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Proposed reform to strengthen Customer Due Diligence – Regulation Impact Statement – AUSTRAC

On 20 May 2014, the CEO of the Australian Transaction Reports and Analysis Centre (AUSTRAC) announced changes to customer due diligence rules, which form part of Australia’s anti-money laundering and counter-terrorism financing regime.  The regime is intended to protect Australia's revenue base through enhanced collection and verification of customer information, as well as preventing organised criminals from misusing complex business structures to conceal ownership and controlling interests in entities. In broad terms, this regime requires that some financial institutions (reporting entities) need to identify and verify each of their customers so they can assess the money laundering or terrorism financing risk posed by each customer, and if necessary take appropriate action. Under this proposal, key changes to the customer due diligence regime include:

  • expanded requirements for financial institutions to verify beneficial ownership and control in certain circumstances;
  • requirements for reporting entities to consider the risk associated with its customers in the context of the purpose and nature of the business relationship; and
  • expanded record-keeping requirements.

The reforms are expected to: improve tax compliance and money laundering enforcement; stronger fraud prevention arrangements an institutional level; enhanced ability for some small businesses to meet obligations to overseas tax compliance regulators; and minimise commercial risk around assessing beneficial ownership and control.  The reforms are also expected to address any risks associated with Australia being removed from the European Union’s equivalence list. The proposal has been assessed as having a significant impact on certain sectors of the economy.  These impacts include estimated annual average ongoing compliance costs of around $40 million. A details-stage Regulation Impact Statement (RIS) was prepared and certified by AUSTRAC and has been assessed as adequate by the Office of Best Practice Regulation.  The OBPR notes that as no decision has been previously announced, an options-stage RIS was not required and a single stage RIS has been prepared.

Note:  If you have difficulty accessing the information in any of these documents, please contact Andrew Rodrigues.