Australia:  Proposed Reforms to Anti-Money Laundering Laws

There is a widespread perception that the gambling sector facilitates money laundering, and that casinos are ideal money laundering facilities.

In a Sept. 4, 2006 article, the Sydney Daily Telegraph stated:

“Millions of dollars in dirty money to fund terrorism are being laundered through poker machines in clubs, pubs, and casinos across New South Wales, Australia (NSW). The Daily Telegraph demonstrated just how simple laundering cash is by feeding $2,100 into a machine in an inner-city pub on Thursday, pushing the collect button and exchanging the money for a legitimate check without even playing the machine. Department of Gaming and Racing sources have revealed $15 billion in annual poker machine turnover is being inflated by tens of millions of dollars as a result. A loophole in the regulations in NSW allows criminals to use non-linked machines to launder money without having to show identification to receive cash or check payouts. The gaming department is issuing an urgent memo to all licensed premises with electronic gaming machines, telling them to be aware that licensed venues may be a target for people wishing to launder money.”

Australian authorities are aware of the risk of money laundering posed by the gambling sector, and—for some years now—Australian laws have placed obligations on gambling operators to minimize this risk. These obligations are in addition to the strict regulatory regime applicable under Australian gambling laws to casinos and other licensed gambling operators.

This article provides an overview of the existing law and the proposed legislative reforms to address anti-money laundering/counterterrorism financing issues.

Current Law

Australia’s anti-money laundering laws are contained in the Financial Transactions Reports Act 1998 (FTR Act). The FTR Act places specific obligations on financial institutions and other cash dealers that are designed to detect and report instances of conduct which are, or may constitute, money laundering.

Among the parties deemed to be “cash dealers” are:

        •     a person who carries on a business of operating a gambling house or casino;

        •     a bookmaker, including a totalisator agency board, and any other person who operates a totalisator betting service.

The obligations placed on cash dealers are to:

        •     conduct “know your customer” (KYC) checks, in respect of                 signatories to accounts opened with them which exceed monetary thresholds;

        •     report significant transactions;

        •     report suspicious transactions; and

        •     report international fund transfer instructions (IFTIs).

FATF—Forty Recommendations

Subsequently, recommendations (known as the Forty Recommendations) were issued by the Financial Action Task Force (FATF) to address money laundering issues internationally. FATF is the international body established for this purpose.

The Forty Recommendations are the international standards relating to anti-money laundering and were revised in June 2003. One of the principal effects of the revision was to extend the coverage of the Forty Recommendations from financial transactions to non-financial transactions.

Numerous references are made in the Forty Recommendations to the money laundering risk posed by casinos. For example:

12.   The customer due diligence and record-keeping requirements set out in Recommendations 5, 6 and 8 to 11 apply to….

        (a) casinos—when customers engage in financial transactions equal to or above the applicable designated threshold.

16.   The requirements set out in Recommendations 13 to 15, and 21 apply to all designated non-financial businesses and professions.

Relevant recommendations are:

5.     Institutions shall not keep anonymous accounts or accounts in obviously fictitious names.

6.     Institutions should take additional measures in conducting business relationships with politically exposed persons.

8.     Special attention should be paid by institutions to money laundering threats that may arise from new technologies that might favor anonymity. Any specific risks associated with non-face-to-face transactions should be addressed.

11.   Special attention should be given to complex, unusually large, and unusual patterns of transactions, which have no apparent economic or visible purpose.

13    Suspicious transactions should be reported to the relevant authority.

15.   Anti-money laundering and counterterrorism programs should be developed.

Clarification of the threshold is given in interpretive notes, where it is stated that the designated threshold for casinos (including Internet casinos) is USD/EUR 3,000.

Australia’s Response

The Australian authorities recognized, as a result of the revision to the Forty Recommendations, that the obligations in the FTR Act were less onerous than the requirements of the Forty Recommendations.

This deficiency was recognized, in particular, in connection with the gambling industry and an issues paper relating to the gambling industry was issued by the Attorney General’s department in late 2003, seeking comments on the introduction of reforms to Australia’s money laundering laws that would impose additional requirement on the gambling sector.

The following issues were published for discussion:

Issue 1.1         Anti-money laundering obligations will continue to apply to a range of Australian gambling service providers, but will require review in line with the revised FATF Forty Recommendations.

Issue 1.2         Comment is sought from the gambling industry on the practical implications of applying a threshold approach to anti-money laundering obligations, including the level at which any threshold should be set to balance the interests of law enforcement, customers, and gambling service providers.

Issue 2.1         Comment is sought from the gambling industry on the scope for and implications of a requirement for enhanced customer due diligence procedures for regular customers.

Issue 2.2         Comment is sought from the gambling industry on appropriate customer due diligence measures for occasional customers.

Issue 2.3         Consideration should be given to measures for determining whether a customer is a politically exposed person and for applying higher level due diligence to such persons.

Issue 2.4         Consideration should be given to the respective roles of gambling service providers and the anti-money laundering regulator in identifying countries of concern and implement systems to enable additional scrutiny of transactions with such countries.

Issue 3.1         Consistent record-keeping format requirements will be developed in consultation with industry and regulatory users to facilitate ready access to transactions and customer identification information.

Issue 3.2         Consideration should be given to the implications for gambling service providers of new standards for processing wire/funds transfers. This should include consideration of any necessary systems modifications.

Issue 4.1         Consideration should be given to making anti-money laundering programs mandatory for all gambling service providers to foster an institution-wide understanding of anti-money laundering.

Issue 4.2         Consideration should be given to enhancing the effectiveness of suspicious transaction activity reporting through use of an industry code or anti-money laundering program.

Issue 4.3         Gambling service providers will need to satisfy themselves that third parties who process business, or perform customer due diligence on their behalf, are subject to supervision or regulation and have adequate customer due diligence systems.

Issue 4.4         Consideration should be given to measures to address the specific risks associated with non-face-to-face business relationships or transactions, including incorporating such measures in a gambling industry code.

Issue 4.5         Consideration should be given to implementing a risk-based industry partnership model for the gambling industry, with specific roles for gambling service providers, industry representative bodies, and the anti-money laundering regulator in identifying and managing areas of risk.

The issues paper also set out some comments relating to the impact of the revised Forty Recommendations. Of particular note was:

•       While the FTR Act only required due diligence to be conducted in respect of account holders, the                             revised Forty Recommendations extended the due diligence obligation to “all customers, whether regular or occasional, engaging in transactions above an identified monetary threshold;”         and

•       any reforms to Australian anti-money laundering system should apply not just to casinos, but to a range of gambling service providers.

In October 2005, FATF published its report on Australia’s anti-money laundering laws and the extent to which they complied with the Forty Recommendations. Australia’s laws were considered to be deficient in many aspects, some of which are outlined above.

AML/CTF Bill—First Draft

Against this background (and taking into account the submissions made in connection with the issues paper), the Australian Government introduced a proposed anti-money laundering/counterterrorism financing regime in the form of the Anti-Money Laundering/Counterterrorism Financing Bill (AML/CTF Bill) in December 2005.

Initially the regulatory regime proposed, comprised a statute which set out a number of obligations with which providers of “designated services” must comply in order to minimize any money laundering risk. “Designated services” were set out in tables in section 6. Table 2 referred to gambling services which were defined to mean:

(a)    service for the placing, making, receiving, or acceptance of bets; or

(b)    service for the conduct of a game, where:

        (i)          the game is played for money or anything else of value; and

        (ii)         the game is a game of chance or of mixed chance and skill; and

        (iii)        customer of the service gives or agrees to give consideration to play or enter the game; or

(c)    gambling service (within the ordinary meaning of that expression) that is not covered by either the above         paragraphs;

but does not include:

(d)    service for the conduct of a lottery; or

(e)    service for the supply of lottery tickets.

The bill contemplated the publication of rules to set out either exceptions to, or clarification of, some of the detailed obligations. However, no rules were developed initially on the basis that the statute would set out comprehensively the obligations to be introduced.

Among the obligations placed on gambling service providers were requirements to:

        •            report significant transactions;

        •            report suspicious transactions;

        •            report IFTIs;

        •            conduct KYC checks before any gambling services were provided.

Each of the reporting obligations referred to above are similar to the current reporting obligations in the FTR Act.

However, the KYC check requirement is more prescriptive. Of particular concern is the requirement to conduct KYC checks before a gambling service could be provided. The sole exception to this requirement is if special circumstances, as prescribed in the rules, exist.

In submissions to the Australian Senate Inquiry and in connection with the first draft of the AML/CTF Bill, many affected parties indicated that it was premature to make comments prior to the publication of the rules. In addition, the casinos sought an exemption from the obligation to conduct KYC checks for face-to-face transactions in casinos with a value of less than $10,000 on the basis that occasional transactions did not give rise to significant money laundering concerns.

There are a number of other requirements set out in the bill which require compliance by the gambling sector for example, money laundering programs will need to be developed and ongoing customer due diligence (CDD) will be required.

AML/CTF Bill—Second Draft

A further draft of the AML/CTF Bill was published in June 2006, with a first draft of the rules. This included Rule 8, which provided an exemption for casinos from the obligation to conduct KYC checks before a designated service was provided, provided that the amount involved was less than $10,000 AUD.

The definition of “gambling service” has been expanded significantly and is now set out in a separate table (table 3) in Section 6. Gambling services include:

        •    receiving or accepting a bet;

        •    introducing a person who wishes to make or place a bet to another person who is willing to receive or accept the bet;

        •    paying out winnings in respect of a bet;

        •    exchanging money for gambling chips (and vice versa); and

        •    opening an account relating to a gambling service.

The AML/CTF Bill contemplated a general exemption from the obligations to conduct KYC checks, if so specified in the rules.

The second draft resulted in considerable further submissions being made by the gambling sector for exemptions from the requirement to conduct KYC checks before gambling services can be provided.

AML/CTF Bill Introduced

A draft of the bill was tabled in the Australian Federal Parliament by the Attorney General on Nov. 1, 2006. Also, a further draft of the rule relating to gambling services has been released. Many of the gambling sector submissions enable the KYC check obligations to operate in a matter which reflects the objectives of the reforms by:

        •    addressing money laundering risk;

        •    allowing business to continue to operate in a manner that does not enhance that risk; and

        •    achieving a competitive neutral approach across the gambling sector.

Among the exceptions from the requirement to conduct KYC checks prior to the supply of gambling services provided for in the bill (and the draft rule) are the following:

        •    a blanket exception in respect of face-to-face gambling services at casinos, on-course bookmaking, and TABs, provided that the relevant amount does not exceed $10,000;

        •    a blanket exception for the issue of chips and cashing of chips in casinos;

        •    a blanket exception in respect of the use of gaming machines at all venues (including pubs and clubs), except in respect of payouts or the cashing of credits for amounts in excess of $10,000; and

        •    an exception in respect to online gambling services provided the KYC check is      conducted within 90 days of the services being first provided.

These exceptions do not apply if the money laundering program of the relevant gambling operator or venue dictates that KYC checks should be conducted in any event.

In addition, the lottery industry is now exempted from the obligations contained in the AML/CTF Bill. This exemption also extends to keno games.

The government is keen to move the AML/CTF Bill through Parliament in an expedient manner. Indeed, the Minister for Customs (who has been principally responsible for the development of the AML/CTF reforms) is keen that the bill becomes law this year. Even if this objective is achieved, it will be some time, possibly up to three years, before all of the obligations contained in the AML/CTF Bill come into force.

Conclusion

Although some of the obligations to be imposed on the gambling sector by the AML/CTF Bill are obligations with which Australian gambling industry operators are familiar, care will need to be taken to ensure compliance with the AML/CTF obligations contained in the new AML/CTF Bill. Apart from the KYC checks requirements, a formal anti-money laundering program will need to be introduced.

There is limited knowledge throughout the gambling sector of the legal obligations required to address money laundering risks. Certainly, when the bill becomes law, Australian gambling industry participants will need to ensure compliance with relevant anti-money laundering obligations, and will need to introduce an anti-money laundering program.

Special care is required for international gambling operators to ensure that AML/CTF procedures are implemented in a consistent manner internationally.