Suspicious matter reports (SMRs)

Contents


What are the suspicious matter reporting obligations?

A reporting entity must submit an SMR to AUSTRAC if:

  • the reporting entity commences to provide, or proposes to provide, a designated service to a person, or
  • a person requests the reporting entity to provide a designated service (of a kind ordinarily provided by the reporting entity), or
  • a person enquires of the reporting entity whether it would be willing to provide a designated service (of a kind ordinarily provided by the reporting entity)

and 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 the reporting entity has may be:
    • relevant to investigate or prosecute a person for
      • an evasion (or attempted evasion) of a tax law, 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
  • providing a designated service may be:
    • preparatory to committing an offence related to money laundering or terrorism financing, or
    • relevant to the investigation or prosecution of a person for an offence related to money laundering or terrorism financing.

Suspicion on reasonable grounds

A reporting entity must submit an SMR to AUSTRAC when it forms a suspicion on 'reasonable grounds'.

In other words, a reporting entity must report a matter to AUSTRAC if a reasonable person would conclude from all the circumstances and information available that an SMR must be submitted. Within the SMR, the reporting entity must explain why it has formed a suspicion.

Reporting entity staff (including the entity's AML/CTF compliance officer) who report a transaction or activity as suspicious are not necessarily expected to know or to establish the exact nature of any criminal offence the customer may be involved in. Further, reporting entity staff would not be expected to know or to establish that particular funds or property have been acquired through illicit or criminal means.

Identifying suspicious activity and forming suspicion on reasonable grounds

A reporting entity's AML/CTF program must include risk-based systems and controls to identify, assess and control the risk of its business being used to facilitate money laundering and terrorism financing. In other words, the reporting entity's:

  • ML/TF risk assessment
  • customer identification procedures
  • transaction monitoring program
  • AML/CTF risk awareness training program
  • systems and controls to ensure compliance with the AML/CTF reporting obligations

should be designed so suspicious activity and suspicious customer behaviour is identified, investigated and, where required, reported to AUSTRAC.

However, activity that appears unusual is not necessarily suspicious. Many customers will, for example, have an erratic pattern of transactions or account activity. This unusual activity may prompt further enquiry and enhanced customer due diligence procedures, which may in turn require the reporting entity to decide whether the activity is suspicious and therefore should be reported to AUSTRAC in an SMR.

Further information

AUSTRAC publishes regular typologies and case studies reports to assist reporting entities understand their AML/CTF obligations. Each report contains numerous case studies detailing the various methods criminals use to conceal, launder or move illicit funds, both in Australia and overseas. The reports also list indicators which may assist reporting entities to identify potential money laundering and terrorism financing activity (see appendix A of each AUSTRAC typology report available on the AUSTRAC website).

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What information must be reported in an SMR?

Reporting entities submitting an SMR must provide details about their business and all details known about:

  • the suspicious matter
  • the person/organisation(s) to which the matter relates
  • any transactions related to the matter.

Chapter 18 of the AML/CTF Rules lists the details that must be reported in an SMR.

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What are the reporting periods for an SMR?

A reporting entity must submit an SMR to AUSTRAC within:

  • 24 hours after forming the relevant suspicion if the suspicion relates to terrorism financing; or
  • three business days after forming the suspicion in all other cases.

The time period for reporting a suspicious matter starts when the reporting entity forms a 'suspicion on reasonable grounds'. This may occur at any time during the enquiry, request, proposal, or commencement stages of providing a designated service to the customer.

AUSTRAC accepts there may be some time between forming the initial suspicion and submitting an SMR. The reporting entity may require this time to investigate the matter and conduct enhanced customer due diligence measures.

For example, a bank teller may feel a prospective customer is not who they claim to be and then reports their suspicion to the line manager. The line manager then alerts the bank's AML/CTF compliance officer. In this instance, the SMR reporting period does not commence until the AML/CTF compliance officer concludes an investigation into the matter, leading them to 'form a suspicion on reasonable grounds'.

Example 1: Submitting an SMR within three business days

Mr A was an occasional visitor to a casino, and joined the casino's loyalty club on 14 January. Over the following months, casino staff noticed Mr A's playing habits were changing - he was spending longer at the casino and increasing the size and frequency of his bets.

On 18 March casino staff noticed Mr A associating with people that had previously come to the notice of casino staff for suspicious activities and observed Mr A accepting parcels from them.

After examining Mr A's transaction history on 21 March, the casino formed a suspicion Mr A was engaged in money laundering or other illicit activity and submitted an SMR to AUSTRAC on 24 March (within the three business day time frame).

Example 2: Submitting an SMR within 24 hours (for matters relating to terrorism financing)

Ms S visited a remitter at 11 am on Tuesday, explaining she wished to send money to 'the brothers' in a foreign country. Ms S did not appear to know much about 'the brothers', other than that they were raising funds for a special project. The customer service officer considered Ms S might be financing terrorism, and brought the matter to the attention of the reporting entity's compliance officer.

The compliance officer's review found that a number of people recorded at Ms S's address previously conducted similar transactions, and the name of the beneficiary of the funds was very similar to an entity named on an international watch list.

At 3 pm on Tuesday, the reporting entity submitted an SMR to AUSTRAC (within the 24 hour time frame for a matter related to terrorism financing).

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What are the penalties for failing to submit an SMR to AUSTRAC?

If an SMR is submitted after the relevant reporting period or not submitted at all, AUSTRAC can apply to the Federal Court of Australia for a civil penalty order of up to 100,000 penalty units for a body corporate, and up to 20,000 penalty units for a person other than a body corporate.

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Are there any exemptions from the obligation to report an SMR?

The obligation to report SMRs does not apply to a designated service provided at or through a reporting entity's permanent establishment in a foreign country.

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Is a registered remittance affiliate of a remittance network provider required to submit SMRs?

An affiliate of a remittance network provider that forms a suspicion on reasonable grounds must submit an SMR to AUSTRAC. However, if there is a written agreement between the remittance network provider and the affiliate, the SMR may be submitted by either the affiliate or the remittance network provider (where any relevant transaction uses the network provided by the remittance network provider).

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Can a reporting entity continue a business relationship with a customer if the reporting entity has formed a suspicion about that customer?

The AML/CTF Act does not direct reporting entities to stop providing designated services to, or terminate a business relationship with, a customer, even if the reporting entity has formed a suspicion about that particular customer. Reporting entities must determine whether to terminate the relationship with the customer based on their risk-assessment, procedures and controls.

If the reporting entity does decide to terminate the business relationship with the customer, the reporting entity must not disclose to the customer that it has formed a suspicion and/or communicated the suspicion to AUSTRAC. This is referred to as 'tipping off' the customer, which is an offence under section 123 of the AML/CTF Act. 'Tipping off' is explained in more detail below.

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If a reporting entity has lodged an SMR about a customer and decides to continue the business relationship, what are the entity's ongoing SMR obligations?

A reporting entity that submits an SMR must continue to comply with the AML/CTF Act in all future dealings with that customer, which may include submitting additional SMRs. Subsequent transactions or matters involving the customer must only be reported if they meet the SMR reporting criteria.

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What is 'tipping off'?

Unless an exemption is in place, a reporting entity must not disclose to any person (other than AUSTRAC) that it formed a suspicion about a customer or that it submitted an SMR to AUSTRAC. Doing so would constitute 'tipping off', which is an offence prohibited by section 123 of AML/CTF Act.

Reporting entities that submit SMRs also have additional obligations under the AML/CTF Act:

  • The reporting entity must not disclose any information that might reasonably lead a person to conclude that the reporting entity formed a suspicion about a customer or that the entity communicated that suspicion to AUSTRAC.
  • The reporting entity must not disclose any requests from AUSTRAC for further information about an SMR report.

After the employee of a reporting entity forms an initial suspicion about a customer, the employee should use discretion when making further enquiries about the customer, to minimise the risk of the customer realising an SMR has been submitted about them.

AUSTRAC considers that simply asking a customer for additional information (for example, about their identity or the source or destination of their funds) would not constitute an unlawful disclosure of information or an offence under the tipping off provisions of the Act.

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Are there any exemptions from the tipping off provisions?

In certain circumstances, reporting entities are exempt from the tipping off provisions of the AML/CTF Act. Specifically, a reporting entity may disclose it has formed a suspicion about a customer in the following circumstances:

  • reporting entities who are legal practitioners or qualified accountants who have formed a suspicion about a client and are seeking to dissuade the client from engaging in illegal activity
  • reporting entities communicating their suspicion to a legal practitioner to obtain legal advice
  • reporting entities disclosing information in relation to the operation of Part 4 of the Charter of the United Nations Act 1945, which relates to the consolidated list of entities, persons or assets (the 'sanctions list') maintained by the Department of Foreign Affairs and Trade). Reporting entities may have an obligation under the Charter of the United Nations Act to freeze the assets of a person or entities included on the sanctions list, for example, and inform a law enforcement body a customer may be listed on the sanctions list
  • reporting entities that are members of a designated business group (DBG) with a joint AML/CTF program disclosing information about a customer to another reporting entity within that DBG to inform the other reporting entity about the risks involved in dealing with the customer
  • reporting entities that are affiliates of a remittance network provider disclosing information about a customer to the remittance network provider
  • reporting entities that are remittance network providers disclosing information about a customer to its remittance affiliates
  • reporting entities that are ADIs disclosing information about a customer to an owner-managed branch of the same ADI
  • reporting entities disclosing information in compliance with a Commonwealth, state or territory law
  • reporting entities disclosing information to an Australian Government law enforcement body; for example, the Australian Federal Police or the Australian Crime Commission.

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Can a reporting entity disclose SMRs to an external reviewer?

A reporting entity may appoint an external party to undertake an independent review of Part A of its AML/CTF program or joint program (including SMR obligations). However, a reporting entity cannot disclose specific SMRs, and related information, to an independent external reviewer.

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Do the 'tipping off' provisions prevent a reporting entity from reporting a suspicious matter to government bodies other than AUSTRAC?

Generally, section 123 of the AML/CTF Act prohibits reporting entities from disclosing information about SMRs to external bodies other than AUSTRAC. However, reporting entities are exempt from this 'tipping off' provision if they disclose illegal or suspected illegal activity to government bodies other than AUSTRAC (including state or territory agencies or authorities) and:

  • the disclosure complies with a requirement under a law of the Commonwealth, a state or a territory, or
  • the disclosure is to an Australian government body responsible for law enforcement; for example, the Australian Federal Police.

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When must a reporting entity provide further information about an SMR?

AUSTRAC (and officials of certain AUSTRAC partner agencies in certain circumstances) can issue a written notice to a reporting entity (or any other person), requiring it to produce further information about an SMR submitted to AUSTRAC. This may be information the entity has about the customer or a particular transaction that can assist in an investigation (for example, account information, customer details or a statement of transactions).

A reporting entity failing to comply with such a notice may incur a civil penalty.

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Is information reported in an SMR admissible as evidence in court or tribunal proceedings?

In most cases, information about forming a suspicion or reporting an SMR to AUSTRAC is inadmissible as evidence in court or tribunal proceedings. However, an SMR can be used in criminal proceedings for certain AML/CTF Act offences, including tipping off (section 123) and providing false and misleading information offences (section 136).

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Additional information

For more information, please see:

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Last modified: 17/08/2015 10:37