Jan 29 2008 Nathan Lynch in Sydney
The Australian money laundering regulator has closed a loophole that had exempted certain fund managers from the Anti-Money Laundering and Counter-Terrorism Financing Act 2006. The Australian Transaction Reports and Analysis Centre said that from January 31 regulations would take effect to "ensure that companies that carry on a business of issuing or selling interests in managed investment schemes are providing a designated service under Item 35 of Table 1 in Section 6 of the AML/CTF Act".
In December last year AUSTRAC discovered that a clash between the AML/CTF Act and the Corporations Act had excluded businesses that issue interests in managed investment schemes from the new regulatory regime, such as fund managers. Richard Batten, partner at Minter Ellison, explained at the time: "In the AML/CTF Act there is a referral to the definition of 'securities' in Section 92 of the Corporations Act. The AML/CTF Act uses this definition, which includes managed investment schemes, so that was how they came to be regulated as 'securities' under the AML/CTF Act.
"The exemption under Paragraph (b) of Item 35 in Table 1 of Section 6, in combination with the definition in Section 92 of the Corporations Act, meant that responsible entities were technically exempt, according to [AUSTRAC], when issuing interests in managed investment schemes," Batten added.
The provision was designed to exempt companies that issue their own securities, such as company shares.
A stitch in time
The regulator said in a policy update that the loophole had been closed through its latest regulation, which the agency's chief executive was empowered to issue under the Act. "AUSTRAC's general view on this matter is that reporting entities are required to comply with provisions of the AML/CTF Act, rules and regulations from the date at which they come into effect," it said.
AUSTRAC said there was no need to prolong the deadline for affected firms, given that there was already a 15-month moratorium on criminal penalties. "Businesses issuing or selling interests in [managed investment schemes] have had sufficient lead time to undertake preparatory work to ensure compliance, given it was always the government's intention for the AML/CTF Act to cover the issue of interests in managed investment schemes," it noted.
The regulator implied, however, that it would offer concessions to any firms that found themselves in breach of the regulations due to the new implementation date.
"AUSTRAC understands that there are lead times for implementation which may mean that entities cannot comply with customer identification immediately ... Well-intentioned entities who — at any time — find they are or will be seriously non-compliant, can approach AUSTRAC with a view to negotiating a practical solution," it stated.
