What if you have never reported a suspicious matter?
Our extensive experience with assisting clients to respond to an AUSTRAC Compliance Assessment has taught us that AUSTRAC takes a dim view of reporting entities that have never lodged a suspicious matter report. In AUSTRAC's view, failure to lodge any suspicious matter reports is an indicator that the entity's systems and controls are not effective in identifying and prompting an investigation into suspicious matters, which could lead to the lodging of suspicious matter reports.
We conduct independent reviews of companies bound by the AML/CTF regime. As part of the reviews, we come across examples of different client types (including fund managers, remitters and financial planners) who have not lodged any suspicious matter reports with AUSTRAC. When some clients are questioned and provide information as part of the review, it becomes clear that the failure to lodge suspicious matter reports was not because no suspicious matter have arisen – rather, that the AML/CTF compliance officer was unsure whether the matter was suspicious, and was also concerned about the reputational risk and damage to the customer relationship if the suspicion was investigated and enhanced customer due diligence procedures were followed.
For example, when a financial planner obtains detailed financial information from a customer or a potential customer as part of providing a Statement of Advice, they may have questions about the source of a customer's funds or a particular transaction or beneficiary relationship.
Another example was the story at the beginning of this article - where an online CFD provider suspects that a person is not who they claim to be (they are operating under an alias), as a competitor who tries to open an account for the purpose of testing the CFD provider's system.
These suspicions should be referred to the AML/CTF compliance officer for consideration in accordance with the procedure outlined in the company's AML/CTF Program, and a decision whether or not to lodge a suspicious matter report must be made within the above timeframes. It is not enough for the financial planner, fund manager or CFD provider to simply 'turn a blind eye' to the potential suspicion. Often, a company's response is to simply decline to accept that person as a client, and no further action is taken.
We understand that companies are loathe to damage customer relationships by asking questions that seem to go beyond the scope of the services they are providing (or intend to provide), or by acting as an unofficial arm of the regulator and 'passing judgment' on a customer's activities by lodging a suspicious matter report with AUSTRAC. Also, companies are worried that by continuing to provide services to a customer where a suspicion exists, that they will facilitate money laundering or terrorism financing.
However, we emphasise that reporting entities are bound to comply with the AML/CTF laws, which include having a risk-based system and controls to identify, assess and control the risk of its business being used to facilitate money laundering and terrorism financing. It may be that its system and controls are calibrated so that if a suspicion is formed about a customer, the company will not accept that person as a customer. This is an acceptable risk-based control – however, the company remains bound by the obligation to report the suspicious matter to AUSTRAC (without tipping-off the customer).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
