Tranche 2 is an effort by the global AML/CTF Community, notably FATF, to guide countries such as Australia into broadening the reach of their AML/CTF Rules to covering new areas, particularly non-financial industries vulnerable to corruption and financial crime. The first tranche was implemented in the AML/CTF Act 2006 covering the financial services sector. The second tranche has been delayed, significantly, and it is about time that Australia catches up.
Tranche 2 identifies the non-financial sectors which should be included in the changes, updating the Australian AML/CTF Rules. When implemented, Tranche 2 will provide AUSTRAC with a far larger data set of entities to regulate, data which will be a crucial component to effectively regulate the Australian economy and when assisting the fight against organised crime and terrorism globally.
Who will be affected by Tranche 2?
- Real estate professionals
- High-value dealers
- Legal practitioners
- Trust and company service providers
To make the transition to Tranche 2 easy, the goal should be to upgrade Australia’s overall regulatory systems to become more data-driven. AUSTRAC has already put this transition into motion with the recent changes to the AUSTRAC yearly compliance report.
Implementing Tranche 2 will increase the number of businesses needing to comply with the AML/CTF Act and Rules to approximately 130,000 many of these businesses without experience in AML/CTF compliance. Without effective data management and compliance systems in place setting high standards, the sheer increase in reporting entities will make the transition to Tranche 2 difficult for AUSTRAC to deliver results.
As highlighted in a PWC Report on Tranche 2:
“There are significant compliance costs, particularly for small businesses and sole proprietors. It is therefore incumbent on the government to strike the right balance between implementing controls sufficient to fight crime and terrorism, and not placing an undue compliance burden on reporting entities.”
Building bronID to help
It is for this reason bronID is working towards providing an affordable AML/CTF Compliance toolkit, providing technical solutions to assist with the transition for all reporting entities, new and existing, regardless of size and unique risk-based approach to compliance.
We hope for the bronID AML/CTF Toolkit to be a catalyst for easing the transition to Tranche 2 and allow newly reporting entities to comply with confidence. By utilising the bronID portal, reporting entities can understand their business and regulatory risk to money laundering and terrorist financing and execute on their compliance obligations to a high standard all within the one place.
By building a technically automated, data-driven systems for achieving AML/CTF compliance, Australia should be able to increase its technical compliance and therefore FATF rating, and in turn provide evidence to attract honest money to grow the Australian economy, whilst disincentivising money laundering and terrorist financing.
Why we need Tranche 2?
Regulating the gatekeepers.
By regulating non-financial industries, Tranche 2 acts as a deterrent for financial crime and terrorist financing to using Australian gatekeepers for illegitimate purposes.
By complying with the AML/CTF Rules, the new section of professionals would be required to consider the identity and the source of funds of their clients. As well as reporting to AUSTRAC providing the Australian AML/CTF law enforcement body with additional intelligence in an attempt to lift Australia’s standard of fighting financial crime globally.
To make this all possible, Australia needs its regulations to keep up with technological innovations particularly in the realm of data and identity management.
An article in ‘The Australian’ article Anti-money laundering rating boost demand after report found laws ‘unfit’ quoted a report by ACLEI and AUSTRAC published mid last year which highlights that technological catchup is required by Australia,
“Financial intelligence agency AUSTRAC and policing watchdog — the Australian Commission for Law Enforcement Integrity — said that “existing anti-money-laundering and counter-terrorism financing legislation in Australia is increasingly unfit for purpose in the face of emerging technology”.
For further reading on the assessment of Australia’s AML/CTF regime, November 2018, FATF outlined areas which need to be addressed if Australia is to improve its global rating. ‘3rd Enhanced Follow-up Report and Technical Compliance Re-Rating’
One area with room to improve is property
Case Study: Property
In the 2017 report “Doors Wide Open: Corruption and Real Estate in Four Key Markets” by Transparency International, Australia’s inability to implement the second tranche to regulate anti-money laundering and terrorist financing for non-financial sectors has been criticized:
“Australia has severe deficiencies under all 10 areas identified in the research and therefore not in line with any of the commitments to tackle corruption and money laundering in real estate made in international forums.”
This report does highlight that Australia is making steps to upgrade its compliance legislation to be aligned with Tranche 2 incrementally.
“Australia has a check on foreigners wishing to purchase residential properties, but there is no requirement to disclose the identity of individuals (or beneficial owners) behind foreign companies purchasing property.”
The Australia property market has been under scrutiny domestically more recently in a Four Corners program aired in February this year; “Project Dragon,” explores how the Australian Property market has been fueled by dirty money and proposes the need for Tranche 2 to be implemented as soon as possible.
Changes are imminent
In the recent federal budget, the Australian government have provided a further $28.4 million in funding as apart of the Fintel Alliance and an additional 35 staff to AUSTRAC for the enforcement of AML/CTF Rules.
As cited in the Attorney-General’s Department budget document : The National Security—2017 Independent Intelligence Review – implementation and Tranche 2 ($29.7m over four years).
There are changes coming to Australia’s AML/CTF regime and the compliance industry should be ready to accommodate with best practice in mind.
As a non-financial service, what should I do to prepare for these changes?
Here are some of the obligations you should consider, with references.
Business and Regulatory Obligations
- Conduct an AML/CTF risk assessment
- Design your AML program
- Train your employees with AML risk awareness
- Conduct an Independent Review of your AML Program
- Know Your Customer
- Create and Update the ML/TF risk profiles of your customers
- Reporting and Record Keeping
Stay tuned to the bronID Portal as we will continually add compliance tools to the AML/CTF Toolkit to help you cover the obligations above.