How To Comply with the AML/CTF Act Series - an introduction

Mitchell
MitchellJanuary 14, 2019

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You’ve just come up with an awesome idea on how to ‘revolutionise the financial system’...

A couple of months down the track, to your delight, the idea is getting some real traction. You even begin to get the attention of some VC’s. With funding around the corner, the dream of providing a disruptive financial service is becoming a reality. Woohoo! 🚀

Before pushing your product into the market, fortunately, one of your forward thinking advisors has just warned you of the regulatory obligations you must uphold.

You will need to prioritise studying up on the AML/CTF Act because if you fail to comply, you will end up risking everything, your project will be clipped by regulation before even getting the chance to onboard your first customer, grow wings and revolutionise finance.

Thing is, time is everything in the business of disruption and learning how to comply with the AML/CTF Act wasn’t really a part of the plan…

Is this you?

Or perhaps you’re a compliance professional, fund manager or financial advisor aspiring to be the next Wolf Of Wall Street, either way, you will need to comply with the AML/CTF Act. If you’re coming from some experience in dealing with money I’m sure you’d agree the current systems are inefficient and technologically outdated.

To help you upgrade your identity systems and compliance standards the team at bronID have put together a concise “How to comply with the AML/CTF Act Series!”.

In this series, we will walk you through a step by step guide to fast track your compliance obligations one optimised to the industry best practices.

AML/CTF Compliance Series Intro bronID

Money Laundering (ML)… Terrorist financing (TF)… so what?

“The estimated amount of money laundered globally in one year is 2–5 % of global GDP, or $800 billion — $2 trillion in current US dollars”. UNODC

The three stages of money laundering:

Placement: Illegal funds are first brought into the financial system.

Layering: Funds are moved, dispersed and disguised.

Integration: Funds are made available to criminals to use and control as legitimate funds.

There are a few reasons why this happens such as; hiding wealth, avoiding prosecution, evading taxes and even becoming legitimate. The economic consequences of money laundering proliferating are significant from undermining the integrity of financial systems, to expanding crime, criminalising society and reducing revenue and control.

Terrorist financing enables terrorist organisations to; recruit and sustain, acquire influence, build a support base and carry out terrorist activity. The biggest distinction between the two is the cash flow.

ML/TF table bronID

Complying with the AML/CTF Act is essential to maintaining the integrity of the global financial system. Incidentally, a risk-based approach to regulation also places your businesses’ integrity at stake. A business needs to prioritise its integrity if it is to ever earn the trust of the consumer and those providing data as labour, therefore, making the foundations in compliance for an effective open standard for AML/CTF of utmost importance.

The legal and financial repercussions are also a disincentive from noncompliance. In Australia failing to comply with the AML/CTF Act and Rules can result in significant fines with the maximum civil penalty for a body corporate being $11 million and as an individual, $2.2 million. Criminal penalties can also be imposed on Boards and Senior Executives, not to mention the potential for reputation damage, revocation of operating licenses, market repercussions and extensive remediation programs. The importance of compliance should not be understated.

Given these inherent risks and repercussions of non-compliance, when taking a risk-based approach to regulation it is important to both understand your obligations as well as build policies and procedures for maintaining the utmost compliance standards.

How to comply with the AML/CTF Act Series

In this series, bronID will demystify your understanding of AML/CTF compliance, by sharing our knowledge publicly we are trying to lift the levels of understanding and therefore AML/CTF compliance across the entire the financial sector. We will also share ways in which our digital identity and compliance solution can help automate your obligations every step of the way. Providing a comprehensive and easy to use platform which can reduce the risk of ML/TF (money laundering/terrorist financing) to your business.

Go above and beyond simply ticking the boxes.

AUSTRAC is Australia’s Financial Intelligence Unit (FUI) and a founding member of the Financial Action Task Force (FATF)

Like all FUI’s globally, their role as the regulator in Australia is to oversee the compliance of all Australian businesses with their obligations under the AM/CTF Act and the FTR Act.

The financial sector comprises more than 14,000 regulated entities and $4.4 trillion in assets and is at risk from criminal abuse.

Enrolment with AUSTRAC is the first step towards achieving your compliance obligations.

What are some examples of designated services which need to enrol with AUSTRAC?

Is your business on the list?

Start your compliance journey by following the 'How to Comply with the AML/CTF Act Series

Design your AML/CTF program

Achieving your obligations to the AML/CTF Act begins with designing your AML/CTF program. The goal of an AML/CTF program is to construct policies and procedures which will reduce your business and regulatory risk of ML/TF. Inform these policies by performing an AML/CTF risk assessment and use this knowledge to tailor your program to the specific industry or designated service you intend to deliver. This obligation is an important aspect of Part A of your AML/CTF program.

Conduct an AML/CTF Risk Assessment

An AML/CTF risk assessment is the process of identifying risk and developing policies and procedures to minimise and manage that risk, whilst assessing the likelihood and severity of facilitating ML/TF through your service. Part A of your AML/CTF program requires the development of a framework to identify, prioritise, treat, control and monitor risk exposures.

Know Your Customer

Customer identification is a cornerstone of your AML/CTF Act obligations encompassing Part B of your AML/CTF program. Knowing your customer and checking their information against databases such as the (Document Verification Service) as well as Global Sanctions and Watch-lists is essential information for assessing the risk each customer attributing a score and placing them in the low-high risk category.

Create and Update the ML/TF risk profiles of your customers

Using the framework established in Part A of your AML/CTF Program you are to assess the ML/TF risk each new customer poses. After performing the required customer due diligence checks such as KYC/KYB, you are to place each customer into an appropriate risk bucket, from low to high risk. This informs the ongoing customer due diligence procedures. Being able to dynamically update your customer's risk profiles allows for your business to effectively respond if there are any changes to a customers risk profile.

Review your AML/CTF program

A regular independent review of your AML/CTF program must be conducted in accordance with the risk-based approach and by someone external to the program, preferably compliance or legal professional. They assess the AML/CTF program against the AUSTRAC and FATF recommendations to determine its effectiveness, whether the policies and procedures listed in Part A of your program have been implemented and acted upon.

Train your employees with AML risk awareness

This is central to achieving the obligations of Part A. All employees involved with the compliance process must undergo training which ensures that they are aware of the ML/TF risks faced by the business and their role in mitigating this risk. Employee due diligence also requires you to perform identification checks on an employee in a position to facilitate the commission of a money laundering or financing of terrorism offence.

Reporting and Record Keeping

There are a few main reporting obligations to AUSTRAC; the Threshold Transaction Report (TTR), International funds transfer instructions report (IFTI) and the Suspicious Matter Report (SMR). In addition to these, all cross-border movement of cash above 10k is to be reported and an AML compliance report is to be submitted annually. The greater the quality, accuracy and timeliness of these reports, the greater their value for detection, deterrence and disruption of money laundering and terrorist financing.


Using a combination of the bronID identity suite will allow for you to achieve many of your AML/CTF obligations, from performing an AML/CTF risk assessment to KYC checks. Get started with our PAYG KYC plan today!

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AML/CTFbronID PortalAML/CTF ProgramCompliance SeriesRisk Assessment

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Mitchell
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Mitchell

A catalyst for transforming legislation and governance into easy to use software. The personified pen of bronID.

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