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AML reform remains in limbo

AML reform remains in limbo

THE FEDERAL Government’s reform of Australia’s anti-money laundering (AML) legal framework remains in limbo, with a rumoured February release date for draft legislation set to slip.A…

THE FEDERAL Government’s reform of Australia’s anti-money laundering (AML) legal framework remains in limbo, with a rumoured February release date for draft legislation set to slip.

A spokesperson for Senator Chris Ellison, minister of justice, told Lawyers Weeklys sister publication Risk Management magazine that no timetable has been set for the release of the expected exposure draft. He did confirm that the draft is still being finalised.

Sources said the Government has been privately touting a late February release date for the exposure draft, but added that given the number of government agencies involved and the level of stakeholder lobbying in progress, meeting that deadline is unlikely.

The Government’s draft legislation for reform of the anti-money laundering legal framework has been dogged with delays since it was announced in December 2003. The Federal Government was initially planning to get draft legislation in place by May 2004, a deadline which slipped. A policy principles document was published in June 2004, but that was the Government’s last communication on AML reform. However, the exposure draft must be released by mid-March to avoid a potentially embarrassing incident.

“We’ve got the International Monetary Fund/World Bank financial system assessment in March and there is almost no doubt that unless we have a draft exposure bill in place by then, there will be a negative assessment on the money laundering front,” said Tim Phillipps, national leader, Deloitte Forensic. “In my opinion I would expect that the Government would have the exposure bill released in time.”

The reasons for the delay are not clear, but experts said it is most likely being caused by a combination of ensuring the legislation is appropriate and accommodating the wide ranging demands of stakeholders, which include banks, financial services firms, insurers, legal professionals, accountants, and real estate dealers amongst others.

“It’s a desire to get it reasonably right and to pay attention to some of the stakeholders,” said Phillipps. “When you are dealing with the big banks and financial institutions then you are talking about important players in the financial system of Australia. Normally at this time, the legislation would be discussed amongst the agencies that are responsible for regulating it - Austrac, the Federal Police, the Crime Commission and so on. Anyone who has some kind of input would be considering whether it is regulatable and enforceable. It depends on how active those agencies are as to the timeframe.”

Although the banking and financial services sectors are likely to be better prepared than most due to international regulations, there is still a lot of work to be done with Australian banks facing a hefty bill for ‘know your customer systems’ and transaction monitoring and methodologies.

Meanwhile, other stakeholding bodies have been lobbying for their interests to be represented in the exposure draft. “We are seeing a lot of lobbying coming from non-financial institutions around third-party reliance on banking clients,” said one official with knowledge of the legislation process. “For example, a legal firm being able to say we don’t have to identify a customer as long as they give us their bank account details because the bank will have identified them and we can rely on that and that should be enshrined in the law. You can imagine the banks’ view of that.”

The Institute of Chartered Accountants Australia (ICAA) is also lobbying for third party verification. “While the ICAA supports the initiative, which is part of an international strategy to combat money laundering and the financing of terrorism, it is concerned the financial and administrative burden will severely impact the accounting profession, especially with regards to customer due diligence. In this instance, the ICAA argues that banks or other financial institutions have already vetted most clients, and the legislation, in this form, gives no provision to acknowledge this prior verification.”

The Securities Institute of Australia, which represents the financial services industry has concerns over the lack of detail issued so far, adding that it sees the AML reforms as rivalling the Financial Services Reform Act in terms of compliance efforts. It wants details on the additional reporting and identification requirements.

The sheer raft of lobbying has led to speculation that the exposure draft could see the proposals watered down so much that compliance with the Financial Action Task Force’s (FATF’s) 40 recommendations on anti-money laundering — the original reason for the reforms — could be jeopardised.

“There have been a lot of rumours about watering down,” said Phillipps. “There has been a lot of stakeholder lobbying. There are a lot of people positioning themselves to try and get the best deal out of the draft exposure bill. The Government is very conscious of reducing the regulatory burden on small business so they will be looking at the impact on small players [more] than big players, but I wouldn’t say there will be a wholesale watering down. The reality is that the FATF 40 recommendations are there and unless you meet a large portion of those you don’t comply.”

Stuart Fagg is the Editor of Risk Management magazine, Lawyers Weeklys sister publication.

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