Tranche 2 is coming – what you need to know about AML/CTF

12 October 2017
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The recent findings of major Australian companies not complying with the Australian Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) regulations has highlighted the need for due diligence in an expanding global workplace. The current AML/CTF Act 2006 applies to financial businesses such as the financial sector, gambling sector, bullion dealers and remittance service providers. However, with companies such as the Commonwealth Bank and Tabcorp coming under public fire for their AML noncompliance, the Australian Government has announced that a prospective start-date for the long-awaited/much-talked-about Tranche 2 will be issued in early 2018. Implementing Tranche 2 would extend the obligations to designated non-financial businesses who have similar vulnerabilities, including the real estate industry, high-value items dealers, lawyers, accountants and trusted services.  With a speculative start date fast approaching, it’s important that businesses who may be impacted by Tranche 2 understand why they’re vulnerable, how the change will impact them and what they can do to prepare. 

Real Estate Industry 

A booming economy and absence of AML/CTF regulations has made the Australian real estate industry an attractive destination for money laundering criminals. AUSTRAC, Australia’s financial crimes regulator have stated that criminals may be drawn to the real estate industry as a channel to illicit funds due to the ability to pay for real estate in cash, the ability to disguise the beneficial ownership of property, the stability and reliability of real estate investment and the ability to increase the value of property by means of renovations. In comparison to other money laundering methods, real estate in Australia can be uncomplicated and large sums of money can be easily concealed. According to AUSTRAC, in the 2015/16 financial year, an estimated $1 billion in suspicious transactions were made by Chinese investors in the Australian property market. Other dwellings in various cities across the country have also seen a rise in the value of property by international investors, which acts as a red flag for money laundering, as criminals are generally willing to pay above market value in order to secure a safe and legitimate investment. 

High-value items dealers 

Similar to Real Estate, a lack of regulations surrounding high-value goods (jewellery, precious stones, antiques, fine art, yachts, luxury motor vehicles and building/bathroom/kitchen supplies) are often used by criminals for laundering money, as large sums of money can be easily disguised and enjoyed anonymously. In 2010, the Commonwealth Government recovered criminal assets including cash, houses, boats and motor vehicles amongst other items worth over $13 million. 

What changes will Tranche 2 bring? 

The implementation of Tranche 2 for real estate professionals and high-value dealers aims to mitigate the criminal exploitation of these services. The current obligations that apply to those in the AML/CTF Act 2006 would also extend to the professionals included in the Tranche 2 changes. Such obligations would include: 
  • Having an understanding of the AML/CTF Act, its rules and the impact it will have on business operations. 
  • Enrolling your business with AUSTRAC. 
  • Having a process in place that enables staff to identify transactions that require submission of Threshold Transaction Reports and International Funds Transfer Instructions to AUSTRAC and any other law enforcement agency. 
  • Having a process in place for identifying suspicious transactions and customers. 
  • Enforce customer due diligence processes so that you can collect and verify customer information. 

How can I prepare? 

In a recent survey we conducted of professionals affected by Tranche 2, a common concern was the imminent increase in workload and resources that would inherently occur should it be implemented. However, it’s important to note that despite it not being compulsory at current for all industries, having a KYC process in place actually gives you a competitive advantage and is good business practice. Having policies and procedures in place demonstrates how your organisation manages risk; doing your homework on who you’re about to sign a contract with is a positive business decision and far outweighs the burden that comes with fines due to lack of compliance, an unprotected business and its affiliated risks.    Don’t get left behind, our due diligence products help ease the KYC process. Book a demo today! 

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About the author

Roseanne Perez

Rosey joined InfoTrack in 2015 and has a vast background in the legal industry spanning over 19 years. As Head of Products, Rosey is responsible for everything from market research initiatives and determining customer needs, to reviewing product specifications and requirements. Rosey works closely with InfoTrack’s development team and clients in order to deliver innovative solutions that are in line with customer needs. She maintains a constant line of communication with InfoTrack’s client base to keep her finger on the pulse and ensure she and her team are developing products that truly improve the lives of the clients they serve.