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Reporting to AUSTRAC

Under the AML/CTF Act, financial planners, as reporting entities, have an obligation to report suspicious matters to AUSTRAC (5). A reporting entity must submit an SMR if they form a reasonable suspicion of money laundering, terrorism financing or other offences such as fraud or tax evasion.

SMRs submitted by the financial planning sector provide valuable intelligence to AUSTRAC. Working with its partner agencies, AUSTRAC pieces together intelligence from a range of sources to develop a picture of criminal activities and networks. Many of AUSTRAC’s partner agencies – including the Australian Federal Police, Australian Criminal Intelligence Commission and the Australian Taxation Office – have access to AUSTRAC SMRs in order to conduct further analysis and investigation.

For this risk assessment, AUSTRAC analysed in detail all SMRs lodged over a two-year period, where:

  • the SMR had been lodged by a financial planner; or
  • the SMR had been submitted by another financial institution, but a financial planner had identified the suspicious matter or had been involved in the transaction in some way.

AUSTRAC observed that a large range of values were reported in the SMRs during the sample period. Of the 152 SMRs that reported a dollar-figure value, 44 per cent had a value of less than $50,000, and 24 per cent reported amounts greater than $250,000; nine of these were worth over $1 million.

AUSTRAC also analysed the SMRs to determine who the suspicious party was in each case. In 19 per cent of SMRs, the suspicious party was the customer of a financial planner. That equates to only one SMR being submitted per fortnight by financial planners nationwide in relation to their customers. This is a low rate of reporting, considering around 20 per cent of adult Australians seek financial advice (6). Most entities consulted for this assessment agreed that this figure was surprisingly low.

26 per cent of the SMRs in the sample dataset related to cases in which a financial planner was suspected of being involved in an offence. These were generally reported by banks and product issuers, and may reflect more advanced reporting practices by these institutions.

The remaining 55 per cent of SMRs related to offences in which a third party was the suspicious party. This includes parties that were unknown to the customer or financial planner (for example, cyber-criminals), or entities with a connection to a customer (for example, investment scammers).

SMRs relating to fiancial planning

1 April 2014 to 31 March 2016

  • 273 SMRs submitted
  • 67 reporting entities submitting at least one SMR
  • 5 reporting entities account for half of all SMRs submitted
  • $75.9 million total value for transactions reported in SMRs (120 SMRs did not specify a value)

Common misconceptions about suspicious matter reporting

AUSTRAC’s engagement with the financial planning sector for this assessment revealed several industry misconceptions about SMR reporting. These misconceptions are likely to contribute to the low level of reporting by financial planners.

  1. “The product issuer will report instead.” Some financial planners seemed to consider it the financial institution or product issuer’s obligation to report SMRs. However, financial planners are also required to report SMRs to AUSTRAC, and may have information about a customer that the financial institution does not.
  2. “I need to have conclusive evidence.” An SMR must be submitted when a reporting entity forms a suspicion on reasonable grounds, regardless of whether there is conclusive evidence that any illegal activity has occurred. Information provided by financial planners in an SMR could assist with investigations by authorities.
  3. “Reporting will damage the customer relationship.” Some financial planners believed that reporting SMRs about their customers may damage the customer relationship and possibly jeopardise their future revenue stream. However, financial planners that submit an SMR are not required under the AML/CTF Act to discontinue the business relationship.Furthermore, there are provisions in the AML/CTF Act which enable reporting entities to report on suspicious matters without compromising the confidentiality of the customer or the reporting entity. ‘Tipping off’ provisions prohibit reporting entities from disclosing information relating to an SMR to the customer or to other financial institutions. Should a court case be brought against a customer, the information in the SMR cannot be introduced as evidence in criminal proceedings (7), which provides further protection of confidentiality.
  4. “Reporting means my business has done something wrong.” Reporting suspicious matters to AUSTRAC demonstrates that the financial planner is acting in accordance with its AML/CTF obligations. In contrast, financial planners who do not submit SMRs, despite forming a suspicion on reasonable grounds, may become implicated and potentially put Australia’s financial system and national security at risk.

Footnotes

  1. For more information on when to submit an SMR, see section 41 of the AML/CTF Act and Chapter 7 of the AUSTRAC Compliance Guide
  2. Based on the ANZ Survey of Adult Financial Literacy in Australia (May 2015)
  3. Section 124 of the AML/CTF Act. An SMR can be used in criminal proceedings for certain AML/CTF Act offences, including tipping off (section 123) and providing false and misleading information offences (section 136).
Last modified: 21/12/2016 10:33