Obligations of Financial Service Providers in Money Laundering & Statement of Advice

This article discusses the obligations of financial service providers in case of money laundering, including the AML/CTF program, due diligence, reporting obligations, and more. It also covers the statement of advice, which is a document that sets out the advice to a party that needs to take a certain decision.

2 Questions

Table of Contents
MAIN BODY..................................................................................................................................3
Q2. Obligations of Financial Service Providers in case of Money Laundering:.........................3
Q4. Statement of Advice:............................................................................................................5
REFERENCES................................................................................................................................1

MAIN BODY
Q2. Obligations of Financial Service Providers in case of Money Laundering:
Money laundering basically means conversion of illegally earned money to appear as have been
earned from legal sources (Chaikin, 2018). Now there are various parties involved in such money
laundering process and thus to keep a check on the financial service providers Australia’s
AML/CTF regulator – Australian Transaction Reports & Analysis Centre (AUSTRAC) is
responsible. Such financial service providers are called ‘reporting entity’ under the AML/CTF
Act. Following are the obligations that the reporting entities need to meet to minimise money
laundering –
 Compulsory registration with AUSTRAC within a period of 28 days of when a designated
service is provided.
 Implementation of AML/CTF Program which can be of 3 types like Standard program
(applicable to individual reporting entities), Joint program (applicable to those reporting
entities who are members of a ‘designated business group’) and Special program (applicable
only to Australian Financial Services Licence Holder providing a specified designated
service) (Spicer, 2018). It is to be noted that such AML/CTF programs consists of 2 major
parts namely – Part A (includes identifying, managing and reducing the risk of ML/TF which
does not includes operations of special program) and Part B (includes procedures relating to
the identification of the customers commonly known as KYC or know your customer).
 There is a risk involved in such activities therefore, AML/CTF are said to be risk based and
thus designated reporting entities shall know the various risks that they are exposed to while
carrying out their activities of transacting with the customers who have the motive of money
laundering or terrorism financing (Amour, 2019). Such risks can be assessed by taking into
consideration various factors like types of the customers the business have like how much
politically exposed they are, their sources of funds and their wealth, the nature of the
relationship with the business and also the purpose of such business relationship and the
complexity of the structure of the business of the customers of the business, types of goods or
services rendered by the businesses, channel of distribution utilized by the businesses to
provide the goods and services and the geography and the jurisdiction of the area in which
the business is operating.

 Due Diligence of all the customers of the reporting entities is mandatory as mentioned in the
Part B of AML/CTF Program. Such due diligence is to be documented in the form of ‘know
your customer or KYC’ (Goldbarsht, Balasingham and Moller, 2021). The sole purpose of
such due diligence of the customer is identification and verification of the customers to
assess the risk they pose, to decide whether to enter into a business relationship with them or
transact with them and to decide the level of assessment required for such customer.
 Obligations of reporting entities to report various matters to AUSTRAC which are or can be
of concern or suspicion, transactions above the limit of already set threshold, instructions
related to the transfer of funds internationally or globally, movements of goods or services
across the border of the nation and the set compulsory compliance reports of AML/CTF.
 It is mandatory to report transfer of currency A$10,000 or more to AUSTRAC in threshold
transaction report (TTR) and that too within the period of 10 business days from the date of
such transactions. Such reporting will assist AUSTRAC in detecting, deterring and disrupting
of the criminal activities (Bosnic, Moller and Turner, 2021). Such transfer can be both
receiving or paying. In case of splitting of the transactions to avoid the reporting, it can lead
to offence which can be punished in the form of imprisonment of 5 years or penalty of 300
penalty units for individuals and of 1500 units for corporates (Reporting transactions of
$10,000 and over: Threshold transaction reports (TTRs). 2022). In such a case of structuring
a suspicious matter report (SMR) shall be submitted to AUSTRAC.
 Naturally, the reporting entities will be required to maintain various records. Such records
can be of the transactions it enters with and for its customers, records of the identification of
the customers, instructions related to the electronic fund transfer and lastly, information
regarding AML/CTF program for not less than 7 years (Sherchan and et.al., 2020). The
reporting entities is also required to maintain records relating to the providing of the
designated services provided by the reporting entities, training related to the awareness of
risk from the money laundering and terrorism financing and lastly, any modifications or
variations done to the AML/CTF program, if any. Such records shall be maintained as per the
relevant rules, regulations, laws, procedures and guidelines to allow the relevant authorities
to be able to evaluate the records for keeping a check for any suspicious transactions and
information which shows the motive of money laundering.

Q4. Statement of Advice:
Statement of Advice can be defined as a document that sets out the advice to a party that need to
take a certain decision. Such an advice shall include a basis on which such advice is based,
details and information of the entity to whom such advice is being given and information
regarding any benefits that the adviser will be getting on such advancing of the advice. It
basically includes outline or summary of the recommendations provided by any financial
advisers to its customers keeping in mind the objectives and needs of the customers and such a
process starts with an initial meeting with the financial adviser to know the details regarding the
current situation of the customer and the future financial objectives and goals he wants to
accomplish. Such a statement of advice will include various details and will cover various
aspects like review of the cash flow of the customer, recommendation of the strategies for
managing the debts of the customer, reviewing the super and ways for its maximization in the
future, reviewing the planning needs relating to the estate, analysing the personal needs of the
customers relating to the insurance and thereby recommending the most suitable insurance
policies for the same, review of the portfolio of the investments in shares and securities, other
considerations relating to the investments of the customers and providing the recommendations
thereon.
It is advised to the parties to not to be involved in the processes of the money laundering through
its various stage namely – placement, layering and integration. On the basis of various reporting
obligations, it can be recommended that first of all, the parties shall be registered with
AUSTRAC within the given stipulated time period in case of any designated service. Then, the
parties shall provide the details and information required by the reporting entities in any for
whether for KYC or other purposes like nature of business, types of the customers of the
business, their sources of funds, nature of business relationship, purpose of the business
relationship the complexity of the structure of the business, nature of goods or services provided,
channel of distribution implemented by the business, jurisdiction or geographical area in which
the business is operating, etc. (Kute and et.al., 2021). Providing of the information to the
reporting entities under the customer due diligence to assess the risk posed by the party, whether
or not to have a business relationship with the customer, assessing of the level of inspection
required over such a party, etc. Also, it is advised to the parties to maintain true and fair financial
statements and conduct audits at regular intervals with more involvement of the external auditors

to make the financial statements credible and allow recognition of any transactions which are
suspicious of being done with the motive of money laundering.

REFERENCES
Books and Journals
Amour, A., 2019. AML compliance. Agent, The. 52(6). pp.19-20.
Bosnic, M., Moller, J. and Turner, J., 2021. Maintaining anti-money laundering compliance and
reporting suspected proceeds of crime. Australian Restructuring Insolvency &
Turnaround Association Journal. 33(3). pp.10-13.
Chaikin, D., 2018. A critical analysis of the effectiveness of anti-Money laundering measures
with reference to Australia. In The Palgrave Handbook of Criminal and Terrorism
Financing Law (pp. 293-316). Palgrave Macmillan, Cham.
Goldbarsht, D., Balasingham, B. and Moller, J., 2021. Open banking in Australia: competition
and money laundering, risks and benefits. Journal of Banking and Finance Law and
Practice. 32(2). pp.59-73.
Kute, D. V. and et.al., 2021. Deep learning and explainable artificial intelligence techniques
applied for detecting money laundering–a critical review. IEEE Access. 9. pp.82300-
82317.
Sherchan, W. and et.al., 2020, April. Cognitive Compliance: Assessing Regulatory Risk in
Financial Advice Documents. In Proceedings of the AAAI Conference on Artificial
Intelligence (Vol. 34, No. 09. pp. 13636-13637).
Spicer, J., 2018. AUSTRAC and the financial sector-partners in crime prevention: A look into
AUSTRAC's money laundering/terrorism financing risk assessments. Journal of the
Australian Institute of Professional Intelligence Officers. 26(3). pp.3-18.
Online
Reporting transactions of $10,000 and over: Threshold transaction reports (TTRs). 2022.
[Online]. Available through: <https://www.austrac.gov.au/business/how-comply-
guidance-and-resources/reporting/cash-transactions-over-10000-ttr>
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