House of Representatives

Explanatory Memorandum

(Circulated by authority of the Attorney-General, the Hon Mark Dreyfus KC MP)

SCHEDULE 5 - TIPPING OFF OFFENCE AND DISCLOSURE OF AUSTRAC INFORMATION TO FOREIGN COUNTRIES OR AGENCIES

462. Schedule 5 would reform the offence of tipping off in existing section 123 of the AML/CTF Act so that it is compatible with modern business practice and focussed on harm prevention. The current broad scope of the offence prevents a large range of information sharing for legitimate financial crime prevention purposes, including information sharing that would allow reporting entities to effectively identify, mitigate and manage their risks.

463. The new offence would focus on preventing the disclosure of SMR information or information related to a section 49 or 49B notice where it would or could reasonably prejudice an investigation. The amendments reflect the requirements found in FATF Recommendation 21—financial institutions should be prohibited from disclosing the fact that a suspicious transaction report or related information is being reported to the Financial Intelligence Unit (FIU).

464. Schedule 5 would also make minor amendments to sections 126 and 127 of the AML/CTF Act relating to the disclosure of AUSTRAC information to foreign countries or agencies.

Part 1—Main amendments

Division 1—Tipping off offence

Anti-Money Laundering and Counter-Terrorism Financing Act 2006

Item 1 – Section 5

465. Item 1 repeals the definitions of certain Australian Government agencies in section 5 of the AML/CTF Act as they are no longer required. This amendment is consequential to amendments made to section 127 of the AML/CTF Act by Item 5 of this Schedule.

466. The list of agencies authorised to disclose AUSTRAC information to the government of a foreign country or a foreign agency is currently included in subsection 127(3) of the AML/CTF Act. The current list of eligible agencies includes: the Attorney-General's Department, the Department of Foreign Affairs and Trade, the Australian Federal Police, the Australian Crime Commission, the Australian Prudential Regulation Authority (APRA), the ASIC, the ATO, the Australian Security Intelligence Organisation, the Australian Secret Intelligence Service, the Australian Signals Directorate, the Australian Geospatial- Intelligence Organisation, the Defence Intelligence Organisation and the Office of National Intelligence.

467. This list of agencies would be repealed from the AML/CTF Act and moved into the AML/CTF Rules when they are remade. Moving the list of agencies to the AML/CTF Rules would enable a greater degree of flexibility and would ensure this provision does not easily become outdated and require legislative amendment to correct.

468. Item 1 also repeals the definition of 'corporate group' in section 5 of the AML/CTF Act. This amendment is consequential to amendments made to section 123 in Item 2 of this Schedule, which removes the concept of a corporate group as defined in subsection 123(12) once repealed.

Item 2 – Section 123

469. This Item repeals and substitutes existing section 123 of the AML/CTF Act with a reformed 'Offence of tipping off' framework.

470. New subsection 123(1) provides that it is an offence for a person to disclose information covered by subsection 123(2) to any other person except an AUSTRAC entrusted person, where the disclosure would or could reasonably be expected to prejudice an investigation of an offence against a law of the Commonwealth or of a State and Territory, or an investigation for the purposes of the POCA or a corresponding law of a state or territory. The offence carries a maximum penalty of imprisonment for 2 years, or 120 penalty units, or both.

471. Paragraph 123(1)(a) sets out who may commit an offence of tipping off and captures a person who is or has been one of the following:

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a reporting entity

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an officer, employee or agent of a reporting entity

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a member of a reporting group

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an officer, employee or agent of a member of a reporting group

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required by a notice under subsection 49(1) to give information or produce documents, or

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required by a notice under subsection 49B(2) to give information or produce documents.

472. The inclusion of 'is or has been' in paragraph 123(1)(a) is intended to ensure that even when a person ceases to be a person described in the list that the prohibition on disclosure of information is enduring.

473. Situations where disclosure would or could reasonably be expected to prejudice an investigation include a reporting entity notifying a customer who is the subject of a SMR or their known associate that a suspicion was formed in relation to their behaviour and a SMR has been submitted. This kind of disclosure risks criminals taking action to hide or disguise their illegal activities.

474. Examples of where disclosure of information is not intended to constitute tipping off under the reframed offence include:

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disclosure of information to Australian law enforcement, regulatory or oversight agencies

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disclosure of information in compliance with a requirement under a law of the Commonwealth, a State or Territory

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disclosure of information within a reporting group, or with third party service providers (subject to appropriate safeguards), for the purposes of money laundering and terrorism financing risk management

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disclosure of information in the context of a merger or acquisition, and

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disclosure of information with consultants engaged to support AML/CTF remediation and uplift.

475. The inclusion of 'would or could reasonably be expected to prejudice' in paragraph 123(1)(d) is intended to capture both intentional and reckless disclosures. For example, the offence would cover a disclosure as a result of a lead entity or other reporting entity's failure to develop, implement or maintain appropriate AML/CTF policies to prevent tipping off when sharing within a reporting group.

476. Subsection 123(2) sets out the information that is prohibited from disclosure, including:

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where a reporting entity has given, or is required to give, a report under subsection 41(2)

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a report given under, or prepared for the purposes of, subsection 41(2)

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a copy of such a report

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a document purporting to set out information (including the formation or existence of a suspicion) contained in such a report

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a person is or has been required by a notice under subsection 49(1) to give information or produce a document

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a person has given information or produced a document in response to a notice under subsection 49(1)

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a person is or has been required by a notice under subsection 49B(2) to give information or produce a document

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a person has given information or produced a document in response to a notice under subsection 49B(2), or

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information referred to in paragraphs 16(5A)(a), (b) or (c) or (5AA)(a) or (b) of the FTR Act, as in force immediately before its repeal.

477. Subsection 123(3) provides that for the purposes of paragraph (1)(d), it is immaterial whether an investigation has commenced. This is intended to clarify that a reporting entity does not need to know that an investigation is underway to consider whether the disclosure of the information would or could reasonably be expected to prejudice an investigation.

478. Subsections 123(4) and (5) contain exceptions to the offence.

479. Subsection 123(4) allows legal practitioners, qualified accountants or a person specified in the AML/CTF Rules to disclose SMR-related information where it relates to the affairs of a customer of the reporting entity. The disclosure must be made in good faith and for the purposes of dissuading the customer from engaging in conduct that constitutes, or could constitute, an offence against a law of the Commonwealth or of a State or Territory.

480. For example, in discussions with a client, a legal practitioner or qualified accountant should focus on the client's financial activities and how they could be breaking the law. The reporting entity should try not to disclose that they have submitted, or are required to submit, a SMR. Specifically disclosing that they have or will submit a SMR, would or could reasonably be expected to prejudice an investigation, even if the exception allows it.

481. The note at the end of subsection 123(4) clarifies that a person charged with the tipping off offence bears an evidential burden in relation to a matter in subsection 123(4). Subsection 123(4) implements the Interpretive Note to FATF Recommendation 23—where lawyers, notaries, other independent legal professionals and accountants acting as independent legal professionals seek to dissuade a client from engaging in illegal activity, this does not amount to tipping off.

482. For clarity, the intention is that subsection 123(4) does not permit legal practitioners, qualified accountants or a person specified in the AML/CTF Rules to disclose information referred to in paragraphs 123(2)(e) to (i).

483. Subsection 123(5) provides that the tipping off offence does not apply to the disclosure of information where the disclosure is in line with the regulations, the information is shared between reporting entities and is made for the purpose of detecting, deterring, or disrupting money laundering, the financing of terrorism, proliferation financing, or other serious crimes. It is intended that the regulations would prescribe conditions and appropriate safeguards for reporting entities entering into such information sharing arrangements. Subsection 123(5) is inoperative unless regulations have been made.

484. The intent of subsection 123(5) is to allow the creation of regulations that would establish a framework to enable private-to-private information sharing to detect, deter or disrupt money laundering, terrorism financing, proliferation financing or other serious crimes. Any information sharing arrangement would be subject to appropriate controls and safeguards set out in the regulations. The framework will help break down information silos between reporting entities and support enhanced solutions to managing illicit financing risks.

485. The note at the end of subsection 123(5) clarifies that a person charged with the tipping off offence bears an evidential burden in relation to subsection 123(5).

486. Subsection 123(6) provides that except where it is necessary for the purposes of giving effect to the AML/CTF Act, a person is not to be required to disclose to a court or tribunal information mentioned in subsection 123(2). This section limits the disclosure of such material to a court or tribunal in civil penalty, or certain other proceedings for offences under the AML/CTF Act in order to preserve the overarching intelligence and operational value to AUSTRAC and other criminal investigative agencies of material referred to in subsection 123(2).

Division 2—Disclosure of AUSTRAC information to foreign countries or agencies

Anti-Money Laundering and Counter-Terrorism Financing Act 2006

Item 3 – Paragraph 126(2)(a)

487. Item 3 substitutes existing paragraph 126(2)(a) of the AML/CTF Act. This amendment is intended to clarify the intended operation of sections 126 and 127. Section 126(2) clarifies that when a Commonwealth, State or Territory agency intends to share information with a foreign government or foreign agency they should rely on the exception under paragraph 126(2)(d) and share the information in accordance with section 127 (even where the offshore disclosure of AUSTRAC information is for the purposes of the performance of a person's functions, duties or powers as an official of a Commonwealth, State or Territory agency).

488. Item 3 repeals and replaces existing paragraph 126(2)(a) so that the offence in subsection 126(1) does not apply where:

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the making of the record, disclosure or use is for the purposes of, or in connection with, the performance or exercise of the person's functions, duties or powers as an official of a Commonwealth, State or Territory agency, and

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the disclosure is not to the government of a foreign country or to a foreign agency.

489. This amendment is intended to clarify that paragraphs 126(2)(a) and 126(2)(d) are alternatives and that paragraph 126(2)(a) should not be relied upon when seeking to disclose information to the government or a foreign country or to a foreign agency.

Item 4 – Paragraph 127(2)(a)

490. Item 4 is consequential to the amendment made by Item 5 of this Schedule. It provides that a person who is the head (for example, CEO, Secretary or however described) of a Commonwealth, State or Territory agency prescribed by the AML/CTF Rules may disclose AUSTRAC information to the government of a foreign country or to a foreign agency.

Item 5 – Subsection 127(3)

491. Item 5 repeals the list of agencies, authorities, bodies or organisations of the Commonwealth authorised to disclose AUSTRAC information to the government of a foreign country, or to a foreign agency under subsection 127(3). This list is intended to be moved into the AML/CTF Rules when they are remade. Moving the list of agencies to the AML/CTF Rules would enable a greater degree of flexibility and would ensure this provision does not easily become outdated and require legislative amendment to correct.

Item 6 – Subsection 127(4)

492. Item 6 is consequential to the amendment made by Item 5 of this Schedule and would provide that for the purposes of paragraph (2)(b), the head (however described) of a Commonwealth, State or Territory agency prescribed by the AML/CTF Rules for the purposes of paragraph 127(2)(a) may, in writing, authorise an official of the Commonwealth, State or Territory Agency.

Part 2—Contingent amendments

Intelligence Services Legislation Amendment Act 2024

Item 7 – Item 94 of Schedule 1

493. Item 7 is a contingent amendment relating to the relationship between section 123 of the AML/CTF Act, as amended by this Bill, and the Intelligence Services Legislation Amendment Bill 2023, which is currently before Parliament.

494. This Item repeals Item 94 of Schedule 1 of the Intelligence Services Legislation Amendment Act 2024 (ISLA Act) if it commences after the commencement of this Schedule (31 March 2026).

495. If the ISLA Act commences, Item 94 of Schedule 1 of the ISLA Act would insert a new exception to the tipping off offence which would allow a person to disclose SMR or section 49-related information to an official of the Inspector-General of Intelligence and Security (IGIS) for the purpose of the IGIS performing oversight functions.

496. As outlined above, this Schedule of the Bill would wholly replace the tipping off offence at section 123 of the AML/CTF Act with a new reframed tipping off offence that is focussed on preventing the disclosure of SMR information or information related to a section 49 or 49B notice where it is likely to prejudice an investigation

497. Once this Schedule commences, Item 94 of Schedule 1 of the ISLA Act would not be required because disclosure to an IGIS official would be permitted, as it is unlikely to prejudice an investigation.