Commonwealth of Australia Explanatory Memoranda

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FINANCIAL TRANSACTION REPORTS AMENDMENT BILL 2006

                              2004-2005-2006




  THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA




                                 SENATE




FINANCIAL TRANSACTION REPORTS AMENDMENT BILL 2006




        SUPPLEMENTARY EXPLANATORY MEMORANDUM




 Amendments and New Clauses to be Moved on Behalf of the Government




(Circulated by authority of the Minister for Justice and Customs, Senator the
                         Honourable Chris Ellison)

     FINANCIAL TRANSACTION REPORTS AMENDMENT BILL 2006

General Outline

The primary purpose of the Bill is to vary the amendments to the Financial
Transaction Reports Act 1988 (the FTR Act) made by Schedule 9 of the Anti-
Terrorism Act (No.2) (the ATA). Schedule 9 comes into force on 14 December 2006.
The Bill needs to come into operation by that date. The amendments are to the new
Division 3A which Schedule 9 of the ATA inserted at Part II of the FTR Act.

The main purpose of the Bill is to bring Australia into greater compliance with
Financial Action Task Force (FATF) Special Recommendation VII which requires the
inclusion, with funds transfer instructions, of customer information about the sender
of the funds.

The proposed government amendments will amend the FTR Act as follows:

       To insert new subsection 17FA(1A) to ensure that where an authorised deposit
       taking institution (the first ADI) is acting on behalf of or at the request of
       another ADI (the second ADI), and the second ADI is acting on behalf of or at
       the request of a customer (who is not an ADI), the first ADI is taken to be
       acting on behalf of that customer. The first ADI is also entitled to rely on any
       of the customer information provided by the second ADI.
       An amendment to the definition of `customer information' in sections 17FA
       and 17FB (which includes an amendment to subparagraph 17FB(6)(b)(ii) to
       omit `date and place of birth' and substitute `date of birth and the country and
       the town, city or locality of the ordering customer's birth').
       To insert new section 17FC to ensure that the provision of complete customer
       information in an international funds transfer instruction (IFTI) is not required
       where an IFTI passes between overseas financial institutions and offshore sites
       that are merely `routed' through computer systems in Australia.
       An amendment to paragraph 29(4)(ba) (as inserted into the FTR Act by the
       ATA), to replace `cash dealer' with `ADI' to ensure consistency.
       An amendment to section 42A to include a reference to Schedule 3AA (as
       inserted into the FTR Act by the ATA).

Financial Impact

The government amendments will reduce the number of systems changes required at
an institutional level.

NOTES ON CLAUSES

Amendment 1: New subsection 17FA(1A)

Amendment 1 inserts new subsection 17FA(1A) which provides that, for the purposes
of paragraph 17FA(1)(b), where an ADI (the first ADI) is acting on behalf of or at the
request of another ADI (the second ADI), and the second ADI is acting on behalf of
or at the request of a customer (who is not an ADI), the first ADI is taken to be acting
on behalf of that customer. The first ADI is also entitled to rely on any of the
customer information provided by the second ADI.

In the following example, under new subsection 17FA(1A), Bank B (the first ADI)
would be deemed to be acting on behalf of Mrs X (customer who is not an ADI).
Bank B would also be entitled to rely on the customer information (concerning Mrs
X) provided by Bank A (second ADI).

`Mrs X goes to Bank A (in Australia) and wants to transfer money to a bank in Hong
Kong. Bank A passes the instruction onto Bank B (because Bank B has a
correspondent banking relationship with the bank in Hong Kong). Bank B then sends
the instruction to the bank in Hong Kong.'

Amendment 2: Subsection 17FA(3)

Amendment 2 repeals the definition of `customer information' in subsection 17FA(3)
and substitutes a new definition of that term. The new definition makes it clear that in
an IFTI the following customer information must be included:

   (i) the ordering customer's name; and
   (ii) any one of the following:
           -     either the ordering customer's full business or residential address (not
                 being a post office box); or
           -     the ordering customer's date of birth and the country and the town,
                 city or locality of the ordering customer's birth (if the ordering
                 customer is an individual); or
           -     a unique identification number given to the ordering customer by the
                 Commonwealth or an authority of the Commonwealth (eg, an
                 Australian Business Number or an Australian Company Number); or
           -     a unique identification number given to the ordering customer by a
                 foreign government; or
           -     a unique identification number given to the ordering customer by the
                 ADI that the ordering customer originally asked to send the
                 instruction; and
   (iii) either:
           -     the account number - (if the money is, or is to be, transferred from a
                 single account held by the ordering customer with the ADI that the
                 ordering customer originally asked to send the instruction); or
           -     (in any other case) - a unique reference number assigned to the
                 instruction by the ADI that the ordering customer originally asked to
                 send the instruction.




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The provision also ensures that the ADI which is required to include the complete
customer information in the IFTI is the ADI who the ordering customer originally
asked to send the instruction.

The result is that if the funds from an IFTI come from a single account, the account
number must be included in the IFTI. If the funds take the form of cash, the IFTI
must include a unique reference number. If the funds come from more than one
account, the IFTI must show a unique reference number. However, that number can
be the number of one of the accounts if the sending institution decides to use an
account number.

Amendment 2 also inserts the definition of `unique reference number' into subsection
17FA(3). `Unique reference number' is defined to mean a combination of letters,
digits, characters and/or symbols which distinguishes the instruction in a way that,
either alone or in conjunction with any other information in the instruction, enables
the ADI that the ordering customer originally asked to send the instruction to identify
the ordering customer. For example, a combination of a BSB and account number
could be included in the instruction. Alternatively, a reference number generated by
the ADI that the ordering customer originally asked to send the instruction could be
included in the instruction.

Amendments 3 and 4: Subsection 17FB(6) of the definition of `customer
information'

Amendment 3 omits the words `date and place of birth' from subparagraph
17FB(6)(b)(ii) and substitutes `date of birth and the country and the town, city or
locality of the ordering customer's birth.' This wording is consistent with
subparagraph 17FA(3)(b)(ii). The purpose of the amendment is to ensure that greater
detail concerning a customer's place of birth is included in an IFTI transmitted both
into and out of Australia.

The purpose of amendment 4 is to repeal subparagraph 17FB(6)(c)(ii) and substitute
new subparagraph 17FB(6)(c)(ii), which provides that a unique reference number
assigned to the instruction by the ordering organisation is to be included in the IFTI.
The use of the term `unique reference number' has been adopted for both subsection
17FB(3) and subparagraph 17FB(6)(c)(ii) and is a term that has been utilised by
FATF in SRVII.

Amendment 5: Subsection 17FB(6), new section 17FC, paragraph 29(4)(ba),
section 42A

Subsection 17FB(6)

Amendment 5 inserts the definition of `unique reference number' into subsection
17FB(6). This definition is consistent with the definition of that term given in
subsection 17FA(3).




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New section 17FC

Amendment 5 inserts at the end of Division 3A, new section 17FC. This new
provision is intended to ensure that the provision of complete customer information in
an IFTI is not required where the IFTI is transmitted from a place outside Australia to
another place outside Australia and is merely `routed' through an Australian computer
but has not specifically come through the Australian financial system. In other words,
the Australian intermediary ADI is only required to pass on the information that it
receives in the IFTI.

Paragraph 29(4)(ba)

Paragraph 29(4)(ba), as inserted into the FTR Act by Schedule 9 of the ATA, makes it
an offence for a person to make a statement, either orally or in writing, or present a
document that is, to the person's knowledge, false or misleading in a material
particular and is capable of causing `a cash dealer' to include customer information
relating to an IFTI under section 17FA that is false or misleading in a material
particular.

Amendment 5 omits the reference to `a cash dealer' and substitutes `an ADI'. The
amendment is aimed to ensure consistency with the amendment to restrict Division
3A of Part II of the FTR Act to ADIs only.

Section 42A

Section 42A of the FTR Act allows the FTR Regulations to amend Schedules 1, 2, 3,
3A or 4. The purpose of amendment 5 is to include a reference to Schedule 3AA
which was inserted into the FTR Act by Schedule 9 of the ATA. Schedule 3AA
spells out, for the purposes of section 15AA (as inserted into the FTR Act by
Schedule 9 of the ATA), the reportable details in respect of bearer negotiable
instruments.




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