House of Representatives

Explanatory Memorandum

(Circulated by authority of the Minister for Home Affairs, the Honourable Peter Dutton MP)

Statement of Compatibility with Human Rights

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

Anti-Money Laundering and Counter-Terrorism Financing and Other Legislation Amendment Bill 2019

1. The Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

Overview of the Bill

2. The Bill amends the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act) and the Criminal Code Act 1995 (Criminal Code) and makes minor consequential amendments to a number of other Acts.

3. The Bill implements the next phase of reforms arising from the recommendations of the Report on the Statutory Review of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 and Associated Rules and Regulations (the Statutory Review Report). The then Minister for Justice, the Hon Michael Keenan MP, tabled the Statutory Review Report in the Parliament on 29 April 2016. The Anti-Money Laundering and Counter-Terrorism Financing Amendment Act 2017, which received Royal Assent on 13 December 2017, implemented the first phase of reforms arising from the recommendations of the Statutory Review Report.

4. The Bill will also address some of the deficiencies identified by the Financial Action Task Force (FATF) in its mutual evaluation report (MER) on Australia's anti-money laundering and counter-terrorism financing (AML/CTF) regime in 2015. The FATF is an inter-governmental body, which sets the standards for, and promotes effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system. The MER details the outcomes of the FATF's assessment of Australia's compliance with the FATF standards.

5. The AML/CTF Act provides the basis for regulation of certain businesses (reporting entities) by the Australian Transaction Reports and Analysis Centre (AUSTRAC). AUSTRAC is Australia's financial intelligence unit and AML/CTF regulator. The regulatory framework established under the AML/CTF Act provides for the collection of information from the private sector and from in and outbound travellers about the movement of money and other assets. AUSTRAC shares this information and associated financial intelligence with government agencies in an effort to combat money laundering, terrorism financing and other serious crimes.

6. The Bill contains a range of measures to strengthen Australia's AML/CTF regime, and generate regulatory efficiencies. It includes amendments to:

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expand the circumstances in which reporting entities may rely on customer identification and verification procedures undertaken by a third party

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explicitly prohibit reporting entities from providing a designated service if customer identification procedures cannot be performed

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strengthen protections around correspondent banking by:

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prohibiting financial institutions from entering into a correspondent banking relationship with another financial institution that permits its accounts to be used by a shell bank, and

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requiring banks to conduct due diligence before entering, and during, all correspondent banking relationships

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expand exceptions to the prohibition on tipping off to permit reporting entities to share suspicious matter reports (SMRs) and related information with external auditors, and foreign members of corporate and designated business groups

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provide a simplified and flexible framework for the use and disclosure of financial intelligence to better align with existing operational practice used to combat money laundering, terrorism financing and other serious crimes

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create a single reporting requirement for the cross-border movement of monetary instruments including physical currency and bearer negotiable instruments (BNIs)

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address barriers to the successful prosecution of money laundering offences by:

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clarifying that the existence of one Commonwealth constitutional connector is sufficient to establish an instrument of crime offence, and

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deeming money or property provided by undercover law enforcement as part of a controlled operation to be the proceeds of crime for the purposes of prosecution.

7. The Bill also amends the Australian Federal Police Act 1979 (AFP Act) to make it an offence for a person to dishonestly represent that a police award has been conferred on them. The introduction of this offence will preserve the significant honour associated with receiving a police award. These awards recognise the outstanding contribution that individuals make to their community and should be respected accordingly.

8. Proposed section 62 of the AFP Act provides that the offence only applies to dishonest representations, which ensures that a balance is struck between punishing individuals who unjustifiably represent themselves as a recipient of a police award while allowing individuals who have not received an award to wear these awards in permissible circumstances without committing an offence.

9. The definition of dishonesty at proposed subsection 62(3) means dishonest according to the standards of ordinary people and known to the defendant to be dishonest according to the standards of ordinary people.

10. Pursuant to this definition, a person would not be considered to have dishonestly represented that a police award has been conferred on them where they wear this award in permissible circumstances, for example:

i.

in a dramatic presentation, such as a film, to convey that a fictional person is the recipient of the award, or

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to honour a deceased family member, close relative or colleague who was the true recipient of the award.

11. However, a representation will be dishonest if a person falsely represents that they received a police award to secure employment or to increase their standing in the community.

Human rights implications

12. The Bill engages the following human rights:

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the right to freedom of expression in Article 19(2) of the International Covenant on Civil and Political Rights (ICCPR), and

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the right to privacy in Article 17 of the ICCPR.

Right to freedom of expression

13. The Bill engages the right to freedom of expression in Article 19(2) of the ICCPR by amending the existing 'tipping off' offence in section 123 of the AML/CTF Act, which prevents a person disclosing SMRs and related information.

14. Article 19(2) of the ICCPR provides that everyone has the right to freedom of expression, including the freedom to impart information and ideas of all kinds, including orally, in writing or through any other media. Article 19(3) provides that the right to freedom of expression may be limited where it is prescribed by law and necessary to respect the rights or reputations of others, or to protect national security. To the extent that a person is prevented from disclosing that a SMR has been made, and that disclosure would otherwise have been an expression or opinion about the subject of the SMR, the right to freedom of expression in Article 19 may be limited.

15. The 'tipping off' offence has been in the AML/CTF Act since it came into force in 2006 and is a requirement for compliance with Recommendation 21 of the FATF standards. The purpose of the offence is to safeguard against a person within a reporting entity 'tipping off' a customer that the suspicious activity the customer has engaged in has been or will be reported. The offence addresses concerns that if a customer became aware of such a SMR, they may stop or further disguise their illegal conduct. This would undermine the efforts of law enforcement to detect and disrupt money laundering, terrorism financing, or other serious crimes.

16. Therefore, in addition to ensuring compliance with international standards, prohibiting the sharing of this information is reasonable and necessary to protect national security.

17. There are a number of exceptions to the 'tipping off' offence listed in section 123 which ensure the limitation on the right to freedom of expression is proportionate. The exceptions allow disclosure of SMRs and related information for the purposes of:

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crime prevention

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obtaining legal advice

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operation of Part 4 of the Charter of the United Nations Act 1945

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informing members of a corporate group or designated business group about the risks involved in dealing with a customer

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disclosing to a registered remittance network provider or its affiliate

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disclosing to an owner-managed branch of an authorised deposit-taking institution

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compliance with the law or law enforcement, and

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giving effect to the AML/CTF Act or the Financial Transaction Reports Act 1988 (FTR Act).

18. The existing prohibition in section 123 will not substantially change but will be simplified to avoid confusion that makes the provision difficult to apply in practice. The amendment limits the right to freedom of expression in a proportionate way to clarify misunderstandings and confusion among reporting entities.

19. The Bill will simplify the 'tipping off' offence by clarifying that a reporting entity must not disclose to a person (other than the AUSTRAC CEO or the staff of AUSTRAC) that a SMR has been given or is required to be given to AUSTRAC, or any information from which a person could reasonably infer that a SMR has been or is required to be given. The requirement to report a SMR to AUSTRAC is triggered if any of the conditions specified in section 41 of the AML/CTF Act are satisfied.

20. The existing exceptions will continue to apply. The Bill will add two further exceptions that allow reporting entities to provide SMRs and related information to:

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auditors for the purposes of an audit or review of the reporting entity's AML/CTF program, and

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foreign members of a corporate group or designated business group for the purposes of informing them about the risks involved in dealing with a customer.

21. The disclosure of information in the above circumstances will be subject to certain privacy safeguards.

22. To the extent that the 'tipping off' offence limits the rights of a person to impart information orally, in writing, or through any other media, the limitation is reasonable, necessary and proportionate in order to achieve the legitimate objective of protecting public order and national security.

23. The Bill also engages Article 19(2) by amending the offence created at proposed section 62 of the AFP Act to the extent that it criminalises the conduct of a person dishonestly representing himself or herself as a person onto whom a police award has been conferred.

24. The freedom of expression is restricted in order to respect and protect the rights and reputation of legitimate recipients of police awards and the rights of others to wear these awards in permissible circumstances. The restriction is provided by law through the introduction of the offence. The creation of the offence achieves the legitimate objective of criminalising the dishonest representation that a police award has been conferred on the person. This conduct undermines the prestige of being awarded a police award and damages the reputation of persons who have been rightfully conferred such an award.

25. The offence is necessary as there is currently no offence criminalising the dishonest representation of a police award, allowing individuals to dishonestly wear these awards without criminal penalty. It is also proportionate to the legitimate and specific purpose of the offence, as the dishonesty element strikes a balance between punishing individuals who unjustifiably represent themselves as a recipient of a police award while allowing individuals who have not received an award to wear these awards in permissible circumstances without committing an offence.

26. Further, the offence aligns with similar protections for Australian Defence Force service awards under subsection 80B(1) of the Defence Act 1903. Therefore, this offence reflects existing community standards that the improper use of service awards should attract a criminal penalty.

27. To the extent that this offence limits the right to the freedom of expression, it is therefore necessary and proportionate to achieving the legitimate objectives of preserving the integrity of police awards while promoting the rights of persons, both recipients and non-recipients, to use these awards in permissible circumstances.

Right to privacy

28. The Bill engages the right to privacy in Article 17 of the ICCPR by expanding the:

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exceptions to the 'tipping off' offence

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circumstances in which reporting entities may rely on customer identification and verification procedures undertaken by a third party, and

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purposes for which AUSTRAC information can be disclosed.

29. Article 17 of the ICCPR provides that no one shall be subjected to arbitrary or unlawful interference with their privacy, family, home or correspondence. The use of the term 'arbitrary' means that any interference with privacy must be in accordance with the provisions, aims and objectives of the ICCPR and should be reasonable in the particular circumstances. The United Nations Human Rights Committee has interpreted 'reasonableness' to imply that any limitation must be proportionate and necessary in the circumstances. The right to privacy can be limited by necessity in a democratic society in the interests of national security or public order.

Tipping off offence

30. The existing 'tipping off' offence in section 123 of the AML/CTF Act promotes the protection of privacy and reputation of the person who is the subject of a SMR. The offence recognises that SMRs are inherently subjective given they relate to a suspicion about an individual. This means that reports containing information about a person may be submitted to AUSTRAC even where a customer has not engaged in any wrongdoing. A person's privacy and reputation are protected by ensuring that SMRs and related information are prevented from being disclosed in the public domain. The proposed amendments promote the right to privacy by clarifying and simplifying the circumstances in which a SMR can be disclosed. The Bill will also expand the exceptions to the 'tipping off' offence to address recommendations from the Statutory Review Report. To the extent that the exceptions limit a person's right to privacy, the amendments are necessary, reasonable and proportionate to achieving the legitimate objectives of protecting national security and public order.

31. The first additional exception will allow a reporting entity to disclose SMRs and related information to a person appointed or engaged by the reporting entity for the purposes of conducting an audit or review of the reporting entity's AML/CTF program. An AML/CTF program is a requirement for reporting entities under the AML/CTF Act and ensures that entities identify the money laundering and terrorism financing risks facing their business and document the policies, procedures and controls to mitigate and manage these risks. Under subsection 162(2) of the AML/CTF Act, the CEO of AUSTRAC may direct a reporting entity to appoint an external auditor to conduct an audit of the reporting entity's compliance with the Act.

32. An effective national AML/CTF regime relies on reporting entities complying with the requirements of the AML/CTF Act. Allowing reporting entities to make disclosures of SMRs and related information to auditors and reviewers assists entities to demonstrate compliance with ongoing customer due diligence and enhanced customer due diligence obligations. Promoting compliance with the AML/CTF Act supports collaboration and cooperation between reporting entities and AUSTRAC in efforts to detect, deter and disrupt money laundering, terrorism financing, and other serious crimes. This additional exception to the 'tipping off' offence is therefore reasonable and necessary to protect national security.

33. The Bill also introduces appropriate safeguards and controls to protect the confidentiality of information being disclosed and ensures that the limitation on the right to privacy is proportionate and not arbitrarily applied. The Bill prohibits a person who receives a SMR or related information for the purposes of an audit or review from disclosing to anyone else unless the disclosure is made in connection with the audit or review of the reporting entity's AML/CTF program.

34. The second additional exception will allow a reporting entity to disclose SMRs and related information to a body corporate within the reporting entity's corporate group, or another person with the reporting entity's designated business group, for the purposes of informing them about the risks involved in dealing with a particular customer, subject to certain conditions. This will allow multinational financial institutions to take a global risk management approach to customers who hold accounts in multiple jurisdictions.

35. Sharing information within a corporate group, including to foreign entities, is consistent with the AML/CTF Act's risk-based approach. It provides an opportunity to share information about potential criminal or terrorism-related activity and therefore promotes the objectives of protecting national security and public order. This addresses a current gap where information cannot be shared with foreign members of a corporate group or designated business group, which is detrimental given the global nature of money laundering and terrorism financing and the multinational nature of many reporting entities. This also assists Australia to fulfil its international obligations to combat money laundering and terrorism financing. This 'tipping off' offence exception is therefore reasonable and necessary to protect national security and public order.

36. In order to ensure that the limitation on the right to privacy is proportionate and will not be arbitrarily applied, the Bill also introduces appropriate safeguards and controls to ensure the confidentiality of information being disclosed. The Bill provides that a reporting entity can only share this type of information with foreign members of a corporate group or designated business group that are regulated in a foreign jurisdiction by laws that give effect to some or all of the FATF recommendations. This safeguard ensures that information can only be shared with a foreign member of a corporate group or designated business group that is subject to similar laws as reporting entities in Australia. The foreign member must also provide the reporting entity with written undertakings about protecting the confidentiality of information, controlling the use of such information, and ensuring that the information is only used for the purpose it was disclosed.

37. The Bill also prohibits a reporting entity who has received information under this exception from disclosing it further unless it is to another reporting entity within the corporate group or designated business group for the purposes of informing them about the risks involved in dealing with the particular customer.

38. To the extent that the right to privacy is limited by the additional exceptions to the 'tipping off' offence, the limitations are reasonable, proportionate and necessary to achieve the legitimate objectives of protecting national security and public order.

39. The Bill will also expand the circumstances when a person who has received a section 49 notice can disclose certain information. Under section 49, an entrusted investigating official can request further information from a reporting entity or any other person following a report being submitted under sections 41, 43 or 45. Subsection 123(2) will permit a person to disclose to AUSTRAC, or an entrusted investigating official who has given a section 49 notice, that a notice has been received, that information or a document has been produced under the notice, or any information that could suggest these things have happened. This will avoid duplication of section 49 notices and increase the cooperation between law enforcement and competent authorities when combating money laundering, terrorism financing, or other serious crimes. The limitation on the right to privacy is proportionate as the disclosure of information can only happen to AUSTRAC, or entrusted investigating officials who are officials of Commonwealth agencies. The limitation on the right to privacy is also legitimate as it is authorised by law.

Reliance on customer identification and verification procedures

40. The Bill will insert sections 37A and 37B and replace section 38 of the AML/CTF Act to expand the circumstances in which reporting entities may rely on the applicable customer identification procedures undertaken by a third party. This will include the exchange of personal information including transactional information. These measures address a recommendation from the Statutory Review Report to ensure that Australia is consistent with the FATF Standards.

41. Expanding the circumstances for reliance will facilitate more efficient information sharing between reporting entities and other bodies to ensure the proper identification of customers. This supports cooperation and collaboration to detect, deter and disrupt money laundering, terrorism financing, and other serious crimes.

42. The limitation on the right to privacy is proportionate and not arbitrary as there are appropriate safeguards and controls in the Bill. All reporting entities are subject to the Privacy Act 1988 and subsequently must abide by the Australian Privacy Principles. Other safeguards include requiring an agreement or arrangement to exist between entities before reliance can occur, which must accord with the requirements specified in the Anti-Money Laundering and Counter-Terrorism Financing Rules Instrument 2007 (No. 1) (AML/CTF Rules). The relying reporting entity must also regularly assess the agreement or arrangement and terminate it if, after carrying out an assessment under section 37B, they do not have reasonable grounds to believe that each of the relevant requirements prescribed by the AML/CTF Rules is being met.

43. To the extent that a person's right to privacy is limited by the sharing of personal information to allow a reporting entity to rely on customer identification undertaken by a third party, the limitations are reasonable, proportionate and necessary to achieve the legitimate objectives of protecting national security and public order.

Disclosure of AUSTRAC information

44. The Bill will significantly simplify and consolidate provisions within existing Part 11 of the AML/CTF Act which deal with secrecy of, and access to AUSTRAC information. The Bill will amend the definition of AUSTRAC information to include information obtained by a person, or generated by a person, in their capacity as an AUSTRAC entrusted person or 'FTR information' as defined in the FTR Act. AUSTRAC information includes sensitive personal information, SMRs and related information.

45. The overall amendments introduced by the Bill simplify and consolidate provisions to reduce complexity in Part 11 and address a recommendation from the Statutory Review Report. The substantial changes to the information-sharing framework are to:

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expand the offence to prohibit an AUSTRAC entrusted person from unlawfully accessing, making a record of, authorising access to or otherwise using AUSTRAC information

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allow a SMR or related information to be adduced as evidence in criminal proceedings under sections 121, 123, 126, 128, 129, 136, 137, 161, 162, 165 and all civil proceedings under section 175

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allow the AUSTRAC CEO to authorise specified officials of Commonwealth, State or Territory agencies to access AUSTRAC information rather than specifying each as a 'designated agency' in the AML/CTF Act

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expand the offence for an official of a Commonwealth, State or Territory agency to prohibit the unlawful use of AUSTRAC information

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expand the ability of government agencies to share AUSTRAC information with a foreign agency

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introduce an offence prohibiting a person who is disclosed AUSTRAC information unlawfully from making a record of, disclosing or otherwise using that information

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introduce a power for the AUSTRAC CEO to impose conditions on certain persons who have received AUSTRAC information

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provide the ability for an AUSTRAC official to disclose AUSTRAC information to a Minister for performance of their responsibilities, and

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provide the ability for a member of a taskforce that is established by the AUSTRAC CEO to deal with AUSTRAC information in the same way an AUSTRAC official can deal with AUSTRAC information.

46. The proposed amendments engage the right to privacy in Article 17 of the ICCPR. However, they pursue the legitimate objective of protecting national security and public order. The amendments are also proportionate as they are limited to the sharing of information about potentially criminal or terrorism-related activity for law enforcement purposes. They are also limited through the various safeguards provided by the Act such as the AUSTRAC CEO imposing conditions on the use of AUSTRAC information that is disclosed to certain people, and government agencies requiring undertakings from foreign agencies on how they will protect the confidentiality of AUSTRAC information disclosed to them. The measures do not constitute a radical departure from current information-sharing practices under the AML/CTF regime, and are necessary to strengthen the sharing of financial intelligence between competent authorities. This enhanced capacity to share information will help government agencies to better combat money laundering and terrorism financing and assist Australia to fulfil its international obligations. The Bill will enhance the AUSTRAC CEO's ability to carry out his or her legislative functions to:

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retain, compile, analyse and disseminate AUSTRAC information

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provide access to and share AUSTRAC information to support domestic and international efforts to combat money laundering, terrorism financing and other serious crimes, and

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provide advice and assistance to the persons and agencies entitled or authorised to access AUSTRAC information under Part 11.

47. To the extent that a person's right to privacy is limited by the sharing of AUSTRAC information, the limitations are reasonable, proportionate and necessary to achieve the legitimate objectives of protecting national security and public order.

Conclusion

48. The Bill is compatible with human rights because, to the extent that it may limit human rights, those limitations are reasonable, necessary and proportionate.