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Appendix A

Outcomes from the AUSTRAC supervision strategy 2009-10

Over 2009-10, AUSTRAC's core supervisory activities were focused on a program of on-site inspections and desk reviews. During the latter part of the 2009-10 year, AUSTRAC considered ways to further enhance its supervision processes by taking advantage of our core capabilities in data analysis.

During 2009-10, AUSTRAC's supervisory teams were structured along industry lines:

banking and finance
non-bank financial services
money services businesses
gambling and bullion entities.

The activities undertaken and the outcomes achieved in each of these industry groups are outlined below.

Banks and other lenders

In the banks and other lenders sector 103 assessments were undertaken in 2009-10, comprising 17 on-site assessments, 63 desk reviews and 23 reporting reviews. This resulted in 229 requirements and 229 recommendations being issued.

Higher volume reporting entities have been a major focus for AUSTRAC in the banks and other lenders sector. Over the last two years all major banks have been assessed on aspects of their obligations under the AML/CTF Act and Rules. A sample of smaller non-bank authorised deposit-taking institutions (ADIs) and other lenders have also been reviewed during the period.

The scope of assessments covered sampling of customer due diligence processes, reviews of TTR and IFTI reporting processes and controls as well as reviews of Part A programs and independent reviews.

AUSTRAC accepted an enforceable undertaking (EU) from Barclays Bank PLC in respect of its Australian branch in relation to breaches of various provisions of the FTR Act and/or AML/CTF Act. This was a significant outcome for AUSTRAC as it marked only the second time the Agency used its enforcement powers to address non-compliance by a reporting entity(9).

In addition to the acceptance of EUs, AUSTRAC's Executive was involved in intensive discussions with a number of other reporting entities to stress the importance of the findings from the assessment activity undertaken. These discussions have resulted in the reporting entities adopting rectification plans with senior management oversight. Such plans will be appropriate to the size of the reporting entity and the nature of AUSTRAC's concerns.

Two subsection 202(2) notices were issued by Supervision throughout the year and a further 15 were issued by Enforcement.

Non-bank financial services

In the NBFS sector, 82 assessments were undertaken in 2009-10, comprising 43 on-site assessments, 20 desk reviews and 19 reporting reviews. This resulted in 128 requirements and 147 recommendations being issued.

Some small financial services providers such as providers of Item 54 designated services (Item 54 providers) continue to experience difficulties in adopting a risk-based approach to complying with the AML/CTF Act. To assist Item 54 providers in complying with their AML/CTF Act obligations, AUSTRAC issued Information Circular No. 71, which provided observations on compliance by Item 54 providers based upon AUSTRAC supervision activity.

AUSTRAC conducted assessments on a number of non-bank financial institutions relating to the requirement to conduct regular independent reviews of Part A Programs. Whilst AUSTRAC did observe a number of reporting entities who had an adequate approach (indeed, some reporting entities exceeded AUSTRAC's expectations), many were non-compliant with this obligation. AUSTRAC is working to develop additional guidance on independent reviews.

Supervision issued 10 notices to reporting entities under section 202 and Enforcement issued one section 202. One notice under section 167 of the AML/CTF Act requesting information and documentation was issued.

Gambling and bullion

In the gambling sector, 193 assessments were undertaken in 2009-10, comprising 121 comprehensive on-site assessments, 20 desk reviews and 52 transaction reporting reviews. This resulted in 570 requirements and 279 recommendations being issued.

Some smaller entities, such as bookmakers, hotels and clubs and bullion dealers continue to face difficulties in adopting a risk-based approach and implementing appropriate control measures. A practical guide for bookmakers was trialled with industry and was subsequently released in early 2010-11. The purpose of the guide is to provide assistance to bookmakers in meeting their obligations under the AML/CTF Act. A similar guide has been drafted for small gaming machine venues and will be released for use by hotels and clubs in 2010-11. The Gambling team continued to work closely with State gambling regulatory bodies, through meetings and exchanges of information.

Enforcement action was taken against seven reporting entities in the Thomas Hotels Group following a compliance assessment of one of the reporting entities in the group. Notices were given to each reporting entity under subsection 162(2) of the AML/CTF Act, requiring the reporting entities to appoint an external auditor.

Money services businesses

In the MSB sector, 124 assessments were undertaken in 2009-10, comprising 88 comprehensive on-site assessments, 14 desk reviews and 22 reporting reviews. These assessments resulted in 816 requirements and 174 recommendations being issued.

Some smaller and less sophisticated entities in this sector continue to face difficulties in adopting a risk-based approach and implementing appropriate control measures. A practical guide for remitters is being developed and will be released during 2010-11.

In November 2009, PayPal Australia Pty Ltd offered AUSTRAC an EU. In December 2009 the AUSTRAC CEO also accepted an EU from Eastern & Allied Pty Ltd trading as Hai Ha Money Transfer. As part of the undertaking, the company committed to the appointment of an independent party to prepare a written report to the AUSTRAC CEO detailing its response to AUSTRAC's concerns about the company's non-compliance with the AML/CTF Act.

In December 2009, AUSTRAC gave a remedial direction to Sydney-based remitter Little Persia. The direction required Little Persia to submit to AUSTRAC a written AML/CTF program within 28 days.

A successful remitter registration campaign was undertaken to increase the level of registration of remitters with AUSTRAC. This resulted in an additional 900 remitters being registered with AUSTRAC.

In the MSB sector, AUSTRAC issued seven notices under subsection 202(2) of the AML/CTF Act requesting information and documentation.

Table 3: AUSTRAC's 2009-10 activities summary

Sector	Number of assessments undertaken3

Number of requirements4 and recommendations5 issued

Enforcement outcomes

Other activities completed

Banking and other lenders

103

229 requirements
229 recommendations

17 section 202 notices(6),
1 enforceable undertaking(7)

Non-bank financial services

82

128 requirements
147 recommendations

11 section 202 notices,
1 section 167 notice

Information Circular No. 71 issued
20 education/ outreach activities with reporting entities and industry associations

Gambling and bullion

193

570 requirements
279 recommendations

7 section 162 notices(8)

20 education/ outreach activities with reporting entities and industry associations

Money services businesses

124

816 requirements
174 recommendations

2 enforceable undertakings, 1 remedial direction, 7 section 202 notices

19 outreach exercises agent registration campaign which increased AUSTRAC's registered population by 900

3 These figures reflect the number of assessments undertaken in 2009-10. A number of assessments undertaken during 2009-10 remained in progress at 30 June 2010 - these assessments may subsequently result in remedial requirements and recommendations being issued. An assessment is considered closed only when a compliance assessment report has been issued to the reporting entity.

4 A requirement sets out the provision(s) of the AML/CTF Act or AML/CTF Rules that has/ have not been met by the reporting entity as well as the material facts observed during the assessment, the action required and a due date for the action.

5 A recommendation sets out a proposal for action or procedural changes that should be formally considered by the reporting entity for implementation. The proposals address the areas where there may be ways the reporting entity can further enhance its compliance systems and controls to assist in better mitigating ML/TF risk in the future.

6 Under subsection 202(2) of the AML/CTF Act, the AUSTRAC CEO or an authorised officer may issue a notice requiring a person to give information or produce documents.

7 Section 197 of the AML/CTF Act provides the AUSTRAC CEO with the power to accept written undertakings from persons in relation to compliance with the AML/CTF Act, and for the enforcement of such undertakings by the Federal Court.

8 A section 162 notice means that under subsection 162(2), Part 13 Division 7 of the AML/CTF Act, the AUSTRAC CEO may, by written notice, require a reporting entity to appoint an external auditor to undertake specific tasks.

Other activities

AUSTRAC's understanding of how reporting entities have interpreted and implemented their obligations has deepened considerably since the commencement of the AML/CTF Act. AUSTRAC's knowledge of the domestic AML/CTF environment is now complemented by the activities of a research function within the Supervision Branches. Through this function, AUSTRAC launched a survey series in March 2010.

The first report in this series focused on AML/CTF compliance officers. The data from the survey responses created a profile of AML/CTF compliance officers in Australia, who they are, what they do, and the issues they face in their role. It is anticipated that additional survey-based and other research activities will be conducted in 2010-11.

In direct support of industry and the ongoing administration of the AML/CTF Act, AUSTRAC undertook a number of other significant activities in 2009-10:

AUSTRAC granted 14 exemptions or modifications of the AML/CTF Act. Seventeen applications for exemption or modification of the AML/CTF Act were either not granted, not valid or withdrawn.
AUSTRAC issued three no-action letters. Thirteen requests for a no-action letter to be issued were either not granted, not valid or withdrawn.
The AUSTRAC Help Desk managed 17,680 calls, made over 1,000 outbound calls and responded to 5,487 pieces of correspondence. Over the course of 2009-10, AUSTRAC undertook 12 major mail-out campaigns sending information to over 16,000 reporting entities.
AUSTRAC assisted reporting entities to transition to the new transaction reporting obligations under the AML/CTF Act. This included the assessment of over 200 test files. In addition, we responded to over 3,000 queries for assistance specifically on transaction reporting obligations.
AUSTRAC continued to closely monitor the timing, volume and quality of transaction reports over 2009-10. Over 5,000 issues relating to transaction reporting were raised with reporting entities for remediation.

9 On 30 June 2009, AUSTRAC accepted an EU from Mega International Commercial Bank Co, Ltd CBC.