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Financial Transaction Reports Amendment Bill 2006

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2004-2005-2006

 

 

 

 

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

 

 

 

 

HOUSE OF REPRESENTATIVES

 

 

 

 

 

 

 

 

FINANCIAL TRANSACTION REPORTS AMENDMENT BILL 2006

 

 

 

 

 

REVISED EXPLANATORY MEMORANDUM

 

 

 

 

 

(Circulated by authority of the Minister for Justice and Customs, Senator the Honourable Chris Ellison)

 

 

 

THIS MEMORANDUM TAKES ACCOUNT OF AMENDMENTS MADE BY THE SENATE TO THE BILL AS INTRODUCED

 

 

 

 

 

 

 

 

 

 

 

 

FINANCIAL TRANSACTION REPORTS AMENDMENT BILL 2006

 

General Outline

 

The primary purpose of the Financial Transaction Reports Amendment Bill 2006 (the Bill) is to vary the amendments to the Financial Transaction Reports Act 1988 (the FTR Act) made by Schedule 9 of the Anti-Terrorism Act (No 2) 2005 (the ATA) .  Schedule 9 comes into force on 14 December 2006.  The Bill needs to come into operation by that date.  The amendments are to Division 3A that Schedule 9 of the ATA inserted at Part II of the FTR Act, to paragraph 29(4)(ba) (as inserted into the FTR Act by Schedule 9 of the ATA) and to section 42A of the FTR Act.

 

The purpose of the FTR Act is to reduce the incidence and facilitate the tracking of money laundering and terrorist financing.  Consideration is being given to other reforms that will strengthen Australia’s anti-money laundering and counter-terrorist financing standards as set out in the Financial Action Task Force’s (FATF) Forty Recommendations and the Nine Special Recommendations on Terrorist Financing.

 

The main purpose of the Bill is to bring Australia into closer compliance with FATF Special Recommendation VII (SR VII), which requires the inclusion, with funds transfer instructions, of customer information about the sender of the funds.  SR VII was developed for the purpose of preventing terrorists and other criminals from having unfettered access to wire transfers for moving their funds and for detecting such misuse when it occurs.

 

As it currently stands, when Division 3A of Part II of the FTR Act (as inserted by Schedule 9 of the ATA) comes into force on 14 December 2006, it will require cash dealers in Australia to include customer information with an international funds transfer instruction (IFTI) when transmitting IFTIs out of Australia, and creates offences for failure to include this information.  That Division will also require Australian cash dealers that receive IFTIs to request that foreign organisations include customer information with the IFTIs they send, if directed to make such a request by the Australian Transaction Reports and Analysis Centre (AUSTRAC).

 

The amendments made by the Bill to the FTR Act will:

 

§   Amend the definition of ‘account’ for the purposes of Division 3A of Part II of the FTR Act.

§   Restrict the application of Division 3A of Part II of the FTR Act to authorised deposit taking institutions (ADIs) (for example, banks).

§   Insert new subsection 17FA(1A) into Division 3A of Part II of the FTR Act to ensure that where an ADI (the first ADI) is acting on behalf of or at the request of another ADI (the second ADI), and the second ADI is acting on behalf of or at the request of a customer (who is not an ADI), the first ADI is taken to be acting on behalf of that customer.  The first ADI is also entitled to rely on any of the customer information provided by the second ADI.

§   Amend the definition of ‘customer information’ in sections 17FA and 17FB of Division 3A of Part II of the FTR Act.

§   Insert new section 17FC into Division 3A of Part II of the FTR Act to ensure that the provision of customer information in an IFTI is not required where an IFTI passes between overseas financial institutions and offshore sites that are merely ‘routed’ through computer systems in Australia.

§   Amend paragraph 29(4)(ba) of the FTR Act (as inserted into the FTR Act by Schedule 9 of the ATA), to replace ‘a cash dealer’ with ‘an ADI’ to ensure consistency with the amendment to restrict Division 3A of Part II of the FTR Act to ADIs.

§   Amend section 42A of the FTR Act to include a reference to Schedule 3AA (as inserted into the FTR Act by Schedule 9 of the ATA).

 

Financial Impact

 

The amendments will reduce the number of systems changes required at an institutional level.

 

 



NOTES ON CLAUSES

 

Clause 1  Short title

 

This is a formal clause that provides for the citation of the Bill.  This clause provides that the Bill when passed may be cited as the Financial Transaction Reports Amendment Act 2006.

 

Clause 2  Commencement

 

This clause provides that each provision of the Bill specified in column 1 of the table commences, or is taken to have commenced, in accordance with column 2 of the table.  Any other statement in column 2 has effect according to its terms.

 

In particular, column 1 of the table provides that sections 1-3 and anything in the Bill not elsewhere covered by the table commences on the day on which the Bill receives the Royal Assent.  Column 1 also provides that Schedule 1 of the Bill will commence immediately after the commencement of item 10 of Schedule 9 to the ATA As it stands, the amendments to the FTR Act made by Schedule 9 of the ATA will come into force on 14 December 2006.  Therefore, immediately after the commencement of those amendments, the amendments (as contained in Schedule 1 to the Bill) will come into force on the same day.

 

Clause 3  Schedule(s)

 

This clause makes it clear that Schedule 1 to the Bill will amend the FTR Act in accordance with the provisions set out in that Schedule.

 

SCHEDULE 1

 

This Schedule contains amendments to Division 3A of Part II of the FTR Act, paragraph 29(4)(ba) (as inserted into the FTR Act by Schedule 9 of the ATA) and section 42A of the FTR Act.

 

Item 1

 

This item inserts ‘Division 3A of Part II’ before the reference to ‘Part VIA’ in subsection 3(1) (definition of ‘account’) into the FTR Act.  The purpose of the amendment is to restrict the application of the new definition of ‘account’ to Division 3A of Part II of the FTR Act.

 

Item 2

 

An amendment to the definition of ‘account’ for the purposes of Division 3A of Part II of the FTR Act

 

Item 2 inserts a definition of the term ‘account’ into Division 3A for the purposes only of Division 3A of Part II of the FTR Act.  New section 17FAA will define the term ‘account’ to include a credit card account, a loan account (other than a credit card account) and an account of money held in the form of units in either a cash management trust or a trust of a kind prescribed by the regulations.  In order to avoid any doubt, it is immaterial whether an account has a nil balance or whether any transactions have been allowed in relation to an account.

 

It is intended that the new definition of ‘account’ should only be applicable to Division 3A of Part II of the FTR Act.  The other existing definitions of ‘account’ as defined in subsection 3(1) and section 40C (as contained in Part VIA) of the FTR Act will be retained.  That is, the meaning of account (as defined at subsection 3(1)) will still be applicable for all parts of the FTR Act except for Part VIA of the FTR Act and Division 3A of Part II of the FTR Act.

 

Items 3, 4, 5, 6, 7, 8, 11, 12, 13, 14, 15, 16

 

Amendment to restrict the application of Division 3A of Part II of the FTR Act to ADIs (for example, banks)

 

Items 3, 5, 6, 7, 8, 11, 12, 13, 14, 15, 16 omit the reference to ‘cash dealer’ and substitute the term ‘ADI’ in paragraph 17FA(1)(a), paragraph 17FA(2)(a), paragraph 17FA(2)(b), paragraph 17FB(1)(a) and subsections 17FB(2), 17FB(4), 17FB(5) respectively.  The term ‘ADI’ is defined in subsection 3(1) to mean:

 

‘(a) a body corporate that is an ADI for the purposes of the Banking Act 1959; or

(b) the Reserve Bank of Australia; or

(c) a person who carries on State banking within the meaning of paragraph 51(xiii) of the Constitution.’

 

Item 4 repeals current paragraph 17FA(1)(b) and substitutes new paragraph 17FA(1)(b) to say that the ADI is acting on behalf of, or at the request of, another person who is not an ADI.

 

This amendment is intended to restrict the application of Division 3A of Part II of the FTR Act to ADIs only.  The reason for this restriction is due to problems with the current application of Division 3A of Part II of the FTR Act to non-bank money remittance businesses.  Presently, the FTR Act does not distinguish between non-bank IFTIs which are ‘same-institution’ funds transfer instructions and non-bank IFTIs involving ‘multiple’ institutions.  It is impracticable to require IFTIs sent from one institution in one country to the same institution in another country to include the relevant customer information because in effect this would require the institution to pass on the information to itself.  In these situations, funds transfer requests are registered on a single internal system of the institution, while the actual transfer of funds is effected through net settlements between the institution’s various accounts around the world.

 

Presently, since non-bank money remittance businesses report IFTIs to AUSTRAC, customer information is available to law enforcement authorities.  The amendment to restrict Division 3A of Part II of the FTR Act to ADIs will not change this. 



Item 4A

 

New subsection 17FA(1A)

Item 4A inserts new subsection 17FA(1A) after subsection 17FA(1), which is designed to ensure that there is no gap in the legislation if an Australian bank, which is asked to send a funds transfer instruction to a foreign bank, is not able to deal directly with the foreign bank but has to deal through an intermediary bank in Australia.  The amendment will provide that the intermediary bank is taken to be acting on behalf of the original customer and not the originating bank and will have an obligation to ensure that the relevant customer information accompanies the funds transfer instruction.  However, the intermediary bank will be able to act on any information it receives from the originating bank in fulfilling this obligation.  It will not have to make its own inquiries of the original customer.

 

In the following example, under new subsection 17FA(1A), Bank B (the first ADI) would be deemed to be acting on behalf of Mrs X (customer who is not an ADI).  Bank B would also be entitled to rely on the customer information (concerning Mrs X) provided by Bank A (second ADI).

‘Mrs X goes to Bank A (in Australia) and wants to transfer money to a bank in Hong Kong.  Bank A passes the instruction onto Bank B (because Bank B has a correspondent banking relationship with the bank in Hong Kong).  Bank B then sends the instruction to the bank in Hong Kong.’

 

Items 9 and 10

 

Subsection 17FA(3)

 

Item 9 repeals the definition of ‘customer information’ in subsection 17FA(3) and substitutes a new definition of that term.  The new definition makes it clear that in an IFTI the following customer information must be included:

 

(i)      the ordering customer’s name; and

(ii)     any one of the following:

-                the ordering customer’s full business or residential address (not being a post office box);

-                the ordering customer’s date of birth and the country and the town, city or locality of the ordering customer’s birth (if the ordering customer is an individual);

-                a unique identification number given to the ordering customer by the Commonwealth or an authority of the Commonwealth (eg, an Australian Business Number or an Australian Company Number);

-                a unique identification number given to the ordering customer by a foreign government;

-                a unique identification number given to the ordering customer by the ADI that the ordering customer originally asked to send the instruction; and

 

 

(i)       either:

-                the account number (if the money is, or is to be, transferred from a single account held by the ordering customer with the ADI that the ordering customer originally asked to send the instruction); or

-                in any other case, a unique reference number assigned to the instruction by the ADI that the ordering customer originally asked to send the instruction.

 

The provision also ensures that the ADI that is required to include the complete customer information in the IFTI is the ADI that the ordering customer originally asked to send the instruction.

 

The result is that if the funds from an IFTI come from a single account, the account number must be included in the IFTI.  If the funds take the form of cash, the IFTI must include a unique reference number.  If the funds come from more than one account, the IFTI must show a unique reference number.  However, that number can be the number of one of the accounts if the sending institution decides to use an account number.

 

Item 10 inserts the definition of ‘unique reference number’ into subsection 17FA(3).  ‘Unique reference number’ is defined to mean a combination of letters, digits, characters and/or symbols which distinguishes the instruction in a way that, either alone or in conjunction with any other information in the instruction, enables the ADI that the ordering customer originally asked to send the instruction to identify the ordering customer.  For example, a combination of a BSB and account number could be included in the instruction.  Alternatively, a reference number generated by the ADI that the ordering customer originally asked to send the instruction could be included in the instruction.

 

Item 16A

 

Subsection 17FB(6) (subparagraph (b)(ii) of the definition of ‘customer information’)

 

Item 16A omits the words ‘date and place of birth’ from subparagraph 17FB(6)(b)(ii) and substitutes ‘date of birth and the country and the town, city or locality of the ordering customer’s birth.’  This wording is consistent with the wording contained in subparagraph 17FA(3)(b)(ii).  The purpose of the amendment is to ensure that greater detail concerning a customer’s place of birth is included in an IFTI transmitted both into and out of Australia.



Item 17

 

Subsection 17FB(6) (subparagraph (c)(ii) of the definition of ‘customer information’)

 

Item 17 repeals subparagraph 17FB(6)(c)(ii) and substitutes new subparagraph 17FB(6)(c)(ii), which provides that a unique reference number assigned to the instruction by the ordering organisation is to be included in the IFTI.  The use of the term ‘unique reference number’ has been adopted for both subsection 17FA(3) and subsection 17FB(6) and is a term used in FATF SR VII.

 

Item 18

 

Subsection 17FB(6)

 

Item 18 inserts the definition of ‘unique reference number’ into subsection 17FB(6).  This definition is consistent with the definition of that term given in subsection 17FA(3).

 

Item 19

 

New section 17FC

 

Item 19 inserts new section 17FC at the end of Division 3A.  This provision is intended to ensure that the provision of customer information in an IFTI is not required where the IFTI is transmitted from a place outside Australia to another place outside Australia and is merely ‘routed’ through an Australian computer but has not specifically come through the Australian financial system.  In other words, the Australian intermediary ADI is only required to pass on the information that it receives in the IFTI.

 

Item 20

 

Paragraph 29(4)(ba)

Paragraph 29(4)(ba), as inserted into the FTR Act by Schedule 9 of the ATA, makes it an offence for a person to make a statement, either orally or in writing, or present a document that is, to the person’s knowledge, false or misleading in a material particular and is capable of causing ‘a cash dealer’ to include customer information relating to an IFTI under section 17FA that is false or misleading in a material particular.

Item 20 omits the reference to ‘a cash dealer’ and substitutes ‘an ADI’.  The amendment is aimed at ensuring consistency with the amendment to restrict Division 3A of Part II of the FTR Act to ADIs.



Item 21

Section 42A

 

Section 42A of the FTR Act allows the FTR Regulations to amend Schedules 1, 2, 3, 3A or 4.  The purpose of Item 21 is to include a reference to Schedule 3AA, which was inserted into the FTR Act by Schedule 9 of the ATA.  Schedule 3AA spells out, for the purposes of section 15AA (as inserted into the FTR Act by Schedule 9 of the ATA), the reportable details in respect of bearer negotiable instruments.