PROTECTING - CommBank...PROTECTING OUR COMMUNITY WELCOME The Anti-Money Laundering and...

Enhanced Anti-Money Laundering and Counter- Terrorism Financing Obligations

PROTECTING OUR

COMMUNITY

WELCOME The Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act) places a number of obligations on the financial industry, including brokers. In this module you will learn about key legislative changes that came into effect 1 June 2014 and what you need to do to comply.

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TOPICS

1. Introduction

2. What are your Obligations?

3. Impact on your Customers

4. Beneficial Owners

INTRODUCTION

Why the changes?

The Anti-Money Laundering and Counter-Terrorism Financing Rules (AML/CTF Rules) were updated in June 2014 and impose a number of new obligations on the financial industry. The primary purpose of the regulatory changes is to prevent money laundering and the financing of terrorism, by better understanding the ownership structure of non-individual customers, and to bring Australia in line with international standards. You must demonstrate full compliance with new obligations by 1 January 2016.

What is Money Laundering and Terrorism Financing?

INTRODUCTION

Before we discuss the changes, it is important to review the definition of money laundering and terrorism

financing.

Money Laundering is the process where illegally obtained

funds are given the appearance of having been obtained

from legal sources. Criminals launder money so that they

can disguise the criminal source of funds from law

enforcement authorities.

The criminals who generate funds from illegal activities need

to disguise the origin of these funds to enable them to

effectively use the profits of their activities.

Bank accounts are one way criminals use to introduce illicit

money into the financial system before it is moved to other

financial markets domestically and abroad.

Money Laundering

Terrorism Financing is any form of financial support of

terrorism, this includes support for those who encourage,

plan or engage in terrorism.

Terrorism financing often uses techniques similar to money

laundering to evade authorities and cloud the money trail but

unlike money laundering, often originates through legitimate

sources.

Regardless of the origin of their money, terrorism financiers

often work within the formal banking system to move funds to

their destination.

Terrorism Financing

We all have an important role to play

INTRODUCTION

Money laundering and terrorism financing have potentially

devastating economic, security and social consequences,

both internationally and at home.

We all play an important role in our fight against crime, in

understanding our customers and their business, to better

enable us to identify and report suspicious activity and

transactions.

Reporting suspicious behaviour can assist authorities to

investigate and arrest criminals. Our anti-money laundering

and counter-terrorism financing procedures also assists in

reducing the flow of funds for terrorist activities.

Serious and organised crime is conservatively estimated to cost the Australian economy $15 billion each year.

• as you are part of the Industry and our

Community, all of these consequences

can also impact you!

• victims of crime and violence

• financial instability

• threats to mental and physical well-

being including their personal safety

• the consequences of illegal activities

• global and local terrorist attacks

• serious and organised crime

• reputational damage and lack of

consumer confidence

• fines and penalties from the regulator

• drop in share price

What are the consequences of

money laundering and terrorism

financing?

INTRODUCTION

Money laundering and terrorism financing

has serious consequences, not only for the

financial industry, but for the community, our

customers and our colleagues. It can also

impact you!

The maximum penalty for a single breach is up to $17 million for a corporation.

The Industry can face:

The Community

can face:

Our Customers can face:

Me:

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1. Introduction




YOUR OBLIGATIONS

Under the AML/CTF Act, there are a range of obligations which can be broadly divided into the three categories below. This section

summarises the key changes and obligations under each category.

Know Your Customer (KYC)

Monitoring Reporting

YOUR OBLIGATIONS

To meet the compliance obligations and understand

the risk of our customers, you must know who your

customers are and be reasonably satisfied they are

who they say they are. These requirements are called

‘Know Your Customer’ (KYC) obligations.

Key changes to the obligations require financial

institutions to have greater visibility of ownership of

non-individual customers (ie. Companies, partnership

and trusts) to determine who ultimately benefits from

any profits generated.

This impacts how you identify and verify the Beneficial

Owners of your customers as well as how you identify

the Settlor of Trusts.


Beneficial Owners

Settlors of Trusts

YOUR OBLIGATIONS

The requirements for determining Beneficial Owner(s) has changed.

Beneficial Owners Beneficial Owners

Settlors of Trusts

The definition of Beneficial Owner has been

expanded to include the concept of “control”. This

means that any individual who owns or controls the

customer, either directly or indirectly, is considered a

Beneficial Owner.

Decision

Maker 3

25%

Control

2

25%

Ownership 1 In the first instance, identify

all person/s who own 25%

or more of the shares

If no person owns 25% or

more, identify the person/s

who controls 25% or more of

the shares, eg. through voting

rights

If no person owns or controls

25% or more of the shares,

identify the natural person who

makes the financial and

operating decisions

As an example, the CBA Group has adopted a

cascade approach to identifying the Beneficial

Owner(s) of a customer.

Ownership must be identified in the first instance. If a

Beneficial Owner by virtue of ‘ownership’ can’t be

established, a Beneficial Owner by virtue of ‘control’

needs to be identified.

YOUR OBLIGATIONS

Domestic Proprietary Company (Example 1)

In this scenario, there are two Beneficial Owners by

virtue of ownership, who own 25% or more of ABC Pty

Ltd.

Identifying Beneficial Owners

For more complex entities you may need to dig

through multiple layers until you find the Beneficial

Owner. 50% 10% 40%

ABC Pty Ltd

Beneficial Owners

The next few screens provide examples of the

cascade approach.

YOUR OBLIGATIONS

Domestic Proprietary Company (Example 2)

In this scenario, no one qualifies as a Beneficial Owner

by virtue of ownership. Therefore, a Beneficial Owner

by virtue of control must be identified. The CEO or

Managing Director are examples of a Beneficial Owner

by virtue of control.




Owner.

20% 20% 20%

ABC Pty Ltd

Beneficial Owner by Control

CEO

20% 20%

YOUR OBLIGATIONS

Trusts

In the case of a Trust, all trustees are Beneficial

Owners and must be identified and verified.




Owner. Beneficiary Beneficiary

Beneficial Owners

Trustee Trustee

Family Trust

YOUR OBLIGATIONS

The Settlor of a Trust is the natural person who sets up the Trust

and signs the Trust Deed to ‘create’ the trust.

In Australia the Settlor is usually someone in an accountant or

lawyer’s office and generally has no further involvement in the

affairs of the trust.

Settlors of a Trust

Currently there are no explicit requirements to identify and

verify the Settlor of an unregulated trust

With the updated regulations, if the settlement amount of the

Trust is $10,000 or more, you are required to collect the full

name of the Settlor of the Trust and verify the name against the

name in the trust deed. There are some exceptions, for example

if the Settlor is deceased.

YOUR OBLIGATIONS





YOUR OBLIGATIONS

Financial Institutions are required to collect additional

information about the customer where the risk of money

laundering or terrorism financing is considered to be high.

This may include collecting and/or verifying existing or

additional information or clarifying the customer’s nature of

business.

Beneficial Owners identified as Politically Exposed Persons

(PEPs), and other High Risk Customers (HRCs) require ECDD.

Enhanced Customer Due Diligence (ECDD)

High Risk Customers

(HRCs)

Politically

Exposed Persons

(PEPs)

YOUR OBLIGATIONS

High Risk Customers

Financial Institutions currently identifies high

risk customers by assessing a number of risk

indicators, including customer type, type of

products or services provided and delivery

channels

Under the new obligations, financial institutions

are required to consider some additional

factors in relation to high risk customers

YOUR OBLIGATIONS

Politically Exposed Persons (PEPs)

Politically Exposed Persons (PEPs) are individuals who

occupy a prominent public position or function in a

government body or organisation either in Australia or in

another country. For example, the NSW Premier, US

Secretary of State or the UN Secretary General.

Politically Exposed Persons are considered to be

potentially higher risk, due to their position of influence and

in particular susceptibility to bribery and corruption.

Currently, financial institutions are only required to identify

Foreign PEPs, including their immediate family and close

associates.

Under the revised regulations, in addition to Foreign

PEPs and their immediate family and close associates,

financial institutions are now required to identify all

Domestic PEPs and their immediate family and close

associates, and International Organisation PEPs (e.g.

United Nations and International Monetary Fund).

YOUR OBLIGATIONS

Ongoing Customer Due Diligence

As part of the Ongoing Customer Due Diligence (OCDD) process financial institutions need to determine when to update KYC information

To improve the integrity of customer information financial institutions must now

regularly review and update KYC information, including Beneficial Owners.

YOUR OBLIGATIONS





YOUR OBLIGATIONS

Your reporting obligations have not changed!

Reporting Suspicious Matters

If you are suspicious about a

customer’s behaviour or their

transactions it is important you report

it immediately following the

suspicious matter reporting process.

If you are not sure what to do, ask!

Tipping Off

If you do become suspicious about a

customer, under NO circumstances are you

to advise the customer, or someone outside

of the Group (such as a friend or relative)

that a report is being made or that their

activities are regarded as suspicious - this is

referred to as ‘tipping off’.

It is a criminal offence to engage in ‘tipping

off’. You should continue with the transaction

and then complete a Suspect Transaction

Report.

Threshold Transaction Reporting

The industry has an obligation to send a

Threshold Transaction Report (TTR) to

AUSTRAC about each transaction that

involves physical currency of AUD

10,000 or more, or the equivalent in

foreign currency.

If, after becoming aware of the reporting

requirements, a customer begins to act

suspiciously, you should continue with

the transaction and then complete a

Suspect Transaction Report.

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TOPICS

1. Introduction


3. Impact on Customers


YOUR OBLIGATIONS

What is changing for your customers?

The aim is to implement the new obligations whilst having minimal impact on the customer

experience. Some customers will be impacted more than others.

There will be

minimal

impact for

individual

customers

Non-individual

customers will

need to

provide more

information on

Beneficial

Owners

Customers will

periodically be

asked to

supply

updated

information

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1. Introduction




BENEFICIAL OWNERS


Let’s take a closer look at how to identify Beneficial

Owners for different entities. Individuals &

Sole Traders

Trusts Partnerships

Domestic

Proprietary

Companies

BENEFICIAL OWNERS

For individuals and sole traders, you can

assume the individual is the Beneficial Owner,

unless there are reasonable grounds to

consider otherwise.

In this example the sole trader is the Beneficial

Owner.

Your customer

tells you…

Accountant

Sole Trader

Sole Traders

BENEFICIAL OWNERS

A representative of

ABC Pty Ltd tells

you…

50%

Shareholder

50%

Shareholder

Domestic Proprietary Companies

In the first instance, all individuals who own, directly or

indirectly, 25% or more of the shares must be identified and

verified.

If no person owns or controls 25% or more, then the person

who exercises primary control over strategic or financial

decisions (such as the CEO or Managing Director) must be

identified and verified.

In this example, both shareholders are Beneficial Owners.

BENEFICIAL OWNERS

A representative of

ABC Pty Ltd tells you…

50%

Shareholder

30%

Shareholder

In this example only two of the shareholders are

Beneficial Owners. The shareholder who owns 20% is

not a Beneficial Owner.

20%

Shareholder


BENEFICIAL OWNERS

A representative of

ABC Pty Ltd tells

you…

25%

Shareholder

50%

Shareholder

It is important that the customer provides you with

information on Beneficial Owners that may have indirect

ownership or shareholding.

In the example all four shareholders are Beneficial

Owners. The shareholders of XYZ Pty Ltd each have

25% indirect ownership of ABC Pty Ltd.

25%

Shareholder

50%

Shareholder 50%

Shareholder


BENEFICIAL OWNERS

A representative of

ABC Pty Ltd tells

you…

CEO 80%

Shareholder 20%

Shareholder

50%

Shareholder

50%

Shareholder

It is important that the customer provides you with

information on Beneficial Owners that may have indirect

ownership.

Remember - ‘Ownership’ (25% or more) should be

considered first and ‘control’ only needs to be looked at

if ownership cannot be determined. In this example, the

shareholders of XYZ Pty Ltd are both Beneficial

Owners, who have 40% indirect ownership.


BENEFICIAL OWNERS

Trusts are treated differently depending on whether they are regulated or unregulated.

Types of trusts Beneficial ownership of trusts

A regulated trust must be one of the following:

• Registered and subject to Commonwealth regulatory

oversight in relation to its trust activities, e.g. Self-

Managed Superannuation Funds (SMSFs)

• A government superannuation fund established by

legislation, e.g. State Super

• A managed investment scheme managed by ASIC, e.g.

Colonial First State FirstChoice

• A managed investment scheme not registered by ASIC

that only has wholesale clients and does not make

small scale offerings to which section 1012E of the

Corporations Act 2001 applies

Unregulated trusts are:

• All other trust types

Regulated Trusts

Identification and verification of Beneficial Owner(s) is not

required for a regulated trust.

Unregulated Trusts

All trustees are considered Beneficial Owners by virtue of

control and must be identified and verified.

It is important to note the difference between Beneficial

Owners and a beneficiary of the trust. While it is not a

requirement to identify and verify any beneficiaries at the

application stage, you must record their full name or details

of their class.

Trusts

BENEFICIAL OWNERS

The Trustees tell

you…

Beneficiary Settlor Trustee Trustee

Trusts

In this example, the two Trustees are

Beneficial Owners and must be identified and verified.

BENEFICIAL OWNERS


Enhanced Customer Due

Diligence (ECDD)

Ongoing Customer Due

Diligence (OCDD)

Reporting Obligations

You are required to conduct deeper Know Your Customer investigations to determine Beneficial

Owner(s), particularly for non-individual customers. You are required to collect the full name of

Settlors of Trusts

The Industry is required to collect and verify additional information for certain High Risk

Customers. The definition of a PEP has been expanded to now include Foreign PEPs,

Domestic PEPs, and their close family associations, and international Organisation PEPs.

Financial Institutions have an obligation to regularly review and update KYC information,

including Beneficial Owners.

You have a continued obligation to report suspicious matters while taking care to avoid tipping

off the customer. If you are suspicious about a customer’s behaviour or their transactions, it is

important you report it via the suspicious matter reporting process.

In this module we discussed the key changes to the AML/CTF obligations, how they impact the financial industry, and the important

role we all play in protecting our community and preventing financial crime. We also explored how to determine the Beneficial Owners

for a range of customer entity types.

Summary

PROTECTING - CommBank...PROTECTING OUR COMMUNITY WELCOME The Anti-Money Laundering and...

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