PROTECTING Enhanced Anti-Money

Laundering and Counter-

OUR Terrorism Financing Obligations

COMMUNITY
 WELCOME TOPICS
The Anti-Money Laundering and Counter-
Terrorism Financing Act 2006 (AML/CTF Act) 1. Introduction
places a number of obligations on the
financial industry, including brokers.
TOPICS

In this module you will learn about key 2. What are your Obligations?
legislative changes that came into effect 1
June 2014 and what you need to do to
comply. 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.
INTRODUCTION
What is Money Laundering and Terrorism Financing?
Before we discuss the changes, it is important to review the definition of money laundering and terrorism
financing.
Money Laundering
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.
Terrorism Financing
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.
INTRODUCTION
We all have an important role to play
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.
INTRODUCTION
What are the consequences of • reputational damage and lack of
The Industry consumer confidence
money laundering and terrorism can face: • fines and penalties from the regulator
• drop in share price
financing?
Money laundering and terrorism financing The • the consequences of illegal activities
has serious consequences, not only for the Community • global and local terrorist attacks
financial industry, but for the community, our • serious and organised crime
can face:
customers and our colleagues. It can also
impact you!
Our • victims of crime and violence
• financial instability
Customers • threats to mental and physical well-
can face: being including their personal safety

The maximum penalty for a single breach is up to

$17 million for a corporation. • as you are part of the Industry and our
Me: Community, all of these consequences
can also impact you!
 TOPICS
1. Introduction

2. What are your Obligations?

TOPICS

3. Impact on your Customers

4. Beneficial Owners
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 Monitoring Reporting

Customer (KYC)
YOUR OBLIGATIONS
Know Your Customer (KYC)

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 Beneficial Owners
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 Settlors of Trusts
the Settlor of Trusts.
YOUR OBLIGATIONS
Beneficial Owners
Beneficial In
Owners
the first instance, identify
The requirements for determining Beneficial Owner(s) has 25%
changed. 1 Ownership all person/s who own 25%
or more of the shares

The definition of Beneficial Owner has been

expanded to include the concept of “control”. This
means that any individual who owns or controls the
If no person owns 25% or
customer, either directly or indirectly, is considered a
more, identify the person/s
Beneficial Owner. 2 25% who controls 25% or more of
Control the shares, eg. through voting
rights
As an example, the CBA Group has adopted a Settlors of Trusts
cascade approach to identifying the Beneficial If no person owns or controls
Owner(s) of a customer. 25% or more of the shares,
Decision identify the natural person who
Ownership must be identified in the first instance. If a 3 Maker makes the financial and
Beneficial Owner by virtue of ‘ownership’ can’t be operating decisions
established, a Beneficial Owner by virtue of ‘control’
needs to be identified.
YOUR OBLIGATIONS
Identifying Beneficial Owners ABC Pty Ltd

The next few screens provide examples of the

cascade approach.

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.

For more complex entities you may need to dig

through multiple layers until you find the Beneficial 50% 40% 10%
Owner.

Beneficial Owners
YOUR OBLIGATIONS
Beneficial Owner by Control
Identifying Beneficial Owners
Domestic Proprietary Company (Example 2) ABC Pty Ltd

In this scenario, no one qualifies as a Beneficial Owner CEO

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.

For more complex entities you may need to dig

through multiple layers until you find the Beneficial
Owner.

20% 20% 20% 20% 20%

YOUR OBLIGATIONS
Family
Identifying Beneficial Owners Trust

Trusts

In the case of a Trust, all trustees are Beneficial

Owners and must be identified and verified.

For more complex entities you may need to dig

through multiple layers until you find the Beneficial Trustee Trustee Beneficiary Beneficiary
Owner.

Beneficial Owners
YOUR OBLIGATIONS
Settlors of a Trust
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.

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
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 Monitoring Reporting
Customer (KYC)
YOUR OBLIGATIONS
Enhanced Customer Due Diligence (ECDD)
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. High Risk Customers
This may include collecting and/or verifying existing or
(HRCs)
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.

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
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 Monitoring Reporting
Customer (KYC)
YOUR OBLIGATIONS

Your reporting obligations have not changed!

Reporting Suspicious Matters Tipping Off Threshold Transaction Reporting

If you do become suspicious about a The industry has an obligation to send a

If you are suspicious about a
customer, under NO circumstances are you Threshold Transaction Report (TTR) to
customer’s behaviour or their
to advise the customer, or someone outside AUSTRAC about each transaction that
transactions it is important you report
of the Group (such as a friend or relative) involves physical currency of AUD
it immediately following the
that a report is being made or that their 10,000 or more, or the equivalent in
suspicious matter reporting process.
activities are regarded as suspicious - this is foreign currency.
referred to as ‘tipping off’.
If you are not sure what to do, ask!
If, after becoming aware of the reporting
It is a criminal offence to engage in ‘tipping requirements, a customer begins to act
off’. You should continue with the transaction suspiciously, you should continue with
and then complete a Suspect Transaction the transaction and then complete a
Report. Suspect Transaction Report.
 TOPICS
1. Introduction

2. What are your Obligations?

TOPICS

3. Impact on Customers

4. Beneficial Owners
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.

Non-individual
There will be Customers will
customers will
minimal periodically be
need to
impact for asked to
provide more
individual supply
information on
customers updated
Beneficial
information
Owners
 TOPICS
1. Introduction

2. What are your Obligations?

TOPICS

3. Impact on your Customers

4. Beneficial Owners
BENEFICIAL OWNERS

Identifying Beneficial Owners

Let’s take a closer look at how to identify Beneficial Domestic
Individuals &
Owners for different entities. Sole Traders Proprietary
Companies

Trusts Partnerships
BENEFICIAL OWNERS

Sole Traders
Your customer
For individuals and sole traders, you can tells you…
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. Accountant

Sole Trader
BENEFICIAL OWNERS

Domestic Proprietary Companies

A representative of
ABC Pty Ltd tells
you…
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.

50% 50%
Shareholder Shareholder
BENEFICIAL OWNERS

Domestic Proprietary Companies

A representative of
ABC Pty Ltd tells you…
In this example only two of the shareholders are
Beneficial Owners. The shareholder who owns 20% is
not a Beneficial Owner.

50% 30% 20%

Shareholder Shareholder Shareholder
BENEFICIAL OWNERS
A representative of
ABC Pty Ltd tells
Domestic Proprietary Companies you…

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% 25% 50%
Shareholder Shareholder Shareholder

50% 50%
Shareholder Shareholder
BENEFICIAL OWNERS
A representative of
ABC Pty Ltd tells
Domestic Proprietary Companies you…

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 20% 80%
Owners, who have 40% indirect ownership. CEO
Shareholder Shareholder

50% 50%
Shareholder Shareholder
BENEFICIAL OWNERS
Trusts
Trusts are treated differently depending on whether they are regulated or unregulated.
Types 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
Beneficial ownership of trusts
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.
BENEFICIAL OWNERS
Trusts
The Trustees tell
In this example, the two Trustees are you…
Beneficial Owners and must be identified and
verified.

Beneficiary Settlor Trustee Trustee

BENEFICIAL OWNERS
Summary
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.

You are required to conduct deeper Know Your Customer investigations to determine Beneficial
Know Your Customer (KYC) 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
Enhanced Customer Due Customers. The definition of a PEP has been expanded to now include Foreign PEPs,
Diligence (ECDD) Domestic PEPs, and their close family associations, and international Organisation PEPs.

Ongoing Customer Due Financial Institutions have an obligation to regularly review and update KYC information,
Diligence (OCDD) including Beneficial Owners.

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