On 31 January 2008, the Anti-Money Laundering and Counter-Terrorism Financing Regulations 2008 (AML/CTF Regulations) came into effect to ensure that companies who carry on a business of issuing or selling interests in managed investment schemes (MIS) are providing a 'designated service' under item 35 of table 1 in section 6 of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act).
AUSTRAC's general view on this matter is that:
- Reporting entities are required to comply with provisions of the AML/CTF Act, AML/CTF Rules and regulations from the date at which they come into effect.
- The Policy (Civil Penalty Orders) Principles 2006 (the Policy Principles) provide a 15-month period after the date at which various provisions of the AML/CTF Act come into effect, during which the AUSTRAC Chief Executive Officer (CEO) may only apply for a civil penalty order against a reporting entity in circumstances where the reporting entity has failed to take reasonable steps to comply with those provisions of the Act.
- The steps an entity needs to take are a matter for its own judgment, taking into account its risk profile and the commercial practicalities. AUSTRAC has issued a guidance note on the application of the Policy Principles.
- Reporting entities should seek their own independent legal advice on the point at which they commence to provide a designated service to a customer. This advice should take into account the particular circumstances of the reporting entity and the type of product being provided.
- Businesses issuing or selling interests in MIS have had sufficient lead time to undertake preparatory work to ensure compliance, given it was always the Australian Government's intention for the AML/CTF Act to cover such issues.
Application of the Policy Principles to managed investment schemes
While the AML/CTF Regulations came into effect on 31 January 2008, certain provisions in the AML/CTF Act to which the Policy Principles apply, commenced on 12 December 2007. The regulations do not affect the Policy Principles. As a result, notwithstanding the later commencement of the AML/CTF Act with respect to MIS, the date at which the AUSTRAC CEO may apply for a civil penalty order against an MIS, in the circumstances set out in paragraph 3(c) of the Policy Principles, is 11 March 2009.
AUSTRAC is of the view that 13.5 months for the application of the Policy Principles is reasonable given it was always intended that the AML/CTF Act cover the issue of interests in MIS and this has been known by industry since before 12 December 2007.
Non-compliance resulting from uncertainty as to the AML/CTF Regulations' commencement date
Where a reporting entity is/was non-compliant due to the AML/CTF Regulations taking immediate effect on 31 January 2008, AUSTRAC will take this into account when determining the extent to which the reporting entity is taking, or has taken, reasonable steps to comply with relevant provisions of the AML/CTF Act, AML/CTF Rules and regulations.
This consideration will take into account the following factors:
- the materiality of the breach to the reporting entity's overall AML/CTF program
- the length of time taken by the reporting entity to respond to or remedy the breach
- the appropriateness of the reporting entity's actions during the period between when the regulations commenced and when the reporting entity began complying with the AML/CTF Act, AML/CTF Rules and regulations.
AUSTRAC is aware that there are concerns among entities which issued units in an MIS on or around the time of the AML/CTF Regulations' registration on 30 January 2008. AUSTRAC understands that there are lead times for implementation which may mean that entities could not comply with customer identification immediately. This circumstance will be taken into account in considering whether a reporting entity has taken reasonable steps.
AUSTRAC encourages non-compliant entities to consider the above and consult the guidance note on the application of the Policy Principles, but to also apply their own judgement and common sense.
Well-intentioned entities who - at any time - find they are or will be seriously non-compliant, can approach AUSTRAC with a view to negotiating a practical solution.
Pre-commencement customers of managed investment schemes
An effect of the AML/CTF Regulations is that those in the business of issuing an interest in, or an option to acquire an interest in, an MIS (designated service) are required to comply with relevant obligations under the AML/CTF Act.
Even though MIS have been captured by the AML/CTF Act since 31 January 2008, any new customers to whom interests in an MIS were issued by a company issuer between 12 December 2007 and 31 January 2008, would not be pre-commencement customers (as defined in section 28 of the AML/CTF Act). However, it is the Australian Government's policy to treat such customers as pre-commencement customers.
A declaration was made by the AUSTRAC CEO to address this issue. The effect of this declaration is to modify the application of section 28 (pre-commencement customers) so that for designated services covered by the AML/CTF Regulations, pre-commencement customers are customers to whom a reporting entity commenced to provide a service prior to 31 January 2008.
AML/CTF Rules relating to item 35 - issuing or selling a security or derivative
Chapter 21 of Anti-Money Laundering and Counter-Terrorism Financing Rules Instrument 2007 (No. 1) was registered in May 2008, regarding item 35 of table 1 in section 6 of the AML/CTF Act. These AML/CTF Rules provide that a disposal or purchase of a security on a prescribed financial market and certain off-market issues of an interest in an MIS are exempt from the operation of the AML/CTF Act.
AML/CTF compliance reports for managed investment schemes
The AML/CTF compliance report requirements of Part 3, Division 5 of the AML/CTF Act came into effect on 12 June 2007. AML/CTF compliance reports relate to a reporting entity's compliance with the AML/CTF Act, regulations and AML/CTF Rules during the relevant reporting period. For more information see AML/CTF compliance reports.
Because businesses that issued an interest in an MIS were not subject to the AML/CTF Act before 31 January 2008, such businesses were not required to submit an AML/CTF compliance report for 2007. However, these businesses are required to submit the 2008 AML/CTF compliance report and must do so by 31 March 2009.
Updated 28 November 2008