Chapter 9 - AML/CTF Reforms
You have assessed your customer as high-risk.
Conducting enhanced CDD helps you identify, assess, manage and mitigate a customer’s ML/TF risks.
To manage and mitigate ML/TF risks effectively, the enhanced CDD measures you apply need to be:
targeted to your customer’s specific ML/TF risks
proportionate to the risk level
effective at managing and mitigating the risk
appropriate to the risk duration. For example, you may need to apply enhanced CDD on an ongoing basis if the risk relates to ongoing activity or behaviour.
Politically Exposed Persons
Politically exposed persons (PEPs) are individuals entrusted with significant public responsibilities and power. PEPs also include individuals who have a particular connection to those that have significant public responsibilities and power.
For example, they may be able to influence any of the following:
government spending and budgets
procurement processes
development approvals and grants.
This doesn’t mean that PEPs are automatically involved in unlawful activity. You must assess the money laundering, terrorism financing and proliferation financing risks (we refer to these as ML/TF risks) of each customer, including PEPs, on a case-by-case basis.
Types of PEPs
There are 3 types of PEPs:
a domestic PEP - a member of parliament (both state and federal), head of a government department, a judge or even a high-ranking military officer.
a foreign PEP - a head of foreign state or member of government or judicial system, high ranking military officer or board member of state-owned company.
an international organisation PEP - an individual entrusted with a prominent public function, position or office of a public international organisation. This includes a head, deputy head or board member in a public international organisation. For example, a head, deputy head or board member of a United Nations body.
PEP’s also include family members of customers in the above positions.
Enhanced CDD obligations for PEPs
There are different ways you can do this. For example, you could:
ask a person if they, a family member or a close associate is a PEP during onboarding and throughout your relationship with the customer
check the person’s background on the internet, including sanctions lists and other government lists, and on social media
use databases and reports from third party providers that specialise in analysing corruption risks.
Before you provide a PEP customer with advice, you must obtain licensee approval and establish the PEP’s source of funds and source of wealth on reasonable grounds.
Source Of Funds & Source Of Wealth
Establishing source of funds and source of wealth can help you determine if funds come from a legitimate source, or whether criminals may be attempting to hide funds or wealth derived from illicit sources.
Source of Funds
Source of funds refers to how and where the funds were obtained from for a specific transaction.
Collecting and verifying information about a customer’s source of funds helps confirm that the funds used in a designated service come from a legitimate source. This information can also help you make sure that the transaction aligns with what you know about the customer and why they’re using your designated services.
Some examples of sources of funds for a transaction include:
salary and wages
business income
dividends and investment income
proceeds from sales of real estate or personal property
gifts or inheritance.
The source of funds doesn’t mean where the customer transferred the funds from. It relates to how they obtained the funds.
Source of Wealth
Source of wealth refers to where the customer’s entire wealth and assets come from. This can be from economic, business or commercial activities, along with other circumstance that generated, or significantly contributed to, the customer’s overall net worth.
A source of wealth check may be appropriate if there’s doubt about a customer’s overall financial background and how they accumulated their wealth.
Like source of funds, a customer may have accumulated their wealth over time from a range of sources, including the sources of funds listed above.
Enhanced CDD to establish the source of funds and source of wealth
When collecting and verifying information about a customer’s source of funds and source of wealth, consider the following questions:
Why and how does the customer have the amount of assets they do?
Can you easily explain the customer’s source of wealth or source of funds, such as through their occupation, inheritance or investments?
Is there a reasonable explanation for the customer to conduct this transaction or request this designated service, particularly if it involves the use of cash?
Are there any indicators that the customer derived their funds or wealth from the proceeds of crime?
Is the customer’s background consistent with what you know about their former, current or planned business activity, their business’ turnover (if applicable), the source of funds and source of wealth?
Are you able to confirm that the information and documentation obtained as part of the source of funds and source of wealth checks are consistent with what you know about the customer from your due diligence, including open-source checks?
Persons Designated For Targeted Financial Sanctions
A person is “designated for targeted financial sanctions” when they are named on an official sanctions list because they are assessed as posing a risk related to:
Terrorism or terrorist financing
Proliferation of weapons of mass destruction
Serious international security threats
Serious human rights abuses (in some regimes)
Once designated, specific financial measures apply directly to that person, rather than to a whole country or population.
If a customer, beneficial owner, or controlling person is a designated person:
You must not deal with their assets
You must not provide financial services to them
You must report the matter to AUSTRAC and DFAT
Enhanced CDD obligations for Persons Designated For Targeted Financial Sanctions
If you suspect your customer or an entity may be designated for targeted financial sanctions, you can search The Department of Foreign Affairs and Trade (DFAT) database. DFAT maintains a Consolidated List of all persons and entities designated for TFS under Australian sanctions laws.
You must not deal with any person designated for TFS.