01 - ACTIVIDAD CENTRAL

Australia is a founding member of the FATF, the inter-governmental body which develops and promotes the implementation of standards for combating ML/TF and other related threats to the integrity of the international financial system. The international standards are contained in the FATF’s 40

Recommendations. FATF assesses compliance with the recommendations through a country peer review evaluation (called a ‘mutual evaluation’) and monitoring (follow-up) process. The 2005 FATF mutual evaluation of Australia was a primary factor which shaped the development of the AML/CTF Act. In February 2012, the FATF released revised international standards on AML/CTF that clarify existing CDD obligations and transparency of beneficial ownership. The revised FATF Standards were a direct response to a call by the G20 to address the increasing number of high profile cases involving the use of legal entities and complex legal structures to hide the true ownership and control of those entities. The G20 Finance Ministers in April 2012 endorsed the revised standards which included a declaration calling on all countries to fully implement measures in line with the Standards.59

The FATF Recommendations (2012) are expected to significantly improve transparency regarding beneficial ownership structures. Under Recommendation 10, ‘customer due diligence’ (CDD) for legal persons (eg companies) and arrangements (eg trusts), the FATF Recommendations state that:

When performing CDD measures in relation to customers that are legal persons or legal arrangements, financial institutions should be required to identify and verify the customer, and understand the nature of its business, and its ownership and control structure. The purpose of the requirements […] regarding the identification and verification of the customer and the beneficial owner, is twofold: first, to prevent the unlawful use of legal persons and arrangements, by gaining a sufficient understanding of the customer to be able to properly assess the potential money laundering and terrorist financing risks associated with the business relationship; and, second, to take appropriate steps to mitigate the risks. As two aspects of one process, these requirements are likely to interact and complement each other naturally.

The FATF performs a critical role in ensuring that an internationally coordinated approach prevents criminals from exploiting vulnerabilities arising from differences between the laws of different

jurisdictions. It does so by setting international standards on combating money laundering, countering the financing of terrorism and the financing of proliferation of weapons of mass destruction through the FATF Standards.

58 _{Australian Crime Commission (2011) Organised Crime in Australia 2011. Available at:} http://www.crimecommission.gov.au

59 _{http://www.fatf-}

Appendix A: Background on AML and CTF

The FATF has developed and published 40 recommendations which establish the international standard for domestic AML/CTF regimes. These standards are endorsed internationally by bodies such as the G8, G20, United Nations, the Organisation for Economic Cooperation and Development (OECD), the Financial Stability Forum, the IMF and the World Bank, who encourage and support their implementation.

If a country fails to meet the FATF standards, the actions available to the FATF in response include high level delegations to the country, public naming of the country as having AML/CTF deficiencies (otherwise referred to as grey and black lists), suspension and ultimate cancellation of the country’s membership of the FATF and countermeasures such as those imposed on Iran and North Korea.60

The public naming action occurs through one of two FATF public documents (issued three times a year) and is based on the results of the jurisdiction’s review by the International Co-operation Review Group (ICRG).61

1. FATF’s Public Statement – the first public document identifies jurisdictions that have strategic AML/CTF deficiencies and to which countermeasures apply as well as those jurisdictions with strategic AML/CTF deficiencies that have not made progress in addressing those deficiencies or have not committed to an action plan to address the deficiencies.

2. Improving Global AML/CTF Compliance: On-going Process – the second public document identifies jurisdictions that have high level political commitment to address the deficiencies through implementation of an action plan that has been developed in partnership with the FATF. In the FATF Public Statement 18 October 2013 document, two countries were identified as being deficient and thus subject to ‘a FATF call on its members to apply countermeasures’ to the jurisdictions due to the level of ML/TF risk. Further, eleven countries were identified as having strategic AML/CTF deficiencies with inadequate progress in addressing those deficiencies or having not committed to an action plan and thus ‘FATF calls on members to consider the risks arising from the deficiencies associated with each jurisdiction.’62 _{In the Improving Global AML/CTF Compliance: On-going Process 18 October 2013} document, 19 jurisdictions were identified as being called upon by the FATF to complete the

implementation of action plans and subject to close monitoring by the FATF. Australia has not been publicly listed at any of these levels.

Further, the FATF Standards include a requirement for countries to consider the level of risk posed by other jurisdictions. Regulated entities are to apply a higher level of due diligence when dealing with businesses from countries which have been identified by the FATF as having deficiencies in their AML/CTF regimes. For example, to be considered as having equivalent AML/CTF systems to the

European Union (EU) and thus be considered as a third country and named on the EU equivalence list, a jurisdiction would have to continue be deemed sufficiently compliant with the FATF standards. Currently, Australia is one of twelve countries with Third Country Equivalence status.63 _{These countries are:}

• Australia • Brazil • Canada • Hong Kong

60 _{Countermeasures are framed as protection for the individual or country dealing with these risky jurisdictions,} rather than punitive.

61 _{FATF (2013) High-risk and non-cooperative jurisdictions. Available at: http://www.fatf-} gafi.org/topics/high-riskandnon-cooperativejurisdictions/

62 _Ibid

63 _{European Commission (2013) Member States list of equivalent third countries – June 2012. Available at:} http://ec.europa.eu/internal_market/company/docs/financial-crime/3rd-country-equivalence-list_en.pdf

Appendix A: Background on AML and CTF • India • Japan • South Korea • Mexico • Singapore • Switzerland • South Africa

• The United States of America.