14 February 2022

As a gateway to significant financial transactions, financial advisers play a critical role in identifying potential money laundering or terrorist financing activities. Make sure you understand your role in managing potential risks for your clients and your firm.

During an online briefing to advisers in November 2021, Minter Ellison Partner Richard Batten shared the implications of Australia’s Anti-Money Laundering (AML) and Counter-Terrorism Financing (CTF) regulatory regimes for financial advisers, which are enforced by the Australian Transaction Reports and Analysis Centre (AUSTRAC).

Batten leads Minter Ellison’s financial services regulation practice, and has expertise in the regulation and distribution of wealth management and insurance services and products.

“AUSTRAC sees financial planning as a medium-risk sector, and has identified its gateway role as crucial,” he said. “Your role is to collect the required information, and through your deep engagement with clients you are in a better position than anyone to identify if something odd is taking place.”

According to AUSTRAC data, financial advisers are more likely to submit suspicious matter reports (SMRs) relating to money laundering, but other activities should also be monitored – including tax evasion or the use of false documents.1

“AUSTRAC has indicated they don’t think enough suspicious matter reporting is happening among financial planners – and that may be because they don’t fully understand their obligation, or perhaps some sensitivity around protecting clients,” observed Batten.

Understanding your AML and CTF obligations

Financial advisers can play a critical role in stopping the cycle of money laundering, which involves the placement of ‘dirty’ or illegally obtained money into the financial system, then layering it through transfers, loans, and false invoice payments so it effectively becomes integrated as ‘clean’. This money could be used to purchase luxury assets, or make commercial investments.

“As an adviser, if you are arranging a managed fund or other form of investment for a client, or helping them buy or sell securities, you are a reporting entity within the AML/CTF regime,” explained Batten. “That means you need to assess the risk: if you are seeing a high value transaction, think about where that money is coming from.”

Terrorism financing tends to be linear rather than cyclical, and the money involved may be coming from illicit activities, or legitimate sources – such as a charitable donation or business revenue.

Know your client

Knowing your customer, or KYC, is a critical step. This involves collecting and verifying identity and other related information, based on the appropriate risk for that product or customer type. There may be Enhanced Customer Due Diligence (ECDD) requirements for higher risk clients – such as a politically exposed person, as well as Ongoing Customer Due Diligence (OCDD) requirements. You may need to share that identification and/or verification information with AUSTRAC or the product issuer at any time, so sound record keeping is an important part of the compliance and enforcement process.

Although the ways we work and transact are now increasingly online, it is still vital to ensure you are seeing a true copy of documentation.

“Dealing in a virtual world may make some things easier, but it also adds more risk. That’s why a lot of product issuers are seeking ‘wet ink’ certifications; they want to know you’ve actually seen the document as part of their risk mitigation,” Batten said.

Acting on suspicions

Financial advisers are AUSTRAC’s eyes and ears on the ground, but you need to tread carefully when it comes to SMRs.

The AML/CTF regime is about identifying people and reporting suspicions, and as Batten explained, “that simply means putting a report into AUSTRAC. You need to be careful to avoid ‘tipping off’ – alerting your client that you think something is suspicious – as that can be an offence.”

Financial advisers are a gatekeeper in the AML/CTF regime.

- Richard Batten, Minter Ellison

Failing to report suspicions can get you and your organisation into trouble, with potential for an infringement notice, fine, or civil penalty in court. “There is also the reputational implications – none of us want to be dealing with clients who are doing the wrong thing,” Batten said.

For example, if you simply accept the documentation you are provided, fail to look at it properly, or pass on copies without validating they are true and correct, your firm could be at risk of a breach – or even be seen to be complicit in any potentially unlawful activities.

“It’s important to understand that this reporting obligation is separate from how you deal with your client,” said Batten. “Tell someone up the line, and just keep dealing with the client normally so enforcement authorities can allow things to proceed.”

Financial advisers typically have a very close relationship with their clients, and need to stay vigilant for warning signs while consciously managing their compliance systems. “Use your client intelligence, because AUSTRAC has signaled it will increase its enforcement activity,” Batten concluded.

To learn more about your AML/CTF obligations for Macquarie products, download our cheat sheet or speak with your Relationship Manager.

Additional information

This information is provided by Macquarie Bank Limited with the help of law firm Minter Ellison and is for the use of licensed and accredited brokers and financial advisers only. It is general in nature and is not legal advice. Before you make a decision or take a particular action based on information, you should check its accuracy, completeness, currency and relevance for your purposes and you may wish to seek independent professional advice.

1 Australia’s Financial Planning Sector, Money Laundering and Terrorism Financing Risk Assessment – AUSTRAC, 2016