Understanding the Anti-Money Laundering and Counter-Terrorist Financing Rules

The Anti-Money Laundering and Counter-Terrorist Financing Act 2006 (AML/CTF Act) is designed to prevent criminals from using banks, financial institutions, and other businesses to hide their ill-gotten gains. The purpose of the Act is to stop criminals from using the financial system for criminal activity, such as drug trafficking and money laundering. In this article, we’ll look at the rules you need to follow and the measures you need to put in place to achieve compliance.

What do we mean by money laundering and terrorist financing?

Money laundering is the process of making illegally obtained money appear to have been gained through legal means. Terrorist financing is the process of making illegally obtained money look legitimate for the purpose of supporting terrorism.

What are the Anti-Money Laundering and Counter-Terrorist Financing (AML/CTF) Rules?

The Anti-Money Laundering and Counter-Terrorist Financing Rules are a set of legislative requirements that apply to reporting entities. They are contained in the Anti-Money Laundering and Counter-Terrorist Financing Act 2006 (AML/CTF Act). An overview of the AML/CTF rules and their key terms and concepts are set out in the Anti-Money Laundering and Counter-Terrorism Financing Rules Instrument 2007 (No. 1).

The AML/CTF rules in Australia impose a number of regulatory requirements including conducting customer due diligence checks (CDD) when onboarding new customers and monitoring customer accounts for suspicious activity that could be linked to money laundering. The AML/CTF rules also impose reporting obligations on financial institutions including Threshold Transaction Reports (TTR) and Suspicious Matter Reports (SMRs).

Onboarding and Monitoring

Reporting entities must carry out CDD and KYC checks when onboarding customers to verify each customer’s identity and establish the level of risk they present.

Ongoing monitoring must also be conducted to identify whether a customer’s risk profile has changed over time. Beyond identify verification, this should include:

  • Politically Exposed Person (PEP) Screening: Checking whether a customer or beneficial owner is a politically exposed person and therefore at higher risk of money laundering.
  • Adverse Media Screening: Monitoring news media for reports that might link customers to serious crimes such as money laundering, fraud, or drug trafficking.

Firms must also monitor accounts for suspicious activity such as:

  • Transactions that involve an unusually large amount of money (AUD10,000 or more).
  • Transactions that are complex have no clear purpose.
  • Material changes in behaviour, for example, a sudden increase in deposit frequency.
  • International funds transactions into and out of countries at a high risk of money laundering.

Reporting Suspicious Activity

The AML/CTF Act 2006 imposes reporting rules for the following types of activity:

Reporting threshold: When handling transactions of AUD10,000 or more (or an equivalent amount in foreign currency), firms must submit a Threshold Transaction Report (TTR) to AUSTRAC within 10 business days of the transaction date.

International funds transfers: When funds of any amount are transferred into or out of Australia, either electronically or via a designated remittance agreement, firms must submit an international funds transfer instruction report (IFTI) to AUSTRAC within 10 days of the transaction.

Suspicious matters: When customers engage in any kind of suspicious activity, firms must submit a suspicious matter report (SMR) to AUSTRAC within 72 hours of detecting the suspicious activity (or 24 hours if it relates to terrorism).

Cross border movement: When customers move physical currency in amounts of A$10,000 or more (or an equivalent amount of foreign currency) into or out of Australia, firms must submit a cross border movement (CBM) report within 5 business days to AUSTRAC.

When do the AML/CTF Rules apply to reporting entities?

The Anti-Money Laundering and Counter-Terrorist Financing Rules apply to all reporting entities. A reporting entity is any person that provides a designated service or any other person who carries out a service that has the characteristics of a designated service. The full list of designated services is outlined in the AML/CTF 2006 Act.

How do the AML/CTF Rules support compliance?

The AML/CTF Rules support compliance by providing a set of minimum standards to help reporting entities identify, assess, and mitigate money laundering and terrorist financing risks. They are designed to be flexible, allowing reporting entities to develop their own risk-based approach to compliance.

How OneAML Review Can Help You Comply With The AML Rules in Australia

The Money Laundering and Counter-Terrorist Financing Rules are an important part of protecting the integrity of the Australian financial system. They also help protect the security of Australia’s community, economy, and international reputation.

If you’re a reporting entity that provides any designated services listed under section 6 of the AML/CTF Act 2006, it’s important that you understand what these rules mean for your business and how you can comply with them. As experienced AML/CTF consultancy experts, we can help you stay up-to-date on the latest rules and regulations, set up the right systems in place to detect suspicious activity, and navigate the complexities of the AML/CTF Act 2006 to make sure your business is compliant.

Book a free 15-minute consultation to see how we can help you comply with the AML/CTF rules here.