House of Representatives

Explanatory Memorandum

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

GENERAL OUTLINE

1. The Bill amends the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act), the Australian Federal Police Act 1979 (AFP Act), the Criminal Code Act 1995 (Criminal Code), the Inspector-General of Intelligence and Security Act 1986, the Proceeds of Crime Act 2002, and the Surveillance Devices Act 2004.

2. The Bill implements a second 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 former Minister for Justice, the Hon Michael Keenan MP, tabled the Statutory Review Report in Parliament on 29 April 2016.

3. Together with the Financial Transaction Reports Act 1988 (the FTR Act), the AML/CTF Act provides the basis for regulation of certain businesses by the Australian Transaction Reports and Analysis Centre (AUSTRAC). AUSTRAC is Australia's financial intelligence unit and anti-money laundering and counter-terrorism financing (AML/CTF) regulator. The regulatory framework established under the AML/CTF Act and FTR Act provides for the collection of information from the private sector and from inbound and outbound travellers about the movement of money and other assets. AUSTRAC shares this information with Commonwealth, State and Territory agencies, and AUSTRAC's international counterparts, in order to combat money laundering, terrorism financing and other serious crimes.

4. The Bill contains a range of measures to strengthen Australia's capabilities to address money laundering and terrorism financing risks, and generate regulatory efficiencies, including 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 on 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 assessments 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 support combatting 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

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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.

5. The Bill also expands the rule-making powers of the Chief Executive Officer of AUSTRAC (AUSTRAC CEO) across a number of areas. The Anti-Money Laundering and Counter-Terrorism Financing Rules Instrument 2007 (No. 1) (AML/CTF Rules) are legislative instruments within the meaning of section 8 of the Legislative Instruments Act 2003. Accordingly, AML/CTF Rules must be tabled in Parliament and are subject to disallowance by either House.

6. The Bill amends the 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.

7. This measure will also ensure that police awards attract similar protections to service decorations awarded to members of the Australian Defence Force under subsection 80B(1) of the Defence Act 1903.

FINANCIAL IMPACT STATEMENT

8. The Bill will be implemented within existing resources.

REGULATION IMPACT STATEMENT

9. A Regulation Impact Statement has been developed in relation to the Bill. The Regulation Impact Statement is at Annexure A.

10. The AML/CTF Act requires reporting entities to identify and verify their customers through customer due diligence (CDD) procedures, which represents a major component of AML/CTF compliance costs. The Bill will provide reporting entities with further options to rely on CDD procedures undertaken by a third party. These options could reduce the time involved in identifying each customer by 66% and the cost of verifying each customer by 80%. This is expected to deliver significantly reduced compliance costs and an estimated regulatory saving of $3,107,229,243 over ten years.

11. The other measures in the Bill will have either a neutral or low regulatory impact.