Overview
The Anti-Money Laundering / Counter-Terrorism Financing (AML/CTF) Act was introduced in December 2006 and is aimed at addressing money laundering in Australia and the threat to national security caused by the financing of terrorism.
The purpose of the reforms within the AML/CTF Act is the regulation of financial transactions in a way that will help detect and prevent money laundering and the financing of terrorism. The new regulations have been designed to bring the Australian Financial Services Industry into line with international best practice in detecting and deterring money laundering and the financing of terrorism.
The Problem
People commit crimes for financial gain, and they need to “clean” the funds derived from such crimes (ie: make those funds appear legitimate) in order to use them. If they are successful in doing that, they potentially suffer no consequences from their crime, and are free to enjoy their financial proceeds. If you can make laundering more difficult for people, then you can help prevent financially motivated crimes. Similarly, terrorist organisations need to hide the nature of their “business” and transactions in order to operate secretly.
Money Laundering
There are three main steps to Money Laundering.
- Placement
- Layering
- Integration
Placement refers to placing the illegal funds into the financial system. This is the stage, the money is still considered “dirty”. Examples of placement include paying cash:
- Into a bank account
- For an asset (car, house, boat, etc)
- For an investment or insurance product
- For portable objects that store value (e.g. cheques, gold bullion, precious gems)
Layering is basically moving the ‘placed’ money around so that the audit trail becomes confusing and difficult to trace. Examples of layering include:
- Transferring funds between accounts
- Transferring funds overseas (particularly into jurisdictions with lax AML/CTF controls and/or strict bank secrecy laws which make it difficult to investigate accounts held there)
- Paying for investment or insurance products via electronic transfer or cheque
- Transferring the apparent ownership of the funds to shell companies, trusts or associates.
Integration is the point at which the successfully laundered funds are ‘clean’ and are spent by the criminal either on his/her lifestyle, on legitimate investments or on future illegal activities.
Listed below are a few methods and vehicles that are known to be used for money laundering.
Shell companies and trusts: A shell company is one that only exists on paper. It doesn’t trade or own any assets. They are sometimes set up and used for money laundering as they have relatively low reporting requirements and it is possible to disguise the identity of the person controlling the funds. Trusts are another vehicle which can be used to disguise the true beneficiary of funds.
Cash Intensive Businesses: Businesses where legitimate customers usually pay in cash are sometimes used as fronts for criminal enterprises and money laundering. Examples include:
- Cafes, restaurants and bars
- Clubs and pubs, especially those with gaming machines.
Through these cash intensive business, illegitimate funds can be mixed with legitimate funds to hide their real source.
Offshore Jurisdictions: Some countries have one or more of the following characteristics that are attractive to money launderers:
- Strict bank secrecy laws: this means that it is difficult for investigators to gain information about account holders and account activity.
- Lax AML/CTF regimes: some countries’ AML/CTF programs are not very effective and fail to identify money laundering activities.
- Tax havens: money earned in these countries is not subject to tax and the associated reporting.
False Invoices: A funds transfer, for example from one business account to another, could be explained as ‘payment due’ for an invoice. However, the invoice in question may not be legitimate. It may be either for goods/services that don’t exist, or it may show an inflated price (e.g. $100 per widget, when the widgets are worth 1c each).
For example: ABC Trading Company pays XYZ Consulting for services. The work was never actually done, but $200,000 has changed hands in a way that may not necessarily arouse suspicion.
Multiple Accounts: Operating multiple accounts in different names at multiple institutions is useful at the placement stage of money laundering. Whilst an individual account may not be suspicious in and of itself, when all the associated accounts are identified as part of one ‘operation’, laundering may become apparent.
Multiple accounts can also be used for the layering stage. As illegal money is transferred from one account to another, and potentially mixed with legally earned money, the audit trail becomes more complex and more difficult to trace and untangle.
False identities: Identity fraud has been identified as a major contributor to contemporary money laundering efforts. The technique of using a false identity has obvious benefits in the concealment of the true beneficiary of proceeds of crime.
Using intermediaries: Finance and legal professionals (eg: solicitors, accountants) can be used by criminals attempting to launder their funds as a way to:
- Conceal their own identity: this may be achieved through the solicitor or accountant performing transactions from their own business accounts.
- Exploit a professional reputation: the criminal assumes that a solicitor or accountant will be less likely to be questioned or investigated than them.
The professional may be corrupt themselves, or may be an unwitting participant in the activity.
Terrorism Financing
While money laundering is concerned with the source of funds, terrorism financing is essentially concerned with the destination of funds. Nevertheless, both money laundering and terrorism financing follow a substantially similar process – this is particularly so where terrorist acts are being financed using ‘dirty’ money.
Assuming the initial money is legitimate (such as charitable donations or money earned from employment or legitimate businesses), it is entered into the financial system and the layering that takes place disguises the end destination of funds, not the origin.
Customers should never be directly confronted about the fact that one of their transactions appears strange, unusual, or out of character. Alerting someone to the fact that they have raised a suspicion may lead to “tipping off”; an offence under the AML/CTF Act.
In addition, the person may already be being ‘watched’ or investigated for money laundering or terrorism activities, and a ‘bigger picture’ may unfold when numerous reports about the person are put together.
What You Must Do
As an agent of the St.George Group, you are required to conduct “Know Your Customer” (KYC) identification and verification. KYC includes collecting and verifying identification information from customers. Click here to find out what St.George will be changing.
Risks and Consequences for the St.George Group
AUSTRAC anticipates that most businesses and individuals will endeavour to comply with the requirements of the AML/CTF Act. AUSTRAC has a broad range of enforcement powers, including criminal prosecutions, civil penalty orders, remedial directions and written undertakings, and failure to adhere to the legislation may result in imprisonment for individuals, and fines for individuals and corporations.
The possible criminal penalties for individuals include imprisonment for up to 10 years, and fines of up to $1.1 million, and a contravention of a civil penalty provision may attract a penalty of up to $11 million for a corporation and up to $2.2 million for an individual.
St.George Group AML/CTF Policy
St.George is committed to complying with the letter and the spirit of the AML/CTF legislation. We have developed an AML/CTF policy which clearly sets out our approach to the identification, mitigation and management of the risks that we can reasonably anticipate. In approving, implementing and formally adopting this Policy, our objectives are to:
- Establish the core principles that guide the way we identify, manage and mitigate the risk of money laundering or terrorist financing occurring through our Group;
- Ensure that we meet our legal and regulatory obligations, and that our staff are trained to comply with these requirements; and
- Oppose the crimes of money laundering and terrorism financing to protect our Group, our staff and our shareholders from the reputational damage, regulatory intervention and potential financial penalties attached to non-compliance with legislative AML/CTF obligations.
Core AML/CTF Principles for the St.George Group
Our Group’s approach to AML/CTF issues is centred on the following core principles:
- We oppose the crimes of money laundering and terrorist financing and do not tolerate the use of our products and services for either of these purposes;
- We report any activity that we detect which falls within the scope of the AML/CTF Act to the AUSTRAC CEO;
- We are committed to complying with the letter and the spirit of all the AML/CTF laws of the countries where we have permanent places of business;
- We will seek to provide our products and services only for legitimate purposes to customers whose identities we have been able to reasonably ascertain;
- We will seek to avoid relationships with those that we reasonably assess as posing an unacceptable risk of money laundering or terrorist financing, and we will assess the viability of maintaining ongoing relationships with customers that fit this criteria;
- We will not tolerate behaviours that compromise our Group’s compliance with AML/CTF legislation;
- Our staff will be assigned clear AML/CTF responsibilities, relevant to their respective roles and areas, as appropriate;
- Our staff will receive the AML/CTF training they need to understand and fulfil their obligations under the AML/CTF legislation and our Group AML/CTF Program;
- We will monitor, measure and report compliance with our Group AML/CTF Program, and take corrective actions as necessary; and
- We will manage changes to our products, business processes and systems to ensure that money laundering and terrorist financing risks are identified and managed.
Implementation
St.George’s new AML/CTF processes for Customer Identification and Verification – called “Know Your Customer” (KYC) will be effective from 16 November 2008.
The main impact on brokers will be changes to the documentation and procedures for on-boarding new-to-bank customers for the St.George Group.
What will be changing?
- The FTRA 100 point system for identifying personal customers will be replaced by a more robust ‘Know Your Customer’ 2 forms of identification. Refer to new ‘Identification Verification Details - Individual’ form for more information.
- There will be changes to the information and documentation required for businesses (eg; companies and trusts) such as recording the beneficiaries of trusts and the identification of all trustees. Refer to the applicable sections of the new ‘Loan Application’ forms for more information.
- The ‘Identification Reference’ form used for the non face-to-face identification of personal customers will be replaced by the attached ‘Certified Identification (CID)’ form. This requires certified copies of the customer’s identification and the certifier to record their details on the new form.
- PO Boxes will not be allowed for residential addresses or principal place of business addresses. PO Boxes will still be allowed for postal addresses.
Where do I find out more information on these changes?
If you have any questions or would like to find out more information, please contact Mortgage Central on 1300 137 532.
.gif)