Managing risk: Is your AML/CTF compliance up to scratch?

Rory Johnston

Corporate Manager, CreditorWatch

In today’s interconnected financial system, businesses face an ever-evolving landscape of risks. Among these is an area little discussed in small business circles: money laundering and illicit financing. No legitimate business wants to unwittingly assist this criminal practice and it can have serious implications if you get caught up in such an act.

It’s for this reason Australia has a regulatory framework for Anti-Money Laundering (AML) and Counter-Terrorism Financing (CTF) compliance, where businesses are obligated to play a vital role in detecting and preventing the misuse of their sectors and products by criminals partaking in financial crimes.

There are several key areas to keep on top of to help your business manage its AML/CTF risk and compliance obligations. They include understanding the latest compliance guidance from AUSTRAC (the Australian Transaction Reports and Analysis Centre), setting up and managing your reporting obligations, and creating the right checks and balances across your organisation to identify and stop potential misuse. While this can feel overwhelming, the good news is there are providers and tools you can use to manage the heavy lifting of these processes, so you can focus on what really matters – your business – while knowing you’re operating in a compliant manner.

Let’s start by understanding AML/CTF Compliance. AML/CTF compliance is not merely a regulatory checkbox under the AML/CTF Act, it’s a fundamental safeguard against financial crime. There are four main areas all businesses must think about:

• Risk Assessment: Begin by assessing your business’s risk exposure. Understand who your customers are, what their business activity is and who makes business decisions to assess the likelihood that they may commit a financial crime. High-risk factors may include dealing with politically exposed persons (PEPs), cross-border transactions, or complex ownership structures. As you begin this process, know that an AML/CTF program is not a one-off exercise and must be embedded into your risk management practices and constantly be maintained in line with changes to your business’s internal and external operating environments. This includes changes like the introduction of new products, expansion into different markets, targeting fresh new customer segments, or implementing alterations to the business structure. You also have an obligation to stay up to date with changes across your customer base and re-assess their risk to your business when circumstances change. Examples include when there is a change in directors or one of the directors of a company becomes politically exposed.

• Customer Due Diligence (CDD):  Beyond the ability to personalise your interactions with them, it’s essential to know your customers inside out for compliance reasons too. Conduct thorough due diligence when onboarding new clients. Verify their identities, identify whether they are politically exposed, assess their risk profiles, and monitor transactions for suspicious activity on an ongoing basis. Ensure your CDD is robust so that you’re able to quickly identify and report irregular or suspicious activity as required by AUSTRAC.

• Transaction Monitoring: Implement robust systems to detect suspicious activities. Unusual changes in purchases (e.g. suddenly buying large amounts of fertiliser instead of timber), large cash transactions, or sudden spikes in activity warrant investigation. Regularly review your transaction records and promptly report any red flags. If you provide a designated service – a service that AUSTRAC has identified as posing a risk for money laundering and terrorism financing, such as financial services, bullion, gambling, or digital currency exchange – and the service has a geographical link to Australia, then you must submit a suspicious matter report (SMR) to AUSTRAC.

• Employee Training: Educate your staff on AML/CTF obligations and appoint an AML/CTF compliance officer, particularly if you are a designated service. This is an AUSTRAC requirement. While the responsibility of your AML/CTF program lies with your senior executive and/or board, your staff should all be able to recognise warning signs, understand reporting requirements, and know how to escalate concerns. A well-informed team is your first line of defence.

Reporting obligations under the AML/CTF Act

All reporting entities must report specific activities to AUSTRAC, with time bound requirements for many activity reports including threshold transactions for cash transfers for AU$10,000 or more, international funds transfers, suspicious transactions, cross border movements of physical currencies and compliance reports.

Transparency is crucial to prevent illicit fund flows and AML/CTF programs are subject to independent reviews with severe consequences for non-compliance. Failing to report in alignment with your obligations could see your business issued a court ordered fine, penalty units, an enforceable undertaking, infringement notice or remedial directions. At a time when every dollar counts, it’s essential that Australian businesses take heed of these requirements and ensure they are prepared to activate as required, within the appropriate time frame. Learn more by reviewing the latest guidance from AUSTRAC here.

AML/CTF Tranche 2

Over the coming months, the Australian government is due to complete a long-awaited modernisation of its AML/CTF regime in preparation for broader global regime changes due across 2025-26. The proposed reforms look to extend the existing AML/CTF legislation to Tranche 2 services.

These proposed changes will extend to services provided by lawyers, accountants, trust and company service providers, real estate agents, and dealers in precious metals and stones. The reforms also aim to simplify and modernise the regime in line with international standards and best practice, reduce complexity and regulatory burden on industry, and make sure the regime responds to the constantly evolving threat environment.

At CreditorWatch, we are experts in supporting businesses with insights to help them keep on top of compliance requirements and reporting obligations. We do this by providing AML/CTF tools, streamlining compliance processes from Know Your Customer (KYC) due diligence to transaction monitoring. We also offer educational resources on AML/CTF best practices and aid businesses in meeting their reporting obligations, ensuring transparency and adherence to regulations – all the while helping businesses reduce risk. 

AML/CTF compliance is everyone’s responsibility. By understanding the rules, reporting diligently, and leveraging technology, businesses can protect themselves, their customers, and the global ecosystem.