Senate

Supplementary Explanatory Memorandum

(Circulated by authority of the )

NOTES ON AMENDMENTS

Preliminary Clause 2 - Commencement

Amendments 1 to 4: Clause 2, page 2

1. Amendment 1 would insert new Schedule 5, items 1 and 2 into the commencement table, with Schedule 5, item 1 (the repeal of definitions) commencing on 31 March 2026 and Schedule 5, item 2 (the new tipping off offence) commencing on 31 March 2025.

2. These amendments mean the commencement of the new tipping off offence is 31 March 2025.

3. Amendment 2 provides that Schedule 5, Part 1, Division 2 (disclosure of AUSTRAC information to foreign countries or agencies) will still commence on 31 March 2026. The repeal of definitions in Schedule 5, item 1 above is linked to the commencement of these provisions.

4. Amendments 3 and 4 are consequential to the amendment made by Amendment 1.

SCHEDULE 1 - AML/CTF PROGRAMS AND BUSINESS GROUPS

Amendments 5 and 6: Schedule 1, item 19, page 9

5. These amendments would insert a new subparagraph 10A(1)(a)(iv), which would empower the AUSTRAC CEO to make AML/CTF Rules that determines the conditions relating to membership, dissolution, administration or operation of default reporting groups

Amendment 7: Schedule 1, item 19, page 9 (line 22)

6. Amendment 7 would insert a new subparagraph 10A(1)(b)(vi), which would empower the AUSTRAC CEO to make AML/CTF Rules that determines the conditions relating to membership, dissolution, administration or operation of elective reporting groups.

Amendment 8: Schedule 1, item 19, page 9 (after line 22)

7. Amendment 8 would insert a new subsection 10A(1A), which would clarify that entities that would otherwise be members of a default reporting group can be part of an elective group. New provision (1B) will empower the AUSTRAC CEO to make AML/CTF Rules that may make exceptions to the requirement for every member of an elective group to have made a written election.

Amendment 9: Schedule 1, item 19, page 9 (after line 24)

8. Amendment 9 would insert a new subsection 10A(2A). This would empower the AUSTRAC CEO to make AML/CTF Rules that determine to which reporting group an entity belongs, where they would otherwise belong to two or more reporting groups.

9. This rule-making power is appropriate as reporting entities have a wide range of business structures, and require flexibility for future updates. Addressing this through the AML/CTF Rules would provide maximum flexibility to allow AUSTRAC to be responsive to the possibly unique structures that may seek to benefit from forming a reporting group, without placing unnecessary burden on parliamentary processes.

Amendment 10: Schedule 1, item 24, page 18 (lines 31 and 32)

10. Amendment 10 would replace section 26F(8) and clarify that a reporting entity must not commence to provide a designated service to a customer if the reporting entity does not comply with its obligation to develop and maintain policies, procedures, systems and controls to manage and mitigate its ML/TF risks, as outlined in section 26F(1).

11. The amendment would also insert a new subsection (8A) to specify that subsection 26F(8) is a civil penalty provision. This amendment would clarify the timing at which civil penalties are incurred, i.e. when a reporting entity provides designated services where they have not developed, and do not maintain, required AML/CTF policies.

Amendments 11 and 12: Schedule 1, item 24, pages 18 and 19

12. These amendments would update the reference to the civil penalty provision in section 26F as amended per Amendment 10.

Amendment 13: Schedule 1, item 24, page 20 (lines 2 to 11)

13. Amendment 13 would remove new subsections 26G(4) and (5) of Schedule 1 to simplify the application of civil penalties. Section 26G provides that the AML/CTF policies developed by the reporting entity must be complied with, or the reporting entity is liable to a civil penalty. Subsections 26G(4) and (5) provide an explicit method for calculating penalties.

14. By removing subsections 26G(4) and (5), this amendment will clarify that a reporting entity will not automatically be subject for individual penalties for every designated service provided to a customer in breach of their AML/CTF policies. This will mean that there is flexibility for the courts to determine whether conduct amounts to a single breach or multiple breaches of the penalty provision, ultimately allowing for the application of penalties to be made in a way that considers and reflects the severity of the offence.

15. The deletion of sections 26G(4) and (5) will also remove the distinction between the provision of designated services provided domestically and those provided internationally, reflecting that courts will have flexibility in how to determine appropriate civil penalties in these cases.

Amendment 14: Schedule 1, item 24, page 27 (line 29)

16. Amendment 14 would insert a new paragraph 26T(3)(c) into the AML/CTF Act. This would exempt Australian Financial Services Licence (AFSL) holders that only provide the designated service at item 54 of table 1 of section 6 of the AML/CTF Act from the requirement at section 26P(2) that a reporting entity's governing body must be notified of updates to a reporting entity's ML/TF risk assessment as soon as practicable after the update is made.

17. Reporting entities that hold an AFSL and only provide the item 54 designated service are currently only required to comply with the CDD requirements in relation to AML/CTF programs, due to the low risk presented by these entities.

18. The Bill extended this position by providing certain exemptions at section 26T for item 54 only entities, including an exemption from the responsibilities of governing bodies at section 26H.

19. This amendment would extend these exemptions to section 26P(2). This will provide a more uniform approach for item 54 only reporting entities in relation to the obligations of governing bodies, which is commensurate with the risk profile of these reporting entities.

Amendment 15: Schedule 1, page 31 (after line 7)

20. Amendment 15 would insert new section 35A into Schedule 1 which would reinstate paragraph 123(1)(a) upon commencement of Schedule 1 of the Bill. This is consequential to the amendments that would bring forward the tipping off offence to 31 March 2025 (at Amendments 1 to 4 above).

SCHEDULE 2 - CUSTOMER DUE DILIGENCE

Amendment 16: Schedule 2, item 5, page 38 (lines 1 and 2)

22. Amendment 16 would amend the definition of 'domestic politically exposed person' in section 5 to remove the reference to 'Australian government body', and replace it with '(whether or not in or for the Commonwealth)'. This is intended to ensure the AUSTRAC CEO is empowered to make AML/CTF Rules that specify positions that are exposed to significant illicit financing risk, such as important political party officials in Australia and board members of Commonwealth, state and territory business enterprises.

23. The phrase '(whether or not in or for the Commonwealth)' has been used to provide contrary intention to section 21 of the Acts Interpretation Act 1901, which provides that references to any officer or office in any Act shall be construed as references to such officer or office in and for the Commonwealth.

24. The amendment would also ensure compliance with the Financial Action Task Force (FATF) Standards, noting Australia was criticised for not covering important political party officials in the 2015 mutual evaluation of Australia's AML/CTF regime.

Amendment 17: Schedule 2, item 7, page 44 (line 29) to page 45 (line 3)

25. Amendment 17 would replace and insert new subsection 28(9) to clarify the application of the civil penalty provision for domestic reporting entities. The amendment provides that a reporting entity that contravenes subsection 28(1) in relation to a customer commits a separate contravention of that subsection in respect of each designated service that they provide to the customer at or through a permanent establishment of the reporting entity in Australia.

26. Amendment 17 would replace and insert new subsection 28(10) to clarify the application of the civil penalty provision for foreign branches and subsidiaries of Australian reporting entities. The amendment provides that a reporting entity that contravenes subsection 28(1) in relation to a customer commits a separate contravention of that subsection on each day that they provide designated services to the customer at or through a permanent establishment of the reporting entity in a foreign country.

Amendment 18: Schedule 2, item 7, page 45 (line 5)

27. This amendment is consequential to Amendment 19 and removes the numbering of the subsection. Please see Amendment 19 for further information.

Amendment 19: Schedule 2, item 7, page 45 (line 30) to page 46 (line 3)

28. Amendment 19 would remove subsections 29(2) and 29(3). New section 29 provides that a reporting entity may commence providing a designated service to a customer before conducting initial customer due diligence (CDD) in certain circumstances. The amendment clarifies that new section 29 is an exemption to the initial CDD obligation in section 28(1). That is, a reporting entity must comply with the initial CDD requirements in section 28(1), unless there are circumstances that exempt them from those requirements under section 29.

29. In the event that an exemption in section 29 does not apply, for example, they fail to meet the conditions set out in that section, the reporting entity will have failed to comply with section 28. A reporting entity would therefore be liable for civil penalty under section 28 for non-compliance with their initial CDD obligation in relation to a customer.

Amendment 20: Schedule 2, item 7, page 48 (lines 12 to 21)

30. Amendment 20 would insert new subsection 30(7) in order to clarify the application of the civil penalty provision for domestic reporting entities. The amendment provides that a reporting entity that contravenes subsection 30(1) in relation to a customer commits a separate contravention of that subsection in respect of each designated service that they provide to the customer at or through a permanent establishment of the reporting entity in Australia.

31. Amendment 20 would also insert new subsection 30(8) in order to clarify the application of the civil penalty provision for foreign branches and subsidiaries of Australian reporting entities. The amendment provides that a reporting entity that contravenes subsection 30(1) in relation to a customer commits a separate contravention of that subsection on each day that they provide designated services to the customer at or through a permanent establishment of the reporting entity in a foreign country.

SCHEDULE 3 - REGULATING ADDITIONAL HIGH-RISK SERVICES

Amendment 21: Schedule 3, item 1, page 58 (line 31)

32. Amendment 21 would change the definition of 'real estate' to exclude a leasehold interest for a term (excluding options for further terms) of 30 years or less.

33. As introduced, the definition of 'real estate' in Item 1 of Part 1 of Schedule 3 of the Bill would exclude leasehold interests of 20 years or less (not including options for further terms).

34. This amendment would respond to stakeholder feedback and accommodate arrangements entered into for long term commercial leases in the logistics sector, which have a duration of greater than 20 years.

35. This minimum term of 30 years would continue to exclude ordinary commercial leases under the AML/CTF regime, while also ensuring that regulation applies consistently across the AML/CTF Act, for example, where land rights are granted as leasehold interests or estates in place of fee simple estates (such as in the Australian Capital Territory).

Amendment 22: Schedule 3, item 9, page 65 (starting at line 26)

36. Item 9 of Schedule 3 of the Bill, as introduced, removed the exception for 'exempt legal practitioner services' from item 46 of table 1 of section 6 of the AML/CTF Act (provision of custodial or depository services).

37. Amendment 22 amends Item 9 to introduce a general rule-making power for the AML/CTF Rules to specify activities that are exempt from item 46 of table 1. This approach replaces the concept of an 'exempt legal practitioner service' in existing item 46 to allow for low-risk activities to be carved out via the AML/CTF Rules while adopting a profession-neutral stance. This recognises that these activities may be provided by a variety of sectors.

38. Amendment 22 responds to industry concerns that certain professional service providers who provide a custodial or depository service in the ordinary course of carrying on a business without an underlying or proposed transaction would be captured by designated services in item 46 of table 1. This could include, for example, holding original wills, title deeds or contracts in a law firm's safe.

39. For clarity, the intention is to only capture custodial or depository services provided by professional service providers where they pose money laundering, terrorism financing or proliferation financing risk, e.g. where an underlying or proposed transaction accompanies such services. Item 3 of proposed new table 6 (Professional services) in the Bill already captures this designated service.

40. By way of illustration, a lawyer who keeps a client's will in their firm's safe would not need to carry out AML/CTF obligations in relation to that service.

41. This amendment would ensure that only those custodial or depository services provided by professional service providers which pose money laundering, terrorism financing and proliferation financing risk are captured for the purposes of the AML/CTF regime.

Amendment 23: Schedule 3, item 10, page 66 (table items 1 and 2)

42. Amendment 23 would provide an exception for sales, purchases or transfers of 'real estate', a body corporate or 'legal arrangement', which are pursuant to, or resulting from, an order of a court or tribunal. Items 1 and 2 of new table 6 in the Bill as introduced only provides an exception for transfers of 'real estate', a body corporate or 'legal arrangement'.

43. This amendment has the effect of excluding, for example, the regulation of:

•

estate lawyers' involvement in a sale, purchase or transfer of 'real estate', a body corporate or 'legal arrangement' from a deceased estate following court ordered grant of probate or letters of administration

•

family lawyers' involvement in sales, purchases or transfers of 'real estate', a body corporate or 'legal arrangement' from a married or de facto couple to one of the former partners or a third party in a property settlement following separation when ordered by a court, including the drafting of consent orders, or

•

a trustee in bankruptcy appointed by a court or the Australian Financial Security Authority, or a registered liquidator appointed by a court to sell, purchase or transfer 'real estate', a body corporate or 'legal arrangement' to a creditor.

44. This amendment reflects feedback that items 1 and 2 as introduced would capture an 'adjustment' of interests in real property pursuant to sections 79 and 90SM of the Family Law Act 1975. Operationally, an order altering interests in property is given effect by a 'sale', 'purchase' or other 'transfer' of a party's interest in that property.

45. This amendment also ensures regulation focuses on higher-risk services vulnerable to illicit financing exploitation.

Amendment 24: Schedule 3, Part 3, page 70 (after line 12)

46. Amendment 24 would put beyond doubt the application of the AML/CTF regime to barristers.

47. Amendment 24 would insert a new section 6B into the AML/CTF Act, that clarifies that a service is not a designated service if the service is provided by a person in the course of legal practice as a barrister on the instructions of a solicitor, if the instructions are given in connection with the provision of a designated service. The term 'barrister' is intended to take its ordinary meaning.

48. This amendment acknowledges that the majority of work undertaken by barristers is performed on instruction from a solicitor who has the direct relationship with the client. By way of example, if a barrister were engaged by a solicitor to assist in the planning of a transaction to transfer a body corporate on behalf of the solicitor's client, this would not constitute the barrister providing designated services, and would not trigger AML/CTF obligations for the barrister. In this scenario, the solicitor would be responsible for carrying out AML/CTF obligations on the client.

49. If a barrister is engaged directly by a client, and does legitimately provide a designated service, they would be regulated by the AML/CTF regime. This approach aligns with the AML/CTF regime's designated services model, which establishes that susceptibility to ML/TF exploitation lies in specific high-risk services rather than professions. It also seeks to avoid the potential for risk displacement that may occur as a result of a blanket exemption for barristers should criminals seek to directly brief barristers on the provision of designated services.

SCHEDULE 5 - TIPPING OFF OFFENCE AND DISCLOSURE OF AUSTRAC INFORMATION TO FOREIGN COUNTRIES OR AGENCIES

Amendment 25: Schedule 5, item 2, pages 81 (line 24) and 82 (line 6)

50. Amendment 25 would remove paragraph 123(1)(a) and replace it with a limited subset of people who would be captured by the reformed tipping off offence. In particular, this amendment removes reference to 'a member of a reporting group' and 'an officer, employee or agent of a member of a reporting group'.

51. This is a bridging provision, because as outlined at Amendment 1 above, the new tipping off offence would now commence on 31 March 2025. There are interdependencies with the new concept of 'reporting groups' in Schedule 1 of the Bill. It is necessary to remove references to 'reporting group' and 'member of a reporting group' from paragraph 123(1)(a) as introduced, because the reporting group concepts will not be in place until 31 March 2026, 12 months after the tipping off offence commences.

52. Upon commencement Schedule 1, paragraph 123(1)(a) will be reinserted into the tipping off offence to include a member of a reporting group and an officer, employee or agent of a member of a reporting group.

SCHEDULE 8 - TRANSFERS OF VALUE AND INTERNATIONAL VALUE TRANSFER SERVICES

Amendment 26: Schedule 8, item 14, page 100 (line 17)

53. Amendment 26 would correct a drafting error and clarifies the intended definition of 'transfer of value' by removing 'other' from the definition, so that it does not refer to other property. This aligns with the existing definition in section 5 of the AML/CTF Act which explicitly excludes money and virtual assets from the definition of 'property'.

Amendment 27: Schedule 8, item 22, page 102 (line 11)

54. Amendment 27 would update the simplified outline in new section 63 to state that the Part will provide that the obligations of a beneficiary institution relate to the information it receives or otherwise obtains as part of a value transfer.

55. This recognises that there will be some circumstances in value transfer chains where the ordering and beneficiary institutions are the same institution. There may also be circumstances where a beneficiary institution does not receive correct or complete information and must therefore conduct due diligence to obtain the appropriate information.

Amendment 28: Schedule 8, item 22, page 102 (line 19) to page 103 (line 14)

56. Amendment 28 would remove the proposed definition of 'ordering institution' (subsection 63A(1) to (3)) from the Bill.

57. The list in subsection 63A(2) provides the criteria for which institution in a value transfer chain is to be considered the 'ordering institution'. The criteria are complex and may be subject to changing technology and anticipated changes to the FATF Standards. These terms require flexible definitions for a range of circumstances and transactions, and should be moved to the AML/CTF Rules to avoid unnecessary burden on parliamentary processes.

58. This amendment substitutes the detailed definition of 'ordering institution' with a power for the AUSTRAC CEO to make AML/CTF Rules that would provide the definition of 'ordering institution'. These definitions will be developed in consultation with industry stakeholders.

Amendment 29: Schedule 8, item 22, page 103 (line 17)

59. Amendment 29 would clarify that an objective test is applied in the exception for persons that are not considered an 'ordering institution'.

60. The amendment replaces the word 'incidentally' with 'in circumstances where the transfer is reasonably incidental'. The element of reasonably incidental clarifies the scope of what is considered an ordering institution and the obligations it entails.

61. This amendment would exclude businesses that transfer value only reasonably incidentally to another service from being considered an ordering institution. This amendment provides clarity to reporting entities and AUSTRAC as the AML/CTF regulator.

Amendment 30: Schedule 8, item 22, page 103 (line 28) to page 104 (line 18)

62. Amendment 30 would remove the proposed definition of 'beneficiary institution' (subsection 63A(5) to (8)) from the Bill.

63. The list in subsection 63A(6) provides the criteria for which institution in a value transfer chain is to be considered the 'beneficiary institution'. The criteria are complex and may be subject to changing technology, and anticipated changes to the FATF Standards. These terms require flexible definitions for a range of circumstances and transactions, and should be moved to the AML/CTF Rules to avoid unnecessary burden on parliamentary processes.

64. This amendment substitutes the detailed definition of 'beneficiary institution' with a power for the AUSTRAC CEO to make AML/CTF Rules to provide the definition of 'beneficiary institution'. This definition will be developed in consultation with industry stakeholders.

Amendment 31: Schedule 8, item 22, page 104 (line 21)

65. Amendment 31 would clarify that an objective test is applied to the exception for persons that are not considered a beneficiary institution.

66. The amendment replaces the word 'incidentally' with 'in circumstances where the making available of the value is reasonably incidental'. The element of 'reasonably incidental' clarifies the scope of what is considered a beneficiary institution and the obligations it entails.

67. This would exclude businesses that transfer value only reasonably incidentally to another service from being considered a beneficiary institution.

Amendment 32: Schedule 8, item 22, page 106 (line 5)

68. Amendment 32 would clarify the obligations of ordering institutions in relation to the information they transfer.

69. By including 'or otherwise gives effect to the transfer of value', this amendment acknowledges that there may be different ways for an ordering institution to give effect to a value transfer and initiate a value transfer chain, for example, where the ordering institution is the only institution involved in the transfer of value. This can occur where the same institution provides services to both the payer (ordering institution) and payee (as beneficiary institution), or the transfer involves a self-hosted virtual asset wallet where there may be no beneficiary institution.

Amendment 33: Schedule 8, item 22, page 107 (lines 12 to 21)

70. Amendment 33 would replace new subsection 65(3) with a new formulation to accommodate the amendments made in Amendments 32 and 34.

71. The new formulation of subsection 65(3) clarifies the obligations of the beneficiary institution in the value transfer chain where it has not received 'or otherwise obtained' the appropriate information to give effect to the transfer.

Amendment 34: Schedule 8, item 22, page 108 (line 16)

72. Amendment 34 would clarify the obligations of intermediary institutions in relation to the information they transfer.

73. By including 'and the intermediary institution has not otherwise obtained the information', this amendment recognises that intermediary institution may obtain missing information in a value transfer chain as part of money laundering, terrorism financing and proliferation financing risk mitigation and then pass it on to the next institution in the value transfer chain.

Amendments 35 to 37: Schedule 8, item 22, page 110 (lines 3, 4 and 7)

74. These amendments would remove reference to a custodial wallet from subsection 66A(3). This prevents potential misinterpretation that the custodial wallet itself is considered a beneficiary institution.

75. The subsection as amended would clarify that the person controlling the wallet is the intended beneficiary institution, as a person is not a custodial wallet.

Amendment 38: Schedule 8, item 22, page 110 (line 35)

76. Amendment 38 is consequential to those made by Amendment 32.

77. The subsection as amended accommodates for the circumstances where an ordering and beneficiary institution in a value transfer chain are the same institution and the beneficiary institution has 'obtained' the appropriate information.

Amendment 39: Schedule 8, item 22, page 111 (line 2)

78. Amendment 39 would fix a minor cross-referencing error. The correct reference is subsection 65(2).

Amendment 40: Schedule 8, item 38, page 117 (line 23)

79. Amendment 40 would clarify the scope of reports about the provision of transfers of value involving unverified self-hosted virtual asset wallets. Paragraph 46A(1)(c) as amended would clarify that verification processes for a self-hosted wallet should be targeted at determining the person who has control of the wallet, and if this is not done, a report must be made to AUSTRAC.

SCHEDULE 9 - POWERS AND DEFINITIONS

Amendment 41: Schedule 9, page 140 (after line 13), after item 26

80. Amendment 41 would update the existing definition of 'qualified accountant' in section 5 of the AML/CTF Act to include a person who is a member of the Institute of Public Accountants.

81. The amendment would respond to stakeholder feedback, particularly from the accounting sector, and bring the definition in line with the Corporations Act 2001.

82. The AUSTRAC CEO would still be empowered to specify additional bodies whose members would be considered 'qualified accountants' under the AML/CTF Act.

SCHEDULE 10 - EXEMPTIONS

Amendment 42: Schedule 10, item 6, page 145 (lines 19 to 23)

83. Item 6 of Schedule 10 of the Bill, as introduced, removed the exception for 'exempt legal practitioner services' from item 47 of table 1 of section 6 of the AML/CTF Act (provision of safe deposit box or similar facility services).

84. Amendment 42 amends Item 6 to introduce a general rule-making power for the AML/CTF Rules to specify activities that are exempt from item 47 of table 1. This approach replaces the concept of an 'exempt legal practitioner service' in existing item 47 to allow for low-risk activities to be carved out via the AML/CTF Rules while adopting a profession-neutral stance. This recognises that these activities may be provided by a variety of sectors.

85. Amendment 42 responds to industry concerns that certain professional service providers who provide a safe deposit box or similar facility service in the ordinary course of carrying on a business without an underlying or proposed transaction would be captured by designated services in item 47 of table 1. This could include, for example, holding original wills, title deeds or contracts in a law firm's safe deposit box.

86. For clarity, the intention is to only capture safe deposit box or similar facility services provided by professional service providers where they pose money laundering, terrorism financing or proliferation financing risk, e.g. where an underlying or proposed transaction accompanies such services. Item 3 of proposed new table 6 (Professional services) in the Bill already captures this designated service.

87. By way of illustration, a lawyer who keeps a client's will in their firm's safe deposit box would not need to carry out AML/CTF obligations in relation to that service.

88. This amendment would ensure that only those safe deposit box or similar facility services provided by professional service providers which pose money laundering, terrorism financing and proliferation financing risk are captured for the purposes of the AML/CTF regime.