AUSTRAC Regulatory Guide

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9. Reporting obligations

Chapter outline

This chapter discusses reporting obligations under the AML/CTF Act and contains the following sections:

• Introduction
• When do the provisions commence?
• What are the relevant FATF recommendations?
• Suspicious matter reports (SMRs)
• Threshold transaction reports (TTRs)
• International funds transfer instruction (IFTI) reports
• Reporting of cross-border movements of physical currency and bearer negotiable instruments (BNIs)
• Additional AUSTRAC resources
• Frequently asked questions

This chapter should be read in conjunction with chapters 5, 7, 8 and 10 of this Guide.

Key points

Additional external resources

JMLSG consultation paper - Prevention of money laundering/combating terrorist financing

www.jmlsg.org.uk/content/1/c4/98/29/CP_Guidance_final_text.pdf

FATF guidance regarding the implementation of activity-based financial prohibitions of UN Security Council Resolution 1737

www.fatf-gafi.org/dataoecd/43/17/39494050.pdf

FATF typologies report on terrorist financing

www.fatf-gafi.org/dataoecd/28/43/40285899.pdf

FATF typologies report on proliferation financing

www.fatf-gafi.org/dataoecd/14/21/41146580.pdf

APG Typologies Report 2008

www.apgml.org/documents/default.aspx?DocumentCategoryID=6

Chapter last updated 7 November 2008

Introduction

This chapter covers a reporting entity's obligations to submit reports to AUSTRAC in relation to:

• suspicious matters
• threshold transactions, and
• international funds transfer instructions.

These are requirements under Part 3 of the AML/CTF Act.

The chapter also provides information on reports about cross-border movements of:

• physical currency, and
• bearer negotiable instruments.

These are requirements under Part 4 of the AML/CTF Act.

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What is the purpose of suspicious matter and transaction reporting?

Reports provided to AUSTRAC are analysed and may be disseminated to law enforcement, revenue collection, national security or social justice agencies, as well as certain international bodies. Reports are examined for activities and patterns that may indicate money laundering, terrorism financing or other criminal activities. They can play a significant role in helping to detect, investigate and prosecute individuals and groups engaged in domestic and international crime and/or terrorist activities.

The better the quality, accuracy and timeliness of these reports, the more valuable they are for detecting, deterring and disrupting criminal and terrorist activity.

When did the provisions commence?

Obligations relating to reports about cross-border movements of physical currency and bearer negotiable instruments came into effect on 13 December 2006. The suspicious matter, threshold transaction and international funds transfer instruction reporting obligations under the AML/CTF Act commenced on 12 December 2008.

The Policy (Civil Penalty Orders) Principles 2006 apply to these provisions (see Appendix E). For assistance in applying the Policy (Civil Penalty Orders) Principles 2006 refer to the AUSTRAC guidance note - Application of the Policy (Civil Penalty Orders) Principles 2006 (see Appendix A).

What are the relevant FATF recommendations?

Part 3 of the AML/CTF Act (reporting obligations) is intended to implement the:

• suspicious transaction reporting obligations contained in FATF Recommendation 13 and Special Recommendation IV, and
• threshold transaction reporting obligations contained in FATF Recommendation 19.

The wire transfer originator information obligations contained in FATF Special Recommendation VII are addressed in Part 5 of the Act. (1)

Part 4 of the AML/CTF Act, dealing with reports about cross-border movements of physical currency and bearer negotiable instruments, is intended to implement the relevant recommendations in FATF Special Recommendation IX.

Appendix H contains the FATF recommendations and associated interpretative notes.

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Suspicious matter reports (SMRs)

Reporting entities have an obligation to report suspicious matters to AUSTRAC if these matters are connected to the actual or potential provision of a designated service. This obligation is set out in section 41 of the AML/CTF Act.

The SMR obligations under the AML/CTF Act have been expanded compared to the suspect transaction reporting (SUSTR) obligations under the FTR Act (2) by:

• broadening the reporting population (from cash dealers under the FTR Act to reporting entities under the AML/CTF Act), and
• increasing the number of matters that trigger the obligation to report a suspicious matter.

Who is responsible for reporting suspicious matters to AUSTRAC?

The legal obligation to report suspicious matters to AUSTRAC rests with the reporting entity. This task could be delegated to the AML/CTF compliance officer of the reporting entity, if applicable.

Agents of reporting entities do not have an obligation under the AML/CTF Act to report suspicious matters to AUSTRAC (unless they also provide one or more designated services outside of their agency agreement in their own right). But agents may have an agreement to report such matters to the reporting entity's AML/CTF compliance officer, who would then decide whether an SMR needs to be submitted to AUSTRAC.

In what context does an SMR obligation arise?

An obligation to report a suspicious matter to AUSTRAC arises only in the context of:

• a reporting entity commencing to provide, or proposing to provide, a designated service to a person, or
• a person requesting a reporting entity to provide a designated service (of a kind ordinarily provided by the reporting entity), or
• a person inquiring of a reporting entity whether it would be willing to provide a designated service (of a kind ordinarily provided by the reporting entity). (3)

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What matters trigger the obligation to report?

An SMR must be submitted to AUSTRAC if the reporting entity forms a suspicion on reasonable grounds that:

• a person (or their agent) is not the person they claim to be, or
• information that the reporting entity has may be:

  - relevant to the investigation or prosecution of a person for

  • an evasion (or attempted evasion) of a tax law (including that of a state or territory), or
  • an offence against a Commonwealth, state or territory law, or

  - of assistance in enforcing

  • the Proceeds of Crime Act 2002 (or regulations under that Act), or
  • a state or territory law that corresponds to that Act or its regulations, or

• the provision of a designated service may be:

  - preparatory to the commission of an offence related to money laundering or the financing of terrorism, or

  - relevant to the investigation or prosecution of a person for an offence related to money laundering or the financing of terrorism.

What is a suspicion on reasonable grounds?

The obligation to submit an SMR to AUSTRAC is triggered when a reporting entity forms a 'suspicion on reasonable grounds'. In other words, a reporting entity is required to report a matter to AUSTRAC if a reasonable person would conclude from all the circumstances surrounding the provision or proposed provision of a designated service that an SMR would need to be submitted. (4)

What does this mean in practice?

Factors that may be considered by persons deciding whether or not a matter is suspicious include (but are not limited to): (5)

• the behaviour of the person or persons receiving or requesting the designated service (for example, unusual nervousness)
• the known business background of the person
• the use of aliases and a variety of similar addresses
• transactions involving known tax havens, narcotic source or transit countries
• attempts on the part of an individual or group to avoid filing a threshold transaction report for amounts of $10,000 or more by structuring transactions ('structuring' is discussed later in this chapter in the section on TTRs), and
• unusual business dealings, particularly where significant amounts of cash are involved in circumstances that are difficult to explain. Some examples of unusual business dealings include (but are not limited to):

  - regular large cash transactions by a customer who does not have an account with the reporting entity

  - movements by a customer of large amounts of cash that have no apparent legitimate source

  - accounts receiving frequent deposits of bearer negotiable instruments (e.g. bank cheques, money orders, bearer bonds), particularly in amounts of less than $10,000

  - cashing of unusually large amounts in traveller's cheques

  - unusual account holdings, for example:

  • a customer with an inordinately large number of accounts for the type of business they are supposedly conducting
  • accounts under one or more names with regular inter-account transfers of aggregated funds not related to any legitimate business or commercial purpose, or
  • a personal account into which many different persons, perhaps in different places, are depositing cash

   

  - unusual or irregular transfers of funds overseas, for example:

  • accounts used as a temporary depository for funds regularly transferred offshore
  • loans and securities dealings that appear to be a device to disguise the transfer of funds

• unusual use of night deposit boxes or safe deposit boxes, especially where large quantities of cash are involved, without an obvious legitimate purpose.

The above examples constitute only a snapshot of what may be considered 'unusual business dealings'. For more information on this and other factors that may be considered by reporting entities in deciding whether an SMR needs to be submitted, consult the references listed on pages 1 and 20 of this chapter.

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Case studies

The following case studies show three situations where it is likely that the obligation to report a suspicious matter to AUSTRAC would have been triggered. They are related to the potential breach of a tax law (Case study 1), the supply of illicit drugs (Case study 2) and the potential breach of another law of the Commonwealth or a state or territory (Case study 3).(6)

Case study 1

Evasion or attempted evasion of tax

Several SUSTRs lodged by three different banks prompted audit activity in respect of a person attempting to evade their tax obligations. The SUSTRs indicated that an individual was making numerous international funds transfers to a tax haven in amounts just below the AUD10,000 reporting threshold.(7) The person frequently sent three or more transfers on the same day from different bank branches. AUSTRAC information subsequently established that more than AUD800,000 had been sent offshore over a two and a half year period.

Indicators: frequent transfer of funds to a tax haven country; use of different bank branches on the same day; structuring of transactions.

Case study 2

Supply of illicit drugs

A SUSTR lodged by a financial institution to AUSTRAC triggered an investigation into the supply of heroin. The SUSTR detailed the daily occurrence of cash withdrawals of AUD4,500 by an individual customer. This activity occurred over a three-week period and a total of AUD60,000 was withdrawn. Through these reports, law enforcement officials were able to connect a known drug dealer to the same customer. The investigation led to the identification of the source of the heroin and an operation that resulted in the arrest of the person of interest and associates.

Indicators: daily withdrawals of cash over a three-week period; withdrawals made in the same amount.

Case study 3

Potential breach of corporations law relating to regulation of securities market

A rumour that a mining exploration company was about to announce the opening of a new field caused the price of shares in that company to rise substantially. A director who was thought to be the source of the rumour engaged his broker to sell a substantial parcel of shares. When the rumour was proved false and the share price fell, the same director became a buyer. Insider trading and market manipulation were suspected.

Indicators: buying and selling of large parcels of scrip by company director.

When must a suspicious matter be reported?

A reporting entity has to submit an SMR to AUSTRAC within:

• 24 hours after the time the relevant suspicion was formed if it relates to the financing of terrorism
• Three business days after the day the relevant suspicion was formed in all other cases.

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The period of time within which to report a suspicious matter to AUSTRAC does not start until the reporting entity forms a suspicion on reasonable grounds. (8) In the context of a reporting entity's SMR obligations, this means when the person responsible for submitting reports to AUSTRAC forms a suspicion on reasonable grounds.

The AML/CTF Rules require reporting entities to designate a person as the AML/CTF compliance officer at the management level. Given the differences in nature, size and complexity of businesses, 'management' may be interpreted broadly. This is particularly relevant where the reporting entity is a small business. The AML/CTF Rules do not specify the duties to be undertaken by an AML/CTF compliance officer. A reporting entity may consider it appropriate, however, that the AML/CTF compliance officer acts as the contact officer for submitting SMRs and other relevant reports. (9) AUSTRAC would expect reporting entities to have appropriate systems, processes and procedures in place to ensure that their AML/CTF compliance officer is made aware of potentially suspicious matters without delay and without a full investigation.

The phrase 'forming a suspicion on reasonable grounds' implies that in most circumstances AUSTRAC would accept that there be a passage of time between the forming of the initial concern (by either frontline staff, or the AML/CTF compliance officer in the case of small reporting entities, or triggered by a transaction monitoring system) and the actual decision as to whether an SMR would need to be submitted, to allow the matter to be investigated. For example, a bank teller feels that a prospective customer is not who they claim to be and reports that opinion to the line manager who, in turn, alerts the bank's AML/CTF compliance officer. In this instance, the available period of time to submit an SMR does not commence until the result of the AML/CTF compliance officer's investigation into the matter leads to them 'forming a suspicion on reasonable grounds'.

How much time for investigation may reasonably be allowed before the prescribed period of time to report a suspicious matter to AUSTRAC commences will depend on the particular circumstances of the initial suspicion and the nature and complexity of the organisational structure of the reporting entity. For example, a financial planner with no or very few staff would typically also have the role of AML/CTF compliance officer, whereas a multinational investment bank would be expected to have more complex reporting chains.

When AUSTRAC conducts a supervisory assessment of a large institution, it would expect to see appropriately approved documentation setting out the process by which the institution forms a suspicion on reasonable grounds.  This typically includes protocols for communicating concerns of frontline staff to the AML team, activities of the AML team to investigate the referral and the position authorised to determine that a suspicion has been formed on reasonable grounds.

AUSTRAC would expect, however, that in some instances it would be immediately apparent that a matter would need to be reported to AUSTRAC without further delay. This might include (but is not limited to) the following situations:

• a prospective customer tries to obtain a designated service with unmistakably forged identification documents, or
• a customer requests the transfer of a very large sum of money to an account in a known tax haven country and indicates that he will be travelling overseas in the near future.

Until the AML/CTF compliance officer advises an employee who has brought a matter to their attention that the matter will not need to be pursued further, all further activities by the customer who was the reason for the initial report should continue to be reported to the AML/CTF compliance officer.

What happens if an SMR is submitted late or a suspicious matter is not reported at all?

If an SMR is submitted after the applicable period or not submitted at all, the AUSTRAC Chief Executive Officer (CEO) has the power to apply for a civil penalty order of up to 100,000 penalty units ($11 million at the time of writing) for a body corporate, and up to 20,000 penalty units ($2.2 million at the time of writing) for a person other than a body corporate. (10)

How must a suspicious matter be reported?

All SMRs submitted to AUSTRAC must:

• be in the approved form
• contain a statement of reasons for making the report, and
• contain the information specified in the AML/CTF Rules. (11)

AUSTRAC would prefer SMRs to be submitted electronically via AUSTRAC Online. AUSTRAC's approved methods of reporting, and the processes required for reporting entities to implement those methods, are outlined in AUSTRAC's AML/CTF Act reporting implementation policy. (12)

Reporting entities that do not have the technical means to submit SMRs electronically may use the paper form developed by AUSTRAC. Paper forms can be obtained by calling the AUSTRAC Help Desk on 1300 021 037.

AUSTRAC has published sample paper forms and educational materials for each report type that can be used for training purposes. The sample forms and educational materials can be accessed via AUSTRAC Online. Please note that AUSTRAC will not accept reports submitted on sample forms.

To assist reporting entities who choose to report using a file extraction program, AUSTRAC has released electronic report file format specifications for each report type. The file format specifications for suspicious matter, threshold transaction and international funds transfer instruction reports can be accessed via AUSTRAC Online.

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Who is exempt from SMR reporting?

SMR obligations do not apply to a designated service provided at or through a reporting entity's permanent establishment in a foreign country. (14)

The AML/CTF Act provides AUSTRAC with the option of making AML/CTF Rules to exclude specified designated services or designated services provided in specified circumstances from all or some SMR obligations. No such Rules have been made as at the date of publication of this chapter. (15)

What is 'tipping off'?

A reporting entity must not disclose to any non-AUSTRAC person that an SMR has been submitted or that a suspicion on reasonable grounds has been formed. This is described as the offence of 'tipping off', and is prohibited by the AML/CTF Act. (16)

Even though a suspicion on reasonable grounds has been formed, or the reporting entity has reported the suspicion to AUSTRAC, the tipping off provisions do not apply to the disclosure of information in the following situations: (17)

• reporting entities that are legal practitioners or qualified accountants who have formed a relevant suspicion relating to a client and are seeking to dissuade the client from engaging in illegal activity
• reporting entities communicating their suspicion to a legal practitioner for the purpose of obtaining legal advice
• reporting entities disclosing information about the operation of Part 4 of the Charter of the United Nations Act 1945 (this relates to the consolidated list of entities, persons or assets ('sanctions list') maintained by DFAT). For example, in the context of fulfilling the obligation to freeze assets of proscribed persons or entities, a reporting entity may need to disclose to a law enforcement body that a customer may be a person on a sanctions list
• reporting entities that are members of a designated business group (DBG) with a joint AML/CTF program, disclosing information relating to a customer to another reporting entity in the DBG to inform the other reporting entity about the risks involved in dealing with the customer
• reporting entities that are authorised deposit-taking institutions disclosing information to an owner-managed branch of the authorised deposit-taking institution
• reporting entities disclosing information in compliance with a Commonwealth, state or territory law
• reporting entities disclosing information to an Australian Government law enforcement body.

Following the forming of an initial concern by an employee, further enquiries should be conducted in a prudent manner, using common sense, tact and discretion. In some circumstances, such actions may lead a customer to suspect that they are being investigated. It is AUSTRAC's view that the mere act of asking a customer for additional information about their identity or source or destination of their funds, for example, would not constitute an unlawful disclosure of information under the tipping off provisions of the Act.

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Threshold transactions reports (TTRs)

Reporting obligations for threshold transactions are set out in section 43 of the AML/CTF Act. These obligations apply to a reporting entity where it provides or commences to provide a designated service involving a threshold transaction.

The TTR obligations under the AML/CTF Act broaden the significant cash transaction reporting obligations under the FTR Act by including e-currency transactions.

What is a threshold transaction?

Section 5 of the AML/CTF Act defines a threshold transaction as a transaction involving the transfer of physical currency, or money in the form of e-currency, where the total amount is not less than AUD10,000.

What is physical currency?

Physical currency is defined in section 5 of the AML/CTF Act to mean coin and printed money, including foreign currency, that:

(a) is designated as legal tender, and
(b) circulates as, and is customarily used and accepted as, a medium of exchange in the country of issue.

What is e-currency?

E-currency is defined in section 5 of the AML/CTF Act to mean an internet-based, electronic means of exchange that is:

(a) known as any of the following: e-currency, e-money, digital currency (or some other name specified in the AML/CTF Rules), and
(b) backed either directly or indirectly by precious metal, bullion (or a thing of a kind prescribed by the AML/CTF Rules), and
(c) not issued by or under the authority of a government body.

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E-currency also includes anything that, under the regulations, is taken to be e-currency for the purposes of the AML/CTF Act.

E-currency (as defined in section 5 of the AML/CTF Act) is not as broad a concept as the term would suggest. The key restriction is that the e-currency must be backed by a precious metal, bullion or 'a thing of a kind prescribed by the AML/CTF Rules' (no Rules to that effect have been made as at the date of publication of this chapter).

Who is responsible for reporting threshold transactions to AUSTRAC?

Any entity (except those exempted as set out below) that provides or commences to provide a designated service under the AML/CTF Act has a legal obligation to report threshold transactions to AUSTRAC.

When must a TTR be submitted?

A TTR must be submitted to AUSTRAC within 10 business days after the day on which the transaction took place. (19)

What happens if the TTR is submitted late or not reported at all?

If the TTR is submitted after the 10 business day period or not submitted at all, the AUSTRAC CEO has the power to apply for a civil penalty order of up to 100,000 penalty units ($11 million at the time of writing) for a body corporate, and up to 20,000 penalty units ($2.2 million at the time of writing) for a person other than a body corporate. (20)

How must a threshold transaction be reported?

All TTRs submitted to AUSTRAC must be:

• in the approved form, and
• contain the information specified in the AML/CTF Rules. (21)

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AUSTRAC would prefer TTRs to be submitted electronically via AUSTRAC Online. AUSTRAC's approved methods of reporting, and the processes required for reporting entities to implement those methods, are outlined in AUSTRAC's AML/CTF Act reporting implementation policy. (22)

Reporting entities that do not have the technical means to submit TTRs electronically may use the paper form developed by AUSTRAC. Paper forms can be obtained by calling the AUSTRAC Help Desk on 1300 021 037.

AUSTRAC has published sample paper forms and educational materials for each report type that can be used for training purposes. The sample forms and educational materials can be accessed via AUSTRAC Online. Please note that AUSTRAC will not accept reports submitted on sample forms.

To assist reporting entities who choose to report using a file extraction program, AUSTRAC has released electronic report file format specifications for each report type. The file format specifications for suspicious matter, threshold transaction and international funds transfer instructions reports can be accessed via AUSTRAC Online.

Who is exempt from TTR reporting?

TTR obligations do not apply to a designated service provided at or through a reporting entity's permanent establishment in a foreign country. (23)

TTR obligations also do not apply to a reporting entity that provides only a designated service covered by item 54 of table 1 in section 6 of the AML/CTF Act, which covers a holder of an Australian Financial Services Licence who arranges for a person to receive a designated financial service. (24)

In addition, the AUSTRAC CEO may make AML/CTF Rules exempting a specified designated service or a designated service that is provided in specified circumstances, from some or all of the TTR provisions. No such AML/CTF Rules have been made as at the date of publication of this chapter.

The Anti-Money Laundering and Counter-Terrorism Financing Rules Amendment Instrument 2009 (No. 2) has added Chapter 37 into the AML/CTF Rules, providing an exemption for reporting entities from reporting threshold transactions in specified circumstances.

What is structuring?

Sections 142 and 143 of the AML/CTF Act set out the offence of conducting transactions so as to avoid reporting requirements, more commonly known as 'structuring'.

Simply speaking, structuring involves splitting transactions into separate amounts under $10,000 to avoid the threshold transaction reporting requirements of the AML/CTF Act. Many money launderers rely on this placement technique because numerous deposits can be made in that way without triggering the reporting requirements.

The prescribed penalty for the offence of structuring is imprisonment for up to five years or a fine of up to 1,500 penalty units ($165,000 at the time of writing) in the case of a corporation, or 300 penalty units ($33,000 at the time of writing) in the case of an individual. If a reporting entity forms a suspicion on reasonable grounds that structuring has taken place, an SMR must be submitted to AUSTRAC (refer to the section on SMRs earlier in this chapter for details).

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Case study

The following case study is an example of structuring activity by a crime syndicate.

Case study 4

Structuring for tax avoidance purposes

An investigation into a crime syndicate's money laundering commenced as a result of a SUSTR being submitted to AUSTRAC. The SUSTR, which detailed a distinct pattern of suspicious financial activity, was then disseminated to law enforcement agencies. Regular weekly deposits of cheques, to the value of approximately AUD100,000, were being made. These deposits were being followed a few days later by withdrawals of amounts below the AUD10,000 reporting threshold.

The investigation found that a company linked to the syndicate had been funnelling funds through numerous business accounts before withdrawing the cash in structured amounts. These amounts had then been dispersed between syndicate members. It is believed that this activity was undertaken for tax avoidance purposes and that approximately AUD6.5 million was laundered through the scheme.

Indicators: regular weekly deposits of high-value cheques followed by withdrawals of amounts below the reporting threshold.

Other case studies involving the offence of structuring are shown in the section on SMRs earlier in this chapter and in chapter 8 of this Guide.

International funds transfer instruction (IFTI) reports

Reporting obligations for IFTIs are set out in section 45 of the AML/CTF Act. These obligations apply to a reporting entity when they accept or send an instruction for money or property to be transferred into or out of Australia.

What is an IFTI?

An IFTI is an instruction to transfer money or property into or out of Australia, either electronically or through a designated remittance arrangement. These are also commonly referred to as international wire transfers.

Section 46 of the AML/CTF Act sets out the four IFTI types, the first two of which are based on the definition of an electronic funds transfer instruction (EFTI). The second two involve an 'instruction given by a transferor entity for the transfer of money or property under a designated remittance arrangement'.

The four types of IFTIs are:

• EFTI (outgoing) - sent through an Australian ordering institution to a beneficiary institution in a foreign country
• EFTI (incoming) - sent through an ordering institution in a foreign country to a beneficiary institution in Australia
• remittance arrangement (outgoing) - sent through a permanent establishment of a person in Australia to a permanent establishment of a person in a foreign country, and
• remittance arrangement (incoming) - sent through a permanent establishment of a person in a foreign country to a permanent establishment of a person in Australia.

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IFTIs under a designated remittance arrangement

What is money?

In Section 5 of the AML/CTF Act, 'money' includes physical currency, money held in an account, money held on deposit, and e-currency.

For a definition of e-currency and physical currency, see the section on TTRs earlier in this chapter.

What is property?

Section 5 of the AML/CTF Act defines property as 'any legal or equitable estate or interest in real or personal property including a contingent or prospective one, but does not include money'. Property refers to a possession or possessions owned by a person that can be tangible or intangible.

What is a remittance arrangement?

Section 10 of the AML/CTF Act defines a 'designated remittance arrangement'. In essence, a designated remittance arrangement is one where a person who is not an authorised deposit-taking institution, bank, building society or credit union accepts money or property from another person and transfers the money or property through another person, who is not an authorised deposit-taking institution, bank, building society or credit union, to the ultimate recipient. Often the actual movement of funds will take place through the formal banking system. However, the instruction is transmitted outside the formal banking system.

Items 31 and 32 of table 1 in section 6 in the AML/CTF Act set out the designated services for remitters. (25) For the purposes of IFTI reporting, a designated remittance arrangement includes only those instructions going out of or coming into Australia.

There are many remittance service providers who use informal systems to transfer funds. These informal systems are usually based on cultural or ethnic structures, and in some cases have been operating for many centuries.

Alternative remittance systems are usually based on trust and rarely issue receipts. Funds can be transferred from one location to another in a manner that is convenient and often cheaper than the formal banking system.

The alternative remittance process for an outgoing IFTI involves three steps:

1. A customer places an order with their chosen remitter.
2. The remitter transmits the details of this order (the payment instruction) to their overseas agent.
3. The agent delivers the funds according to the instruction.

The payment instruction can be transmitted in a variety of ways, including an SMS message, email, fax or telephone call.

Example

Binh wants to send $5,000 to his brother Than who lives in Vietnam. Binh contacts Mai, an alternative remitter in his community, and gives her Than's details in Vietnam and the $5,000. Mai contacts her counterpart, Phuong, in Vietnam via SMS. Phuong then arranges to have the $5,000 delivered to Than.

Mai and her counterpart Phuong arrange to reconcile funds between them using a variety of methods. One method is to reconcile through a third party, which may occur at a later date. (26)

The following diagram shows the main persons involved in the transfer of IFTIs under a designated remittance arrangement and refers to chapter 17 of the AML/CTF Rules ('Reportable details for international funds transfer instructions under a designated remittance arrangement (items 3 and 4 in section 46)').

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Reportable details required for IFTIs under a designated remittance arrangement

click on image to open larger image

IFTIs involving the electronic transfer of funds

What is an EFTI?

An electronic funds transfer instruction (EFTI) is an instruction that is sent between an ordering and beneficiary institution for the purpose of transferring funds. An ordering institution or beneficiary institution must be an authorised deposit-taking institution, bank, building society, credit union or a person specified in the AML/CTF Rules, for the EFTI to take place.

There are four types of EFTIs set out in the AML/CTF Act:

• a multiple-institution person-to-person electronic funds transfer instruction
• a same-institution person-to-person electronic funds transfer instruction
• a multiple-institution same-person electronic funds transfer instruction, and
• a same-institution same-person electronic funds transfer instruction.

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When is an EFTI an IFTI?

An EFTI is an IFTI when the instruction is to transfer funds out of Australia to a foreign country or into Australia from a foreign country.

EFTIs include instructions for domestic transfers as well as international transfers. It is important to remember that an EFTI can occur only between authorised deposit-taking institutions, banks, building societies, credit unions or persons specified in the AML/CTF Rules.

For more information about EFTIs, refer to chapter 10 of this Guide.

Who is responsible for reporting IFTIs to AUSTRAC?

A reporting entity that is the sender of an IFTI transmitted out of Australia, or the reporting entity that receives an IFTI transmitted into Australia, must report the instruction to AUSTRAC.

When must an IFTI report be submitted?

An IFTI report must be reported to AUSTRAC within 10 business days after the day on which the instruction was sent or received.

What happens if the IFTI report is submitted late or not reported at all?

If an IFTI report is submitted after the 10 business day period or not submitted at all, the AUSTRAC CEO has the capacity to apply for a civil penalty order of up to 100,000 penalty units ($11 million at the time of writing) for a body corporate, and up to 20,000 penalty units ($2.2 million at the time of writing) for a person other than a body corporate.

How does an IFTI have to be reported?

An IFTI report must be submitted in the approved form and contain such information relating to the transaction as is specified in the AML/CTF Rules. The reportable details required in the approved forms are set out in chapters 16 and 17 of the AML/CTF Rules. (27)

AUSTRAC would prefer IFTIs to be submitted electronically via AUSTRAC Online. AUSTRAC's approved methods of reporting, and the processes required for reporting entities to implement those methods, are outlined in AUSTRAC's AML/CTF Act reporting implementation policy. (28)

Reporting entities that do not have the technical means to submit IFTIs electronically may use the paper form developed by AUSTRAC. Paper forms can be obtained by calling the AUSTRAC Help Desk on 1300 021 037.

AUSTRAC has published sample paper forms and educational materials for each report type that can be used for training purposes. The sample forms and educational materials can be accessed via AUSTRAC Online. Please note that AUSTRAC will not accept reports submitted on sample forms.

To assist reporting entities who choose to report using a file extraction program, AUSTRAC has released electronic report file format specifications for each report type. The file format specifications for suspicious matter, threshold transaction and international funds transfer instructions reports can be accessed via AUSTRAC Online.

Who is exempt from IFTI reporting?

There are currently no exemptions for reporting IFTIs. The AUSTRAC CEO does, however, have the capacity to make AML/CTF Rules exempting IFTIs of a specified kind or sent in specified circumstances from the reporting obligation.

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Case study

The following case study (29) shows how IFTI reports can be used to identify money laundering and terrorism financing.

Case study 5

Wire transfers and e-gold payments used to purchase stolen bank details

Several individuals were involved in purchasing stolen bank account and credit card details from Russia and Eastern Europe via the internet. These were purchased through international funds transfer instructions (IFTIs) of approximately AUD$2,000 and by way of e-gold payments. One of these individuals was arrested on 26 fraud and computer crime offences in relation to using these bank details to withdraw funds without authorisation in internet transfers to accounts of associates. AUSTRAC searches revealed that a person in this syndicate had a history of alleged involvement in internet bank fraud through phishing. A laptop seized at the arrest of the principal person revealed details of IFTIs transacted through remittance dealers and e-gold. Russian and other recipients identified from these transactions facilitated the identification of additional persons from AUSTRAC information.

Indicators: repeated use of internet banking to transfer funds into accounts of unrelated individuals.

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Reporting of cross-border movements of physical currency and bearer negotiable instruments (BNIs)

Reporting obligations for cross-border movements of physical currency and BNIs are set out in Part 4 (sections 52 to 62) of the AML/CTF Act.

Reports about physical currency

What is physical currency?

Physical currency is defined in section 5 of the AML/CTF Act to mean coin and printed money, including foreign currency, that:

(a) is designated as legal tender, and

(b) circulates as, and is customarily used and accepted as, a medium of exchange in the country of issue.

Who has to report movements of physical currency?

Travellers entering and departing Australia are required to report any currency they are carrying of $10,000 or more in Australian dollars, or the foreign currency equivalent. Mailing or shipping currency of $10,000 or more in Australian dollars, or the foreign currency equivalent, into or out of Australia must also be reported.

When and where is physical currency reported?

Reporting of physical currency usually occurs at the customs examination area when entering or leaving Australia. Cross-Border Movement - Physical Currency (CBM-PC) reporting forms are available from Customs officers at international airports and sea ports.

Mailing or shipping currency of $10,000 or more out of Australia must be reported to a Customs officer or a police officer, or directly to AUSTRAC. Reporting forms can be obtained by contacting AUSTRAC. The report must be submitted before sending the currency out of Australia. When receiving currency from outside Australia, the report must be submitted by the recipient within five business days of receiving the currency. (30)

Reports about BNIs

What is a BNI?

A BNI is a non-cash monetary instrument that may contain the instruction 'pay to the bearer'. The bearer is the person in possession of the BNI. Common examples of BNIs are cheques, promissory notes, traveller's cheques, bearer bonds, money orders and postal orders.

Who has to complete a Cross-Border Movements - Bearer Negotiable Instruments (CBM-BNI) form?

Anyone who is requested to do so by a Customs or police officer.

When and where is a CBM-BNI form completed?

A Customs or police officer may request that a person completes a CBM-BNI form when entering or departing Australia. This usually occurs at the customs examination area.

A CBM-BNI form may also have to be completed when a Customs or police officer conducts an examination or search and finds a BNI which a person has with them. The completed CBM-BNI form must be given to AUSTRAC, or the Customs or police officer as soon as possible.

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Additional AUSTRAC resources

• AUSTRAC Self Assessment Questionnaire (see Appendix I)
• AUSTRAC AML/CTF Act reporting implementation policy
• AUSTRAC Public Legal Interpretation No. 6 of 2008 - Suspect transactions and suspicious matter reports
• AUSTRAC Public Legal Interpretation No. 7 of 2008 - significant cash transaction and threshold transaction reports
• AUSTRAC Public Legal Interpretation No. 8 of 2008 - cross border movements
• AUSTRAC Public Legal Interpretation No. 11 of 2009 - electronic funds transfer instructions and international funds transfer instructions
• AUSTRAC guidance note 09/03 - International funds transfer instruction reporting requirements for items 1 and 2 of section 46 of the AML/CTF Act
• AUSTRAC forms for a suspicious matter report (SMR), threshold transaction report (TTR) and international funds transfer instruction (IFTI) report (sample forms available through AUSTRAC Online)
• AUSTRAC explanatory guides accompanying SMR, TTR and IFTI forms (available through AUSTRAC Online)
• AUSTRAC explanatory guide on file format specifications (available through AUSTRAC Online)
• AUSTRAC e-learning
• AUSTRAC Typologies and Case Studies Report 2007
• AUSTRAC Information Circular No.42: Bribery of Foreign Public Officials

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Frequently asked questions

Q. If I ask a customer to provide more KYC information or to verify their KYC information, will I be in breach of the tipping off provisions?

A. It is AUSTRAC's view that the mere act of asking a customer for additional information about their identity, or source or destination of their funds, for example, would not constitute an unlawful disclosure of information under the tipping off provisions of the AML/CTF Act. The offence of tipping off occurs when a person discloses to persons outside AUSTRAC that an SMR has been submitted, or that a relevant suspicion has been formed. (31)

Q. If I have referred a suspicious matter to the Australian Federal Police, do I still have to report it to AUSTRAC?

A. Yes. Suspicious matters within the meaning of subsection 41(1) of the AML/CTF Act must be reported to AUSTRAC. This obligation is prescribed by subsection 41(2) of the AML/CTF Act. AUSTRAC will analyse all SMRs and may pass information on to a law enforcement agency such as the Australian Federal Police, if appropriate.

Q. Does a reporting entity have to submit an SMR every time it receives a request for information on a customer or group of customers from a law enforcement agency?

A. No. Whether a reporting entity needs to submit an SMR to AUSTRAC depends on the circumstances of, and reasons for, the approach by a law enforcement agency. However, a reporting entity may view the request for information as a trigger for further scrutiny of the relevant customer(s) and their transactions, including applying the entity's enhanced customer due diligence program. If that ultimately results in the AML/CTF compliance officer forming a reasonable suspicion within the meaning of section 41 of the AML/CTF Act, the reporting entity will have to submit an SMR.

Q. What is the difference between a transfer of funds and the instruction to send or receive funds?

A. The instruction is just that, an instruction - no actual money or property moves. A transfer occurs when the money or property actually moves from one place to another.

Q. Can a person carry physical currency or a BNI for someone else?

A. Yes, but the carrier must still report the physical currency. Reports about a BNI need be made by the carrier only on request. (32) On the CBM-PC or CBM-BNI reporting form the person carrying the currency or BNI gives information about themself, as well as information about the person for whom they are carrying the currency or BNI.

Q. If a person has any BNIs as well as physical currency, do they need to report both?

A. A CBM-PC form must be completed when a person is carrying $10,000 or more in physical currency, into or out of Australia. Only physical currency is counted in the total amount. For example, $5,000 in physical currency and $5,000 in traveller's cheques are not reportable on a CBM-PC form because the physical currency is less than $10,000.

BNIs such as traveller's cheques are reported on a separate form, but only when requested by a Customs or police officer. A single form cannot be used to report both currency and BNIs.

Q. If a BNI is valued under $10,000, does it need to be reported on request?

A. Reporting a BNI is different from reporting currency. There is no monetary threshold for a BNI. Even if the BNI has no face value (for example, a signed blank cheque), it still needs to be reported if requested by a Customs or police officer.

Q. What happens to the completed CBM-PC or CBM-BNI form?

A. The CBM-PC or CBM-BNI form is usually given to a Customs or police officer, who may check that all required information has been given. The officer then forwards the form to AUSTRAC. When mailing or shipping currency, the reporting form can be sent directly to AUSTRAC. The information provided on reporting forms is stored in a secure system and is accessible only by AUSTRAC and a number of partner agencies, including law enforcement agencies. Personal details are not provided to any private companies.

54 FATF, 9 Special Recommendations (SR) on Terrorist Financing, FATF, Paris, France, http://www.fatf-gafi.org/document/9/0,3343,en_32250379_32236920_34032073_1_1_1_1,00.html,
viewed 24 February 2009.

55 For a summary of reporting requirements under the FTR Act, refer to chapter 7 of this Guide.

56 See subsection 41(1) of the AML/CTF Act.

57 FATF, The 40 Recommendations and the FATF 9 Special Recommendations, FATF, Paris, France, www.fatf-gafi.org/dataoecd/16/54/40339628.pdf,
viewed 24 February 2009.

58 See AUSTRAC Guideline No.1 at www.austrac.gov.au/guidelines.html

59 Case studies 1 and 2 are examples of suspect transaction reporting under the FTR Act but are equally applicable to the SMR provisions of the AML/CTF Act.

60 See section on threshold transaction reports (TTRs) for details on TTR obligations.

61 See subsections 41(1)(d) to (j) of the AML/CTF Act.

62 See AUSTRAC guidance note 08/02 (AML/CTF Compliance Officers), paragraph 4.1(b), at www.austrac.gov.au/guidance_notes.html

63 See subsection 41(4) and section 175 of the AML/CTF Act.

64 See chapter 18 of AML/CTF Rules Instrument 2007 (No.1) at www.austrac.gov.au/aml_ctf_rules.html

65 See AUSTRAC's AML/CTF Act reporting implementation policy at www.austrac.gov.au/amlctfact_reporting_implementation.html

66 See section 49 of the AML/CTF Act.

67 See subsection 42(5) of the AML/CTF Act.

68 See section 42 of the AML/CTF Act.

69 See section 123 of the AML/CTF Act.

70 See subsections 123(4) to (9) of the AML/CTF Act.

71 See subsection 123(10) of the AML/CTF Act.

72 See subsection 43(2) of the AML/CTF Act.

73 See subsection 43(4) and section 175 of the AML/CTF Act.

74 See AML/CTF Rules chapter 19 ('Reportable details for threshold transactions') at www.austrac.gov.au/aml_ctf_rules.html. Please note that amendments to chapter 19 will come into effect on 1 January 2011. As of that date, if a person conducts the threshold transaction on behalf of a customer, that person's details will also need to be reported to AUSTRAC.

75 See AUSTRAC's AML/CTF Act reporting implementation policy at www.austrac.gov.au/amlctfact_reporting_implementation.html

76 See subsection 44(5) of the AML/CTF Act.

77 See PLI2 for a legal interpretation of the item 54 provision at www.austrac.gov.au/pli.html

78 See PLI3 for a legal interpretation of designated remittance services at www.austrac.gov.au/pli.html

79 AUSTRAC e-learning - 'Introduction to AML/CTF - Remittance Providers Registration' at www.austrac.gov.au/elearning/pdf/mod_remittance_providers.pdf

80 See Anti-Money Laundering and Counter-Terrorism Financing Rules Instrument 2007 (No.1) at www.austrac.gov.au/aml_ctf_rules.html

81 See AUSTRAC's AML/CTF Act reporting implementation policy at www.austrac.gov.au/amlctfact_reporting_implementation.html

82 AUSTRAC Typologies and Case Studies Report 2007.

83 See paragraph 55(1)(d) of the AML/CTF Act.

84 See paragraphs 123(2)(c) and (d) and subsection 123(3) of the AML/CTF Act; and Public Legal Interpretation No. 6 - Suspect transactions and suspicious matter reports at http://www.austrac.gov.au/pli.html

85 See subsection 59(1) of the AML/CTF Act.