Proposed reforms to Australia's AML/CTF regime: Simplifying the IFTI reporting regime
06 September 2024
06 September 2024
As part of the second stage of consultation on the proposed reforms to Australia’s anti-money laundering and counter-terrorism financing (AML/CTF) laws, the Attorney-General's Department (AGD) has proposed a legislative overhaul of the international funds transfer instruction (IFTI) reporting regime. If the AGD moves forward with the proposed reforms, these changes could have a significant impact on remittance providers and financial institutions that are currently required to comply with the regime. Relevantly, if implemented, the IFTI reporting obligation will apply to the person with the relationship with the payer or payee (as opposed to the person that sends or receives the instruction across the border) and the types of international transfers captured by the IFTI reporting obligation will change. Of course, the devil will be in the detail and whether the proposed reforms achieve these desired outcomes will depend on the drafting of the reforms.
The IFTI reporting regime's complexity, particularly in relation to modern payment services, has been a long-standing concern amongst remittance providers and financial institutions.
Currently, an entity will have an IFTI reporting obligation if it is the sender of an instruction to transfer funds out of Australia or it is the recipient of an instruction to transfer funds into Australia. Complexities can arise where there are multiple institutions interposed in a fund's transfer chain. Importantly, the person that holds the obligation to report an IFTI may not be the remittance provider or financial institution with the direct relationship with the customer.
While this obligation may seem straightforward on the surface, in practice, the complex definitions underlying what instructions are required to be reported, and by whom, impose difficulties for relevant entities in ensuring that they are complying with the obligation and are not over-reporting and/or under-reporting IFTIs. Notably, the failure to comply with the IFTI reporting obligation has been the subject of enforcement action by AUSTRAC (including both civil penalty proceedings, enforceable undertakings and infringement notices).1
The first consultation paper on modernising Australia's AML/CTF laws released in April 2023 (Consultation Paper 1) considered a number of reforms, it did not address ways to streamline the current IFTI reporting regime.
The need to prioritise the simplification of the IFTI reporting regime was specifically raised by a number of industry participants in their feedback to Consultation Paper 1. This follows a number of discussions between industry participants and AUSTRAC in relation to the IFTI reporting regime, including draft IFTI guidance released by AUSTRAC for consultation in late 2021 (which has been socialised with some relevant entities but not yet finalised).
Responding to this feedback, the AGD included proposed reforms to the IFTI reporting regime in Paper 4: Further information for digital currency exchange providers (DCEPs), remittance service providers and financial institutions (Paper 4) which was published as part of the AGD's second stage of consultation on the proposed reforms to Australia’s AML/CTF laws.
Current requirement under the IFTI reporting regime | Proposed reform | What this may mean for your business |
The IFTI reporting obligation applies to the 'sender' and 'receiver' of the relevant instruction on a 'first in, and last out' basis. | Paper 4 proposes to shift the IFTI reporting obligation from the ‘last out’ institution (or ‘sender’) to the ordering institution, and from the ‘first in’ institution (or ‘receiver’) to the beneficiary institution. That is, in each case the obligation will apply to the institution with the closest relationship with the payer or payee. Consequently, determining whether a person has an IFTI reporting obligation will be simplified as it will apply to the person that contracts with the customer to send or receive a payment, and will not be focussed on the person that stands at the border. | You will need to consider whether your business now has an IFTI reporting obligation, or no longer has an IFTI reporting obligation. In addition to considering whether the business has (or no longer has) an IFTI reporting obligation, the AML/CTF Program should be reviewed to ensure that appropriate processes, systems and controls are in place for the business to meet its regulatory obligations. For small businesses that rely on correspondent banks or remittance network providers to report on their behalf, it is important to note that the small business would still be responsible for any non-compliance with respect to reporting IFTIs. As such, small businesses should exercise appropriate due diligence accordingly when relying on third parties to fulfil AML/CTF obligations. |
The IFTI reporting obligation is triggered where an 'instruction' is sent or received, whether or not the instruction is given effect. | Paper 4 proposes to shift the trigger for the IFTI reporting from sending or receiving an 'instruction' to when value is sent. This means:
| Your business will no longer need to file an IFTI report where the transaction has been aborted, cancelled or declined. |
IFTI-Es and IFTI-DRAs require reporting of different information and in different formats. | Paper 4 proposes to remove the distinction between the IFTI-E and IFTI-DRA reports and merge them into a single report format. | You will need to monitor the specific content and format changes to the IFTI reports. In addition to monitoring the specific content and format changes to the IFTI reports, entities should ensure that their IFTI reporting processes, procedures and systems are modified appropriately to ensure that the information fields within the new IFTI report format are populated accurately. Rigorous system testing should be performed prior to implementation. |
The obligation to report IFTIs only extends to transfers of money, not digital assets. | Paper 4 proposes to extend the IFTI reporting obligation to the transfer of digital assets. A financial institution or digital asset service provider that transfers digital assets to, or receives them from, a counterparty based overseas on behalf of a customer will be required to file an IFTI report. | If your business is a digital asset service provider, you will need to consider whether your business has an IFTI reporting obligation and implement a robust IFTI reporting framework accordingly. |
The definition of a ‘designated remittance arrangement’ is broad and captures arrangements for transferring money or property where the transfer of money is incidental to the provision of another service (such as a foreign currency conversion service or a gambling service). | Paper 4 proposes to narrow the application of the AML/CTF laws so that they will not apply to businesses that don't provide remittance services as part of their core business. However, the proposed reform provides that IFTI obligations will be triggered where a provider of a foreign currency conversion service or a gambling service either:
| If your business provides a foreign currency conversion service or a gambling service, you will need to consider whether your business has an IFTI reporting obligation and implement a robust IFTI reporting framework accordingly. |
The AGD is currently reviewing all feedback on the second stage of consultation on the proposed reforms to Australia’s AML/CTF laws, and will conduct roundtable discussions with stakeholders as necessary.
Authors: Jonathan Gordon, Partner; Hong-Viet Nguyen, Partner; Samantha Carroll, Partner; Steven Blackburn, Partner; Kieran Francis, Director and Geena Davies, Senior Associate.
1. Chief Executive Officer of the Australian Transaction Reports And Analysis Centre v Westpac Banking Corporation [2020] FCA 1538; Enforceable undertakings from PayPal Australia Pty Ltd, Custom House Currency Exchange (Australia) Pty Ltd, and Your Express Service (YES) Pty Ltd; Infringement notice issued to State Street Bank and Trust Company, and Compass Global Holdings Pty Ltd.
The information provided is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to.
Readers should take legal advice before applying it to specific issues or transactions.
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