Tranche 2 AML Compliance: Impact on Trust and Company Service Providers (TCSPs)
#AML #Tranche2 #TCSPs #Australia
September 13, 2024
3 Minutes
English
Australia is increasing its defences against financial crime by making major changes to its Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) regime. These reforms will bring more businesses under the umbrella of AML/CTF rules, often called ‘Tranche 2 entities’.
Tranche 2 entities that will be affected by the new AML/CTF reforms include lawyers, accountants, trust and company service providers, real estate professionals, and dealers in precious stones and metals.
Trust and company service providers (TCSPs) are particularly vulnerable to money laundering and terrorism financing due to the nature of the services they provide. These vulnerabilities arise from several key factors listed below.
TCSPs can be exploited to conceal the origins of illicit funds through the creation of legal entities such as companies and trusts that obscure beneficial ownership.
Money launderers can use complex layers of legal entity structures provided by TCSPs to hide the true owners of assets, making it difficult for authorities to trace the proceeds of crime.
TCSPs often engage in cross-border operations, making it easier for money launderers to move illicit funds internationally and exploit jurisdictions with weaker AML controls.
Money launderers may use TCSP services to evade taxes and exploit known tax shelters, thereby furthering their illicit financial schemes.
Money launderers seek out TCSPs for their specialist skills, technical proficiency, and knowledge, which can assist in sophisticated money laundering schemes.
Following are the key impacts these reforms will have on TCSPs:
TCSPs will be required to enrol with the Australian Transaction Reports and Analysis Centre (AUSTRAC) as 'reporting entities' under the AML/CTF Act.
TCSPs must develop and maintain an AML/CTF program that is tailored to their specific business operations. This involves identifying, assessing, and mitigating the risks associated with money laundering and terrorism financing.
TCSPs will need to perform risk-based customer due diligence both at the onset of a business relationship and on an ongoing basis. This includes verifying the identity of clients, understanding the nature of the business relationship, and identifying beneficial owners of legal entities.
As reporting entities, TCSPs are required to update their customers’ risk profile and identify unusual or suspicious behaviour. This also includes monitoring their customers’ transactions and understanding the reasons behind a customer’s change in behaviour.
TCSPs will be required to maintain comprehensive records of their CDD processes, transactions, and any reports made to AUSTRAC. These records must be kept for a minimum of seven years.
The new AML reforms will significantly impact TCSPs by imposing stringent regulatory requirements aimed at preventing money laundering and terrorism financing. Bringing TCSPs under the AML/CTF umbrella will help safeguard the integrity of Australia's financial system and contribute to global efforts against financial crime.
The Tranche 2 Reforms are a set of proposed legislative reforms aiming at broadening the scope of Australia's Anti-Money Laundering and Counter-Terrorism Financing laws to include more businesses and professions.
The Tranche 2 Reforms will affect real estate agents, precious metals dealers, lawyers, trust and company service providers, and accountants.
The exact timing for the implementation of the Tranche 2 Reforms is dependent on the legislative procedure. Stakeholders should keep an eye on statements from appropriate government authorities, such as the Australian Transaction Reports and Analysis Centre (AUSTRAC), for specific dates and transitional periods after the Act is passed.
The Tranche 2 Reforms are required to align with global standards established by the Financial Action Task Force (FATF), which recommends that countries regulate DNFBPs within their AML/CTF frameworks and to strengthen Australia's ability to detect, prevent, and combat money laundering and terrorism financing activities.
Regulated entities must conduct detailed risk assessments, develop and implement strong AML/CTF programs, ensure that employees receive adequate training on AML/CTF obligations and the entity's compliance program, establish systems for reporting suspicious activities and keeping records in accordance with regulatory requirements.
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