not an Australian resident

Foreign country

No

Paragraphs 6(6)(a) and 6(6)(b)

'Person' is a subsidiary of a foreign company

Foreign country

No

Paragraphs 6(6)(a) and 6(6)(b)

Examples

1. An Australian entity providing services at or through a permanent establishment of the person located in Australia

Acme Bank Limited is a wholly Australian-owned bank listed on the Australian Stock Exchange. Its head office is in Sydney, with branch offices in Brisbane, Canberra, Melbourne, Hobart, Adelaide, Perth and Darwin. Acme Bank provides various designated services to customers in each state or territory of Australia.

Acme Bank Limited is a reporting entity under the AML/CTF Act and has compliance and reporting obligations.

2. An Australian resident entity providing services at or through a permanent establishment of the person in a foreign country (foreign branch)

Acme Bank Limited, an Australian company, has physical offices in Auckland (New Zealand) and Port Moresby (Papua New Guinea) and provides services to customers in those countries.

Acme Bank Limited is a reporting entity under the AML/CTF Act and has compliance and reporting obligations.

3. A subsidiary of an Australian company providing services at or through a permanent establishment of the subsidiary in a foreign country

Acme Bank Limited has two wholly owned subsidiaries that provide the following financial services:

  • Acme International, a company registered in Hong Kong, provides services to customers in Hong Kong.
  • Acme Vietnam, a company registered in Vietnam with offices located in Hanoi, provides services to customers in Vietnam.

Both Acme International and Acme Vietnam are reporting entities under the AML/CTF Act and have compliance and reporting obligations.

4. An entity that is not an Australian resident, but has a permanent establishment in Australia

Acme Foreign Bank is an overseas bank and its head office is in the United States of America, with offices in Sydney and Melbourne. Acme Foreign Bank provides designated services to customers in these Australian cities.

Acme Foreign Bank is a reporting entity under the AML/CTF Act and has compliance and reporting obligations.


What are the exceptions to the geographical link test?

There is one exception to the geographical link test. It does not apply where a person provides a designated service as a remittance network provider under item 32A of table 1 (section 6 of the AML/CTF Act).

In other words, where a remittance network provider is based in a foreign country, but operates a network of remittance affiliates within Australia, it is subject to regulation and oversight under the AML/CTF Act (regardless of whether it satisfies the geographical link test).

This exclusion from the geographical link test reflects the global nature of remittance services where many remittance network providers are based in foreign countries.

Example

The Quick-Send Remittance Company is a registered company located in Qatar. The Quick-Send Remittance Company has a network of 25 affiliates or agents located in Melbourne, Sydney and Brisbane. The Quick-Send Remittance Company has commercial and contractual arrangements with the 25 entities to act as its agents to provide designated remittance services within Australia. The 25 registered remittance affiliates provide remittance services using the platform or business systems of The Quick-Send Remittance Company.

The Quick-Send Remittance Company is not registered as a foreign company with the Australian Securities and Investments Commission (ASIC) and does not have a wholly owned subsidiary operating in Australia. The Quick-Send Remittance Company does not have an office or physical presence in Australia.

The Quick-Send Remittance Company is providing an item 32A designated service in Australia and the geographical link test does not apply.

The Quick-Send Remittance Company must register with AUSTRAC as a remittance network provider and comply with its obligations under the AML/CTF Act.


What does 'carrying on a business' mean for the purposes of the AML/CTF Act?

The phrase 'carrying on a business' (or industry or sector specific variants) is included in many of the descriptions of the designated services. For example, items 6 and 7 (table 1, section 6, AML/CTF Act) define designated services made in the course of 'carrying on a loans business'.

The AML/CTF Act uses a broad definition of 'business'. The Act covers business activities whether or not they are conducted on a regular, repetitive or continuous basis. For example, if an entity offers a designated service once, or only occasionally, the entity is still considered to be 'carrying on a business' under the AML/CTF Act.

This differs to the definition used for taxation purposes, for example, where an activity must be 'regular' or 'continuous' for it to be classified as a business.


Are not-for-profit activities caught by the AML/CTF Act?

Regardless of whether or not a person provides designated services to customers on a profit or not-for profit basis, they are considered reporting entities for the purposes of the AML/CTF Act.


Does a reporting entity under external administration have AML/CTF Act obligations?

The obligations of the AML/CTF Act continue to apply to a corporate reporting entity placed under external administration. An external administrator (appointed to take control of the company from the directors) must continue to carry out the entity's AML/CTF obligations where the entity is continuing to provide designated services.

It is AUSTRAC's view that the external administrator must carry out the company's AML/CTF obligations because he or she is the only person with the authority to act in the company's name.

However, an administrator may delegate his or her authority on a limited basis to a company director to act for the company in appropriate circumstances and with the administrator's written approval. Similarly, a liquidator may delegate his or her authority with the liquidator's written approval or the approval of the court. Employees given the authority to undertake AML/CTF compliance activities by the directors (for example, to lodge transaction reports) may also retain that authority where agreed by the external administrator.

Any AML/CTF guidance issued by AUSTRAC is equally applicable to reporting entities where they have been placed under external administration.

Last modified: 17/12/2018 08:51