Money laundering is the process of disguising the illegal or unlawful origins of money or property and disguising of ownership of illegal property to enable criminals to use and enjoy the funds without attracting government attention. It can take various forms and use a variety of methods. All the processes are designed to disguise the illegal or unlawful origin, particularly of cash. It takes place in three stages:
- the direct or indirect placement of funds generated by crime into the financial system
- separating illicit proceeds from the source by disguising the audit trail to provide anonymity
- laundering the proceeds back into the community through various means to make the money appear legitimate.
When verifying a client’s identification document, you should:
- compare the identity documents against the information provided in the client’s onboarding form
- identify any inconsistencies between documents or between the documents and the onboarding form
- be reasonably satisfied that the document is genuine
- if the document contains a signature, ensure that the signature is consistent with the client’s
- compare the photographic ID directly against the client’s physical appearance
- sight the original document and ensure that it is current
- record the unique identifier (eg: passport or licence number), date of expiry, issue or production.
- Documents that appear forged or altered.
- Identity documents in an unexpected format.
- The client being reluctant or vague when asked to prove their identity.
- Identification that uses common identifiers shared by multiple unrelated people.
- Technology Risks: be aware of the potential use of artificial intelligence or deepfakes to generate fraudulent ID.
Practices may outsource functions relating to their compliance for a range of reasons, such as accessing specialist knowledge and expertise, and managing the cost of compliance.
Outsourcing means entering into an arrangement with a third party to carry out certain AML/CTF functions on your behalf. Depending on the services you provide, you may outsource on a one-time basis (for example, to have someone deliver your AML/CTF training) or on an ongoing basis (for example, to carry out customer due diligence).
Remember, if you outsource your AML/CTF functions, you remain responsible for complying with your obligations under the AML/CTF Act and Rules. Generally, your business will remain legally liable for any breach of obligations, even under outsourcing arrangements.
Reporting entities can be exempt from their AML/CTF compliance in certain circumstances:
- As set out under the AML/CTF Act
- By making an application to create an exemption through the Anti-Money Laundering and Counter-Terrorism Financing (Class Exemptions and other Matters) Rules 2007 (the Exemption Rules)
- Applying to AUSTRAC to have an exemption or modification granted specifically to them.
There are certain professional services that are exempt and practitioners can see that list: Exemptions from AML/CTF obligations | AUSTRAC and in the Exemption Rules.
Nb: certain designated services that may be provided by Legal Aid or Community Legal Centres are exempt – see Chapter 9 of the Exemption Rules.
AUSTRAC have stated that they regulate ‘businesses that provide services to an external customer who is a separate legal person to the business’. In-house Counsel that provide legal advice to their employer will not be providing a designated service to an external customer. This does not mean that their employer may not necessarily be a reporting entity under the AML/CTF regime.
The REIQ contracts will not be updated as a result of the AML obligations.
The REIQ contract is an agreement between a buyer and a seller. It is not appropriate for this agreement to deal with AML/CTF obligations such as CDD.
Reporting entities with AML/CTF obligations in Queensland real estate transactions will typically include the real estate agent or the seller/developer with their own internal sales team, the seller’s solicitor and the buyer’s solicitor.
The reporting entities (the real estate agent and the solicitors) are the entities with CDD obligations, who are not usually the parties to the transaction. The contract should not deal with any arrangements between a party and the solicitors, or a party and the agent unless the seller is a developer who sells the property directly to the buyer through an in-house agent or internal sales team without engaging a third-party agent. In that case, the seller may add appropriate special conditions to the contract, if required.
For solicitors, complying with the AML/CTF obligations is a matter between the solicitor and their client and cannot be dealt with in the agreement between the buyer and seller. A solicitor, as a reporting entity under the AML/CTF legislation, must carry out customer due diligence (CDD) as part of their compliance obligations, but this obligation only applies to their own customer (client). See our Customer Due Diligence FAQs confirming a solicitor only needs to carry out CDD for their own client.