ANTI-MONEY LAUNDERING AND COUNTER-TERRORISM FINANCING AMENDMENT REGULATIONS 2011 (NO. 1) (SLI NO 228 OF 2011) EXPLANATORY STATEMENT

Commonwealth Numbered Regulations - Explanatory Statements

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ANTI-MONEY LAUNDERING AND COUNTER-TERRORISM FINANCING AMENDMENT REGULATIONS 2011 (NO. 1) (SLI NO 228 OF 2011)

EXPLANATORY STATEMENT

Select Legislative Instrument 2011 No. 228

Issued by the authority of the Minister for Home Affairs

Anti-Money Laundering and Counter-Terrorism Financing Act 2006

Anti-Money Laundering and Counter-Terrorism Financing Amendment Regulations 2011

(No. 1)

Section 252 of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (the Act) provides, in part, that the Governor-General may make regulations prescribing matters required or permitted to be prescribed by the Act, or necessary or convenient to be prescribed for carrying out or giving effect to the Act.

Part 9 of the Act allows regulations to the Act to apply to countermeasures which regulate or prohibit the entering into of transactions with residents of prescribed foreign countries.

The Regulations amend the Anti-Money Laundering and Counter-Terrorism Financing Regulations 2008 to implement recommendations from the Financial Action Task Force for all jurisdictions to apply countermeasures to protect the financial system from the money laundering and terrorist financing risks emanating from Iran.

The Regulations also coincide with sanctions being introduced by a range of agencies to implement United Nations Security Council Resolution 1929 (2010) regarding Iran's failure to comply with international requirements for its nuclear program.

The Regulations consist of:

* A prohibition - on high money laundering and terrorist financing risk transactions for amounts of $20,000 or more where a party to a transaction is in Iran or a company incorporated in Iran (unless the transaction involves the Commonwealth, State or Territory Governments or the Iranian Embassy in Canberra). High risk transactions have been identified as issuing or dealing with bills of exchange, promissory notes and letters of credit, as well as international funds transfers and remittances.

* An exemption scheme - which provides that all transactions of a particular business may be exempted from the prohibition. Individual transactions may be exempted on a case by case basis.

Details of the Regulations are included in the Attachment.

The Act specifies no conditions that need to be satisfied before the power to make the proposed Regulations may be exercised.

The Regulations are a legislative instrument for the purposes of the Legislative Instruments Act 2003.

The Regulations commence on 1 March 2012 to allow implementing agencies AUSTRAC and the Department of Foreign Affairs and Trade to prepare their systems for changes.

The Minute recommends that Regulations be made in the form proposed.

Authority: Section 252 of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006

ATTACHMENT

Details of the proposed Anti-Money Laundering and Counter-Terrorism Financing Amendment Regulations 2011 (No 1)

Regulation 1 - Name of Regulations

This regulation provides that the title of the Regulations is the Anti-Money Laundering and Counter-Terrorism Financing Amendment Regulations 2011 (No. 1).

Regulation 2 - Commencement

This regulation provides for the Regulation to commence on 1 March 2012.

Regulation 3 - Amendment of Anti-Money Laundering and Counter-Terrorism Financing Regulations 2008

This regulation provides that the Anti-Money Laundering and Counter-Terrorism Financing Regulations 2008 are amended as set out in the Schedule.

Schedule - Amendments

Item [1]

This item inserts a new heading to clarify the Regulations by introducing a new Part 1.

Item [2]

This item inserts a note to outline the words and expressions that are defined in the Act. This allows for enhanced cross-referencing between the Act and the Regulations.

Item [3]

This item inserts a new heading to clarify the Regulations by introducing a new Part 2.

Item [4]

This item inserts a new Part 3 of the Regulations, including new Regulations 5 to 9.

Regulation 5 defines key terms used in Part 3. "Department" is currently undefined in the Act, thus a definition is needed to clarify the Department referred to in the Regulations as being the Department that deals with external affairs. This definition allows for a change in title of this Department.

"Secretary" is defined as the Secretary of the Department that deals with external affairs. This definition also allows for a change in title of this Department.

Regulation 6 states that Iran is the country dealt with under the Act. The listing of Iran as a prescribed foreign country allows Australia to implement countermeasures via regulations.

Regulation 7 outlines the prohibition requirements.

A transaction is prohibited if:

it is greater than $20,000 and involves the provision of one or more designated services by a reporting entity; and
the reporting entity is aware, or ought reasonably to be aware, at the time of the transaction, that a party to the transaction is an individual who is physically present in Iran, or a corporation incorporated in Iran (unless the transaction involves the Commonwealth, State or Territory Governments or the Iranian Embassy in Canberra); and
the transaction involves the provision of one or more of the services mentioned in items 17, 29, 30, 31, 32 or 34 of table 1 in section 6 of the Act.

The maximum penalty applicable under any countermeasure regulation is 50 penalty units. Section 252 of the AML/CTF Act which allows regulations such as the proposed countermeasures to be made also limits the penalty that may be prescribed. The proposed offences and penalties would be set at the maximum allowable limit. This penalty is low considering the intentions of countermeasure regulations.

Regulations 8 and 9 introduce exemptions to the prohibitions.

A person may apply for an exemption from the Secretary of the Department if the Secretary considers that the transaction:

is necessary for a basic expense;
is legally or contractually required to satisfy a judgement or agreement made before 1 March 2012; is a significant trade transaction that would affect Australia's relationship with Iran or the viability of an Australian business if not completed; or
is a transaction related to the provision of aid or humanitarian services.

Applications for individual transaction exemptions will be deemed to be granted after a period of 28 days if no response is provided, or if within the 28 days a response is provided saying that the Secretary is considering the application but no response is provided within 56 days after the application is made.

The exemption scheme will be administered by the Department that deals with external affairs, currently Department of Foreign Affairs and Trade, on the basis that the scheme overlaps with its existing role in administering the sanctions regime for Iran. The Department that deals with external affairs is also best placed to assess the legitimate trade exemption criteria.

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