james moore - hwl ebsworth - verification of identity and anti-money laundering update

[Insert Title]

Presented by [Insert Speaker]

[Insert date as: Day, # Month Year]

Verification of Identity and AML update25th Annual Credit Law Conference

Presented by James Moore, Partner

Thursday 8 October 2015

1317119843_1

ID requirements for real property mortgages

Update on June 2014 reforms

―Guidance Note 24 process

―Transitional issues with PEP screening

―What is the beneficial owner of a trust?

FATF Mutual evaluation

What's next for the AML/CTF Act?

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FTRA: 100 point check upon opening of 'account'

... replaced by ...

AML/CTF Act: applicable customer identification procedure prior to provision of designated service

... enhanced by ...

Land registry practice: Verification of Identity Standard, to register dealing in land

Verification of identity

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New requirements driven by e-conveyancing and applicable (or to be applicable) nationally

Verification of identity standard: Schedule 8 of the ARNECC Model Participation Rules

Unlikely to supplant applicable customer identification procedure: checking quite different things, occurring at a different time

Verification of identity (2)

4

Verification under the standard:

Must be face-to-face. Photographs to be compared with person to ensure 'reasonable likeness'. No religious exemptions.

Mandatory hierarchy of documents to be provided (only move down a rung after reasonably satisfied that higher rungs do not exist)

Verification of identity (3)

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1. Australian passport OR foreignpassport with resident visa PLUS Australian drivers licence or photo card PLUS change of name or marriage certificate if necessary

2. Australian passport OR foreign passport with resident visa PLUS full birth certificate or citizenship certificate or descent certificate PLUS marriage certificate if necessary

VOI: Documentary ID hierarchy

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3. Australian drivers licence or photo card PLUS Medicare of Centrelink or Veterans Affairs card PLUS full birth certificate or citizenship certificate or descent certificate PLUS marriage certificate if necessary

4. (a) Identifier Declaration (Stat Dec from an adult, known person 12 months, not a relative, not a party to transaction, present at the interview and identified under (1) to (3) above). (b) Identifier Declaration type (b) - If they do not know such an adult, then such an adult who is ALSO a bank manager, postmaster, lawyer etc may be used instead (big typo?)

VOI: Documentary ID hierarchy (2)

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Although AUSTRAC commenced discussions on the June 2014 reforms in very late 2013 (then planning a February start), they still came as a surprise. Timing was driven by the FATF mutual evaluation and meetings schedule

Reporting entities that had approved a compliance plan by 1 November 2014 (and are continuing to diligently implement it) have until 31 December to implement

June 2014 reforms

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FSC Guidance Note 24 - Forms are being finalised and are likely to be released in October 2015. Financial planner / product manufacturer industry are not yet fully implemented

Many organisations seem to be taking the full 19 months to fully implement.

AUSTRAC has said in semi-private that 'backcapture' is not required for non-high risk customers

June 2014 reforms (2)

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From June 2014, ID standards changed, with the key changes being mandatory PEP screening and beneficial owner assessment in all cases (unless relief obtained)

However, pre-June 2014 and post June 2014, an 'applicable customer identification procedure' meets that description if they complied with AML/CTF Rules at the time

Section 32: to carry out a designated service, all that is necessary is that an applicable customer identification procedure has been carried out at some point in the past

June 2014 reforms: transitional issues

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Businesses with continuing customers can continue to rely on the old ID process carried out at onboarding

Issue in M&A deals: whether acquirer can make risk based assessment and rely on vendor's ID process, if it does not include PEP and beneficial owner

Issue when relying on another entity's process if the process has not been refreshed – depends on the relying party's risk-based systems and controls

June 2014 reforms: transitional issues (2)

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June 2014 changes require the 'beneficial owner' of a customer to be ascertained in all cases, and their name and DOB or address verified

beneficial owner: of a person who is a customer of a reporting entity, means an individual who ultimately owns or controls (directly or indirectly) the customer;

In this definition: control includes control as a result of, or by means of, trusts, agreements, arrangements, understandings and practices, whether or not having legal or equitable force and whether or not based on legal or equitable rights, and includes exercising control through the capacity to determine decisions about financial and operating policies; and

In this definition: owns means ownership (either directly or indirectly) of 25% or more of a person.

What is a beneficial owner, anyway?

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4.12.9 If the reporting entity is unable to ascertain a beneficial owner, the reporting entity must identify and take reasonable measures to verify:

(1) for a company (other than a company which is verified under the simplified company verification procedure under paragraph 4.3.8 of these Rules) or a partnership, any individual who:

(a) is entitled (either directly or indirectly) to exercise 25% or more of the voting rights, including a power of veto, or

(b) holds the position of senior managing official (or equivalent);

(2) for a trust (other than a trust which is verified under the simplified trustee verification procedure under paragraph 4.4.8 of these Rules), any individual who holds the power to appoint or remove the trustees of the trust;

What is a beneficial owner, anyway? (2)

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Trusts are not legal persons, but relationships between a trustee, a beneficiary, and the corpus of the trust

FATF Requirements are settled by a combination of Civil Law and Common Law countries

'Beneficial owner' definition is from FATF

Trustees must already be ascertained, and full ID done on the trustee or (if more than one), one of them (being an individual or a company)

Beneficiaries must already be ascertained by name or class description


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Much controversy about what else needs to be done

Recall that Act treats trusts as though they were legal persons (cf Privacy Act, NCCP Act and others)

Taking the trust as a whole as though it were a legal person, the trust does not have an 'owner'. A beneficiary has an interest in the assets, but does not own the relationship among the trustee, the beneficiaries and the assets

The question becomes 'who is really in charge'

Look for the individual who is actually in control (often pretty clear)


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In 2005, Australia's systems were rated:

Compliant: 12/49

Largely compliant: 14/39

Partially compliant: 13/49

Non-compliant: 10/49

In 2014, Australia's systems were still regarded as non-compliant in key respects (hence the 1 June 2014 amendments)

FATF Mutual evaluation

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2015:“Australia has made sound progress in implementing the FATF international standards for combating money laundering and terrorism financing since its last evaluation in 2005. While the FATF recognises the positive improvements made by the Australian government, we seek to encourage further actions in a number of areas highlighted in this report", - FATF Vice President, Je-Yoon Shin.

Changes to correspondent banking due diligence, more regulation of some low value products, lawyers, accountants, jewellers and real estate industry

More information on legal persons and arrangements

FATF Mutual evaluation (2)

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Late 2013: Submissions called for February (extended to March) on operation of the Act

March – April 2014: FATF mutual evaluation

November 2014: AUSTRAC expressed view in meetings that legislation might be presented Q4 2015

Hopefully, some tidying up of bad definitions

Some change to services: reloadable payment cards

Possibly additional cases for 'reliance' on other REs

Review of the Act

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Most likely: 'tranche 2': legal profession, real estate, company and trust services, jewellers

Most likely: covered by same <appropriate?> regime as current reporting entities

Caused major disruption when implemented in other jurisdictions (even those whose AML controls are implemented on a proper risk-based approach)

Review of the Act (2)

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