Enforcement Policy

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Application

This policy sets out AUSTRAC's approach to all persons who have responsibilities under the Financial Transaction Reports Act 1988 (FTR Act) and the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act). Essentially this includes cash dealers (CDs), reporting entities (REs) and the general public who conduct cross border movements of currency and bearer negotiable instruments. Cash dealers and reporting entities are collectively referred to hereafter as `regulated entities'.

AUSTRAC's regulated population ranges from large entities with highly sophisticated internal systems, to micro businesses with relatively simple office systems. Entities reading this policy statement should keep in mind that it has been kept general enough to span the entire spectrum of business sizes and types, and entities should interpret the guidance it provides having regard to their own particular circumstances.

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Purpose

This document outlines AUSTRAC's current policy for the use of its enforcement powers under both the FTR Act and the AML/CTF Act. It includes AUSTRAC's approach, the tools available for enforcement purposes and how, when and why we intend to use them. The policy contained herein will be complemented by more detailed policies and procedures regarding the use of specific enforcement strategies and powers, which will be developed and evolve over time in the light of experience.

AUSTRAC's expectations of regulated entities and the general public in complying with their obligations under the relevant legislation are listed. Expectations of AUSTRAC activity are also listed.

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Policy objectives

AUSTRAC's preference is to promote an environment of continuous voluntary compliance with the letter and spirit of the FTR and AML/CTF Acts, and related Regulations and Rules. It is anticipated that most regulated entities will seek to comply with their responsibilities. Where AUSTRAC finds evidence of significant non-compliance or detects material systems weaknesses in a regulated entity's ML/TF risk management, the regulator will seek in the first instance to resolve those issues in a cooperative manner through negotiation and guidance. However, the regulator also expects that from time to time it will encounter cases of serious or persistent non-compliance with the law, or failure to adequately repair flawed systems, whether as a consequence of carelessness, negligence or even, on occasion, a wilful or dishonest intention. In such cases where cooperation and negotiation have demonstrably failed, AUSTRAC will not hesitate to take measured but firm enforcement action for the purpose of securing compliance and rectification.

In taking selective and strategic enforcement action, AUSTRAC aims to deter non-compliance and achieve fault remediation, both at the individual entity and wider industry level. Decisive, measured and non-discriminatory enforcement action should benefit both regulated industry members and the wider community by contributing to the integrity of, and promoting public confidence in, a competitive, safe and fair financial system.

AUSTRAC aims to achieve appropriate and adequate compliance and enforcement outcomes in a number of ways, including through ongoing, risk-based monitoring of regulated entities and relevant markets. The regulator plans, amongst other things, to conduct in a selective and strategic manner consultations with regulated entities, in-house analysis of entity material, on-site inspections, secure information sharing with other regulators, and where necessary, formal and firm enforcement action.

In compiling relevant information on regulated entities' ML/TF risk exposure and management, AUSTRAC will draw on a number of diverse data sources, including: FTR Act `Identifying Cash Dealer' (IDCD) Compliance Reports; AML/CTF Act Compliance Reports; findings from education visits and on-site compliance inspections; and public material on regulated entities and industries, and their products and services.

Compliance and enforcement strategies and actions in relation to problematic entities will be formulated on a case-by-case basis according to the circumstances at the time. For instance, cases that look similar on the surface may differ in terms of their context, causes and consequences, and accordingly receive tailored and differential treatment by the regulator. The regulator will also generally take into account an entity's compliance and remediation history, and the degree of candour and cooperation that it demonstrates. In all cases, however, we will adhere to our guiding principles to ensure that AUSTRAC achieves an effective, efficient and equitable regulatory outcome.

Enforcement during concurrent application of the FTR Act and AML/CTF Act

The AML/CTF Act will increasingly replace the FTR Act. The AML/CTF Act is being implemented in accordance with a staggered timetable and as a result various provisions of the FTR Act will remain in effect until such time as the AML/CTF Act has replaced them. During the transition period, some regulated entities will have concurrent obligations to comply with relevant provisions of both Acts. Those provisions in the FTR Act that are not explicitly replaced will remain in effect in future. Where serious or persistent non-compliant conduct is encountered, or materially flawed systems remain in disrepair, the resulting enforcement action will be pursued under the relevant legislation. The policy set out in this paper is equally applicable to both situations except in the circumstances covered by the Minister's Policy (Civil Penalty Orders) Principles 2006, as discussed below.

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AML/CTF Act

Policy principles ' directions from the Minister for Justice and Customs

The Minister for Justice and Customs may issue policy principles under section 213 of the AML/CTF Act to the AUSTRAC CEO to apply to the performance of his functions. The first policy principles to be issued under this section the Policy (Civil Penalty Orders) Principles 2006 have a direct influence on AUSTRAC's use of its enforcement powers under the AML/CTF Act. They outline the conditions in which the AUSTRAC CEO may apply for a civil penalty order against a reporting entity, including the relevant periods that apply and the matters that must be considered. The relevant period is generally 15 months after the date of commencement of a provision as listed in section 2 of the AML/CTF Act; prior to that, there is some restriction on the circumstances in which the AUSTRAC CEO can commence a civil penalty action.

The policy principles dictate that each case will be assessed on its merits. However, AUSTRAC emphasises that this policy principle will not limit its resolve to pursue criminal penalties where the circumstances warrant it, nor civil penalties, where there has been a history of blatant disregard for the law under either the FTR Act or during the implementation period for the AML/CTF Act.

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AUSTRAC's approach to enforcement

AUSTRAC will administer the AML/CTF Act in a manner that is consistent, but at the same time acknowledges differences in entities' business and risk profiles. This upholds the equity principle requiring that entities in similar circumstances be treated in a similar way. The facts of each case will always be taken into account in determining the nature of any proposed action. AUSTRAC aims to obtain optimal levels of regulatory compliance, risk mitigation and commercial freedom by choosing the enforcement technique and tool that will deliver the greatest deterrent effect consistent with a market oriented approach.

AUSTRAC is committed to making objective and proportionate decisions that are based on fact and pay due regard to proper process and natural justice. AUSTRAC, like comparable Commonwealth regulators, is quite rightly subject to a range of accountability measures that limit its scope to take enforcement action that could be seen as excessive or capricious. Those measures include: AUSTRAC's own internal governance disciplines; statutory and policy requirements on staff to act professionally, honestly, free from bias and in good faith; the prospect of performance audits by the Auditor-General and investigations of complaints by the Commonwealth Ombudsman; appearances before Parliamentary Committees; and merits and/or judicial reviews of relevant decisions by a tribunal and/or court.

The regulator's internal governance arrangements include an Enforcement Committee designed to provide discipline, objectivity, accountability and transparency to the enforcement process. The committee membership includes high level representation from all key business areas and from AUSTRAC's in-house legal unit. The role of the Committee includes inter alia: approving enforcement policies and procedures; recommending the required formal delegations for decision-makers; deciding which referrals from other areas or from partner agencies should be accepted as enforcement cases; assigning priorities to individual cases; guiding broad case strategies; and regularly reviewing the progress of cases.

Under the FTR and AML/CTF Acts, the exercise of enforcement and audit powers is vested in an individual, who will be either the AUSTRAC CEO or (more commonly) his delegate, or in certain limited circumstances, a police or customs officer. Recommendations by AUSTRAC's enforcement unit for the appropriate delegated decision-maker to take significant enforcement action will be guided by the agency's internal policies, subject to high level review, and governed by strict protocols. Those governance arrangements reflect the high importance and considerable care with which AUSTRAC will invoke its powers under both the FTR and the AML/CTF Acts. The internal enforcement policies and procedures have been designed and will be applied to ensure (as far as possible) consistency, objectivity, transparency, accountability and adherence to AUSTRAC's objectives, values and guiding principles. All instances of material (detected or suspected) non-compliance will be referred to the enforcement unit. If measured and proportionate enforcement action is considered appropriate and is subsequently taken, AUSTRAC will also consider whether it would be in the public interest to publish summary details of the case for the purpose of promoting general deterrence, subject of course to confidentiality and privacy requirements being strictly observed. Publication could be by way of commentary in a media release, on our website, or in our Annual Report.

Cases meeting the criteria for escalation to the enforcement unit could be referred by AUSTRAC's education or compliance areas, or by a partner law enforcement agency. In formulating an appropriate enforcement response, AUSTRAC would have regard to a number of considerations, including:

the nature and severity of the (detected or suspected) statutory breach or mismanaged risk exposure, including its potential impact on the overall integrity of the financial system;
the entity's compliance and enforcement history, the degree of honesty, cooperation and candour in its relationship with AUSTRAC, and its responsiveness to requests for rectification action;
the level of sophistication or complexity of the entity, and the availability of education and guidance to the entity as an indication of what is expected of it;
consistency with previous action taken by AUSTRAC in similar cases;
the pros and cons of the alternative enforcement options available;
the extent to which facts of the case are arguable or disputed, the strength of the evidence available to support the proposed action, and the likely cost and time that would be involved; and
the potential of the outcome to act as a deterrent to similar misconduct by other regulated entities in future.

In some cases, a statutory breach will not result in enforcement action because such action would be considered excessive or unnecessary in the circumstances. For example, if the breach is inadvertent and of a minor, technical nature with little potential to compromise the effectiveness and scope of the AML/CTF regime, or if the problem has already been promptly and adequately addressed, or soon will be, then AUSTRAC may choose not to pursue any further action. In cases, however, where a contravention is more serious or a risk exposure presents a graver threat, then formal action is more likely. Further, if the initial action is unsuccessful in obtaining the desired result, then stronger enforcement action may be warranted and desirable.

It is also possible that enforcement action may be discontinued if, after its commencement, the non-complying party delivers an outcome acceptable to AUSTRAC. However, AUSTRAC would need to be satisfied that the remedial action is taken in good faith and reflects a genuine long-term effort to comply, rather than it being a quick-fix measure undertaken primarily to avoid enforcement action.

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Enforcement powers and the methodology of employment

The enforcement powers available to AUSTRAC under the FTR Act are limited to criminal sanctions and injunctive relief, while the powers available under the AML/CTF Act are much broader and provide greater flexibility in taking compliance and enforcement action.

Commencing at the highest end of intensity, the actions available include prosecution of criminal offences, the imposition of civil penalties, the issuance of infringement notices, remedial directions, injunctions, the ability to accept enforceable undertakings, notices to undertake money laundering and terrorism financing risk assessments, notices to undertake external audits and compliance monitoring. Enforcement powers are also conferred upon Customs Officers and Police Officers which allow them to question, search and arrest in relation to cross-border movements of physical currency and bearer negotiable instruments (BNIs).

Although the FTR Act gives AUSTRAC powers of inspection, these powers are broadened under the AML/CTF Act. The new monitoring and information-gathering powers allow authorised AUSTRAC officers to enter a reporting entity's premises under consent or a monitoring warrant issued by a magistrate. These powers include the power to search premises for compliance records, reports under the Act and systems used for preparing such reports. There is also a power to secure items found on the premises for 24 hours, in certain circumstances. In addition, while on the premises under consent or a monitoring warrant, AUSTRAC may ask questions and seek the production of documents relating to the operation of the Act, the Regulations or the Rules.

There may be several alternatives available to meet the circumstances of a particular case of non-complying behaviour. Their availability in any case will depend, of course, on the existence of the pre-conditions for the exercise of the relevant power as set out in the legislation. The type of power exercised, whether for example, it is more or less coercive, will depend on consideration of the factors set out above (e.g. the nature and seriousness of the breach, the entity's record of compliance, its risk profile etc). Interventions will be early and assertive for cases of serious non-compliance. Where alternative approaches are available, AUSTRAC will choose the one which seems most likely to achieve the desired regulatory outcome in each case. If the chosen tool is not successful, AUSTRAC will then consider alternatives. Usually this will involve an escalation of regulatory action in that AUSTRAC will seek to use more coercive powers against the non-complying entity. Escalation will be more rapid where there is a clear history of deliberate and serious non-compliance.

One of the considerations which AUSTRAC may take into account is the message a particular type of enforcement action is likely to send to other entities in the same sector. Strong, effective enforcement action, especially if it is accompanied by publicity in the marketplace, can have a powerful effect on other entities, either in deterring them from non-complying behaviour or encouraging them to ensure that they continue to meet their obligations under the legislation. Such responses would contribute to ensuring the continued integrity of the AML/CTF system.

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Expectations

You can expect that AUSTRAC will:

abide by its Guiding Principles which are efficiency, equity, integrity and transparency as set out in our Supervisory Framework Policy;
explain the reason it is taking enforcement action, as well as the process;
be available to discuss the situation which AUSTRAC believes constitutes non-compliance and the proposed process of rectification;
use its enforcement powers responsibly, i.e. ensure a proportionate response in line with the circumstances of each case;
comply with the provisions in the FTR Act and the AML/CTF Act in the use of our enforcement powers; and
review this policy regularly to ensure it remains current as the AML/CTF Act is implemented.

AUSTRAC expects that you will:

understand and comply with your obligations under the relevant legislation; and
be available to discuss a situation which AUSTRAC believes constitutes non-compliance and the proposed process of rectification.

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