Analysis of AML/CTF Act Compliance in Financial Services Sector

This report provides a comprehensive analysis of the Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) Act and its compliance within the financial services sector. It begins with an overview of the issues raised in the Mutual Evaluation Report (MER) by the Financial Action Task Force (FATF), focusing on customer due diligence (CDD) measures, particularly concerning agents acting on behalf of customers. The report examines Section 89 of the AML/CTF Act and Part 4.11 of the AML/CTF Rules, highlighting the requirements for standard, special, and joint programs. It then assesses the implementation of the AML/CTF regulatory regime by the Australian government, including amendments made to the AML/CTF Act and Rules to align with FATF recommendations, particularly criterion 10.4. The report discusses the changes required in reporting agencies' AML/CTF programs to ensure compliance and effectiveness, emphasizing customer due diligence, communication, training, record-keeping, and board oversight. Finally, it explores the role of the Australian Financial Markets Association (AFMA) Code of Conduct in promoting ethical behavior and decision-making within financial markets. The report concludes by summarizing key findings and recommendations for enhancing AML/CTF compliance in Australia.

Lead compliance with financial services
legislation and industry codes

TABLE OF CONTENTS

INTRODUCTION
The AML/CTF Act is Anti money laundering and counter terrorism finance at which
provides rules and regulations over these matters. Report was presented by FATF and a MER
was presented over the lag in the legal rules in AML and CTF in Australia. The present report is
prepared to identify any existing deficiencies in different sections and provision of the act and
rule and main suggestion over the same.
a. Outlining and evaluating the issues that raised in MER with respect to the agent of the
individual customer.
Mutual evaluation report present the discussion in relation to the verification that is
required to be made by the financial institution that any of the individual intended to act on the
behalf of client (Terry and Llerena Robles, 2018). The standards of the FATF consist of the
interpretive notes and the recommendations in combination with the applicable standards
(Matsuoka, 2018).
FATF Recommendations-
The financial institutions are required to undertake the Customer Due Diligence (CDD)
measures when the company is into any business relations; company has transferred more
amount of money crossing the threshold limits.
Verification of customer identification through authenticated by Government;
determination of beneficial owner. Financial Institutions should necessarily employ every of the
CDD all measures and simultaneously find out the level of such measures used as a risk-based
approach (RBA). Interpretive notes to FATF recommendation 10 states various guidelines over
the money laundering (ML) and counter terrorism financing (CTF).
CUSTOMER DUE DILIGENCE (CDD)
The CDD must take measure to identify customers using reliable documents and Identify
beneficial person, individual acting on behalf of a consumer and the financial organization must
verify person acting in instead of the client. The financial institution must take make legal
arrangement and procedures. The financial institution do not have repeatedly verified the
recognition of each customer each time of every transaction. Timing of verification is
permissible only after the accomplishment of the business relationship. Existing customers of
financial institution must comply with CDD measures current customers by taking into
consideration various material risk factors.
1

The task force for financial action and new methodology in order to assess the technical
compliance in respect to the recommendations of FATF and the AML/CFT systems's
effectiveness sets out FATF and will find out that the nation is been sufficiently in abidance with
that of the standards of FATF, 2012 and for assessing effectiveness of the CFT or AML system.
From the above evaluation it is been assessed that the nature of the deficiencies
provisioned in the report is complex in nature. Industry needs more and more assistance for
understanding and complying with the rules and the regulations (Zolkaflil, Omar and Syed
Mustapha Nazri, 2017).
2

b. Section 89 of AML/CTF Act and part 4.11 of the AML/CTF Rules
Section 89 of the AML/CTF Act outlines Standard/ Special /Joint money laundering and
counter terrorism financing program. The sub section 1 of section 89 defines the Standard
program which states that a client who deals with reporting entity regarding the designated
services through an agent and consumers act in accordance with the circumstance outlined in the
AML/CTF rules, are required to be fulfilled in order to hold the consumer liable for the act of
agent.
The part 4.11 of AML/CTF rules states that the rules are applicable in relation to an
agent of a consumer which is a single person and regarding the agent who is authorized to act on
behalf of consumer regarding the designated service. As per part 4.11.1 and 4.11.2, full name of
each person acting on the part of consumer in the reporting entity regarding the provision of the
services designated (Anti-Money Laundering and Counter-Terrorism Financing Rules
Amendment Instrument, 2019). Part 4.11.3 states that risk based controls and systems must be
included in the program defined under section 89 of Act to determined that whether the reporting
entity and to what extent shall be verified. Part 4.11.4 states that terrorism financing or money
laundering in context to provisions of the designated services in order to determine that whether
and to what extent the identify of the person's work on behalf of the consumer must be verified.
However, as far as the recommendation 10 regarding issue of agent of consumer defined
under the interpretive notes to recommendation 10 that during the formation of the course
consumer relations a financial institution on suspecting a transaction of terrorism financing or
money laundering the bank or institution is required to determine and confirm the identity of the
costumer as well the beneficiary owner.
In this context it can be stated that deficiency is related with the formation of suspicious
transaction report which must be prepared by the bank and financial institution as soon as a
suspicion transaction related with money laundering and terrorism financing is to identify to stop
such translation.
c. Implementation of AML/CTF regulatory regime by the Australian government and
approached that it should take to achieve the compliance with FATA criterion 10.4
Amendments made in AML/CTF act:
In part 4 of act the amendments have been made regarding the reporting entities as
identification of an individual as per AML/CTF act and that it essentially include proper risk
3

supported controls and systems which are planned to make the reporting entity reasonably
satisfying and where the consumer is a single individual. The information must be gathered as
full name, residential address and date of birth of the consumer. The AML/CTF programme must
consider the procedures for the reporting entities to gather a minimum of the KYC data form the
consumers when it is a company with them date of birth and name of owner, registered adders of
company, ABN issued.
Amendments made in AML/CTF rules:
The AML/CTF rules are made in consistency with section 299 of the AML/CTF act with
a purpose of para 36, 84, 85, 106-108. The amendments made in the rule are regarding the
enhanced elastomeric due diligence programme. The change is made as the reports entities are
provided to designated services by the customer who are the custodian are exempt from the
requirement specified in sub para of 15 (cdd_draft_amend_chap4, 2019). Preventive measures.
2019). The requirements are related with the KYC information of the custodian and the its
agents. The requirement are made mandatory and exemptions are also defined with imposition of
certain terms and condition.
The acts of terrorism financing and money laundering is governed by section 83 and 84 of the
AML/CTF act as initiating programs for the same. Section 83 of the act states that counter
terrorism financing and money laundering programs are being formed over this as standard, joint
and special one. Also, these programs are not legislative instruments. Section 84 states that the
programs are written one, which are applicable to specific reporting entities which have a
primary purpose of identification, mitigation and management of such AML and CTF. Under
this section the purpose of setting programme is defined and also review is done for standard
counter-terrorism financing and anti money laundering programs.
For abidance with the FTFA criterion 10.4 it is advised to the Australian government that as in
the MER report it was stated by FATF and APG the key policy objective under criminal justice
of Australia is required to be disrupted and discourage the predicted crime. The government and
AUSTRAC is required to keep the focus on three proceeding generation which are predicted
threats to nations, it includes generations from drugs, fraud and tax evasion. The focus must also
be expanses for ensuring that a larger number of cases of money laundering are being known and
4

investigated properly. AUSTRAC analysis is required to put more focus on the rimes related
with ML/CTF, both the law enforcement authorities and AUSTRAC can increase their focus on
suits/matter of ML to attain a higher level compliance with the 10.4 criteria.
d. Changes required in the reporting agencies in the AML/CTF programs for ensuring the
compliance and defectiveness in meeting the requirements laid down by FAT and the
criterion 10.4
The consumer due diligence (CDD) is the information which consist all the detailed
about a consumer that enables the baking and financial institution' assess the extent of the risk of
exposure for client. This risks are related with the terrorism financing and money laundering.
The institutions and banks are required to keep the information upto date and its is knows as the
KYC for the client. The KYC is referred as know your consumer which include detailed
information about the consumers and its agent who deals in the transaction with banks and
financial institution.
Communication and training:
For identification of the suspicious transaction the employee of the baking and financial
institution are required give effective training along with establishment of effective
communication system within the organization (Anti-Money Laundering and Counter-Terrorism
Financing Rules Amendment Instrument, 2019). The training essentially be given as checking
the information of the client in detail and to see the KYC of the client to see the exposure to the
risk of ML and CTF.
Recode keeping:
The organization dealing with the funding and money translation solely are required to
keep the record of the clients and their transaction which aids them in identification of the
suspicion in any of the transaction and lead them to detect ML and CTF. The staff of the banks
and financial firms are required to keep the KYC content up to date and keep the track in
changes in the information.
Board and senior management oversight:
The board and the senior management of the banks and financial establishment are
required to keep a track on the KY C of all the clients. It must keep in contact and effective
communication with staff and employee over the transaction which looks suspicious and look
5

into the same immediately. They are accountable for conformation with the rules and provision
of AML/CTF act and rules.
e. Discussing role of the AFMA Code of Conduct.
The AFMA code of conduct is laid down by the Australian Financial markets association
defining all the ethical principles, concepts and system which are considered as acceptable
standards related to the behaviour as performed in the financial markets. With the help of this
code of conduct, it promotes as well as supports decision making process in many business
organization thereby creating high market value and profit margins.
The key purpose of the code of conduct is related with providing deep insight and better
standard understanding of behaviour expected from all the member organization and its
employees of AFMA at the time of conducting of business transaction with clients, customers,
other business parties etc. This code further assist in providing a framework or system in case
where no clear rule, law or statutory requirement related to process of decision-making in 'Grey
areas' has been made. Also, it helps in providing better understanding with the help of necessary
interpretation to be made in case of principles based law, provisions or rules (Boshoff, 2015).
It is duty of every AFMA member organization to incorporate or inculcate such Codes in
their internal business codes, policies and plans such as related to the process of staff induction
etc. These codes helps individuals of the business organization in making ethical business
decision by providing clear and transparent framework. Value based compliance includes ethical
principles of member organization recognising broad obligation to the Australian society to act
fairly and efficiently in the financial market. Whereas rule based compliance consist of different
ethical principles relayed to professionalism covering responsibility of both the organization and
of staff related to performing job competently, ethically with full integrity and professionalism.
CONCLUSION
From the above report it can be concluded that the regarding the AML/CTF act and rule's
consumer due diligence of Australia were shown with the deficiencies by the MER report
presented by FAFT and APG in 2015. In this regard the amendments have been made in
AML/CTF rules and act in 2018 to make the counter terrorism financing and anti money
laundering and its inspection by the banks and financial establishment in context of agents of the
consumers.
6

REFERENCES
Books and Journals
Braun, J. and et.al., 2016. Drivers of Suspicious Transaction Reporting Levels: Evidence from a
Legal and Economic Perspective. Journal of Tax Administration. 2(1). pp.1-31.
Matsuoka, A., 2018. Ratify and comply: a pathway for Japan to follow the FATF
recommendation 35. Journal of Money Laundering Control. 21(1). pp.71-88.
Mekpor, E. S., 2019. Anti-money laundering and combating the financing of terrorism
compliance. Are FATF member states just scratching the surface?. Journal of Money
Laundering Control, (just-accepted). pp.00-00.
Mekpor, E. S., Aboagye, A. and Welbeck, J., 2018. The determinants of anti-money laundering
compliance among the Financial Action Task Force (FATF) member states. Journal of
Financial Regulation and Compliance. 26(3). pp.442-459.
Rahman, S. A. and et.al., 2016. The Context of Information Exchange in the International
Cooperation Mechanism against Money Laundering Based on Information Management
Process Model. Accounting Research. 3. p.79622139.
Syed Mustapha Nazri, S. N. F., Zolkaflil, S. and Omar, N., 2019. Mitigating financial leakages
through effective money laundering investigation. Managerial Auditing Journal. 34(2).
pp.189-207.
Terry, L. S. and Llerena Robles, J. C., 2018. The Relevance of FATF's Recommendations and
Fourth Round of Mutual Evaluations to the Legal Profession. Fordham Int'l LJ. 42.
p.627.
Zolkaflil, S., Omar, N. and Syed Mustapha Nazri, S. N. F., 2017. Comprehensive cross-border
declaration system as money-laundering prevention mechanism. Journal of Money
Laundering Control. 20(3). pp.292-300.
Boshoff, D. W., 2015. A new era for feed registration: general. AFMA Matrix. 24(2). pp.1-1.
Online
Anti-Money Laundering and Counter-Terrorism Financing Rules Amendment Instrument 2019.
2019. [Online]. Available through :<https://www.legislation.gov.au/Details/F2019L00518>.
cdd_draft_amend_chap4. 2019. [Online]. Available through
:<http://www.austrac.gov.au/sites/default/files/documents/cdd_draft_amend_chap4.pdf. 2019>.
Anti-Money Laundering and Counter-Terrorism Financing Rules Amendment Instrument . 2019.
[Online]. Available through :<https://www.legislation.gov.au/Details/F2014L00563>.
Preventive measures. 2019. [Online]. Available through
:<https://www.fatf-gafi.org/media/fatf/documents/reports/mer4/5-Preventive-Measures-
Mutual-Evaluation-Australia-2015.pdf>.
7