Anti-Money Laundering and Counter-Terrorism Financing Amendment Bill 2017 [2017] AUSStaCSBSD 284 (6 September 2017)

1.1 The committee seeks a response or further information from the relevant minister or sponsor of the bill with respect to the following bills.

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Anti-Money Laundering and Counter-Terrorism Financing Amendment Bill 2017

Purpose	This bill seeks to amend the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (the AML/CTF Act) and the Financial Transaction Reports Act 1988 to: • expand the objects of the AML/CTF Act to reflect the domestic objectives of AML/CTF regulation; • regulate digital currency exchange providers; • amend industry regulation requirements relating to due diligence obligations for correspondent banking relationships; the cash-in-transit sector, insurance intermediaries and general insurance providers; the term 'in the course of carrying on a business'; and sharing information between related bodies corporate; • increase the investigation and enforcement powers of the Australian Transaction Reports and Analysis Centre (AUSTRAC); • provide police and customs officers broader powers to search and seize physical currency and bearer negotiable instruments; • provide police and customs officers broader powers to establish civil penalties for failing to comply with questioning and search powers; • revise the definitions of 'investigating officer', 'signatory' and 'stored value card' in the AML/CTF Act; and • clarify other regulatory matters relating to the powers of the AUSTRAC CEO
Portfolio	Justice
Introduced	House of Representatives on 17 August 2017
Scrutiny principles	Standing Order 24(1)(a)(i), (iii) and (iv)

Strict liability offences^[1]

1.2 Proposed section 76A seeks to establish a number of offences in relation to an unregistered person providing digital currency exchange services. The basic offence^[2] of breaching a requirement not to provide a digital currency exchange service unless registered is subject to a penalty of up to two years imprisonment or 500 penalty units. There are also three aggravated offences^[3] with increased penalties, of up to seven years imprisonment or 2,000 penalty units for breaching this requirement in circumstances where the person has previously been given a remedial direction or has been convicted of relevant offences. For all four offences, strict liability is stated as applying to whether a person engaged in the relevant conduct and whether their conduct breached the relevant requirement.

1.3 Under general principles of the criminal law, fault is required to be proved before a person can be found guilty of a criminal offence (ensuring that criminal liability is imposed only on persons who are sufficiently aware of what they are doing and the consequences it may have). When a bill states that an offence is one of strict liability, this removes the requirement for the prosecution to prove the defendant's fault. In such cases, an offence will be made out if it can be proven that the defendant engaged in certain conduct, without the prosecution having to prove that the defendant intended this, or was reckless or negligent. As the imposition of strict liability undermines fundamental criminal law principles, the committee expects the explanatory memorandum to provide a clear justification for any imposition of strict liability, including outlining whether the approach is consistent with the Guide to Framing Commonwealth Offences.^[4]

1.4 In this instance the explanatory memorandum gives a detailed explanation for the imposition of strict liability. It states that it is appropriate to apply strict liability to ensure the integrity of the regulatory regime is maintained, and requiring proof of fault for the physical elements of the offences would undermine the deterrent effect as it would allow for entities to argue that they did not know or were reckless as to whether they had obligations under the Act.^[5]

1.5 The Guide to Framing Commonwealth Offences states that applying strict liability may be appropriate where requiring proof of fault would undermine deterrence and there are legitimate grounds for penalising persons lacking fault in respect of that element.^[6] The committee notes that while the explanatory memorandum explains that requiring proof of fault may undermine deterrence, it does not explain what the legitimate grounds are for penalising persons lacking fault in respect of conduct that breaches the requirement to be registered before providing a digital currency exchange service. The committee notes that the explanatory memorandum states that requiring proof of fault 'would allow for entities to argue that they did not know or were reckless as to whether they had obligations under the Act'.^[7] However, while this may apply in relation to the question of whether a person's conduct intentionally or recklessly breaches a requirement that they be registered or comply with conditions of registration,^[8] this would not seem to apply to the question of whether a person has intentionally engaged in the relevant conduct.

1.6 The explanatory memorandum also acknowledges that the penalties that apply in the bill 'do not align with the standard fine/imprisonment ratio set out in the Guide' but states that this is justified on the basis of the need to deter high-risk digital currency exchange providers.^[9] The Guide to Framing Commonwealth Offences states that the application of strict liability is only considered appropriate where the offence is not punishable by imprisonment and only punishable by a fine of up to 60 penalty units for an individual.^[10] In this instance, the bill proposes applying strict liability to offences that are subject to up to 7 years imprisonment. The committee reiterates its long-standing scrutiny view that it is inappropriate to apply strict liability in circumstances where a period of imprisonment may be imposed.

1.7 The committee requests the Minister's advice as to the grounds for penalising persons lacking fault in respect of providing a digital currency exchange service without being registered (including providing any examples of where a person could unintentionally provide a digital currency exchange).

Significant matters in delegated legislation^[11]

1.8 Proposed sections 76K and 76L provide that the rules (delegated legislation) may make provision for and in relation to the suspension and renewal of registrations by the AUSTRAC CEO. A number of important matters are thereby delegated to the rules, including the grounds on which suspension decisions may be made, the criteria for determining applications for renewal and whether decisions to suspend or not renew registration should be subject to review. The committee's view is that significant matters such as these should be included in primary legislation unless a sound justification for the use of delegated legislation is provided. In this instance, the explanatory memorandum gives no reason for including such matters in the rules as opposed to the primary legislation.

1.9 The committee also notes that these significant matters are to be included in 'rules' rather than in 'regulations'. The issue of the appropriateness of providing for significant matters in legislative rules (as distinct from regulations) is discussed in the committee's First Report of 2015.^[12] In relation to this matter, the committee has noted that regulations are subject to a higher level of executive scrutiny than other instruments as regulations must be approved by the Federal Executive Council and must also be drafted by the Office of Parliamentary Counsel (OPC). Therefore, if significant matters are to be provided for in delegated legislation (rather than primary legislation) the committee considers they should at least be provided for in regulations, rather than other forms of delegated legislation which are subject to a lower level of executive scrutiny.^[13]

1.10 In addition, where the Parliament delegates its legislative power in relation to significant regulatory schemes the committee considers that it is appropriate that specific consultation obligations (beyond those in section 17 of the Legislation Act 2003) are included in the bill and that compliance with these obligations is a condition of the validity of the legislative instrument. The committee notes that section 17 of the Legislation Act 2003 sets out the consultation to be undertaken before making a legislative instrument. However, section 17 does not strictly require that consultation be undertaken before an instrument is made. Rather, it requires that a rule-maker is satisfied that any consultation, that he or she thinks is appropriate, is undertaken. In the event that a rule maker does not think consultation is appropriate, there is no requirement that consultation be undertaken. In addition, the Legislation Act 2003 provides that consultation may not be undertaken if a rule-maker considers it to be unnecessary or inappropriate; and the fact that consultation does not occur cannot affect the validity or enforceability of an instrument.^[14]

1.11 The committee's view is that significant matters, such as the grounds on which suspension decisions may be made, the criteria for determining applications for renewal and whether decisions to suspend or not renew registration should be subject to review, should be included in primary legislation unless a sound justification for the use of delegated legislation is provided. In this regard, the committee requests the Minister's detailed advice as to:

Civil penalty provisions^[15]

1.12 The bill proposes to make four provisions in the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (the Act) into civil penalty provisions. Section 175 of the Act states that the maximum pecuniary penalty payable by an individual for a civil penalty provision is 20,000 penalty units (or $4.2 million) and for a body corporate 100,000 penalty units (or $21 million). The changes made by this bill would mean that an individual could be liable to a civil penalty of up to $4.2 million for a failure to notify the AUSTRAC CEO of a change in circumstances that could materially affect the person's registration;^[16] a failure to declare an amount of currency or a bearer negotiable instrument when leaving or entering Australia;^[17] or providing a registrable digital currency exchange service if not registered.^[18] These are extremely significant penalties, yet no justification has been provided in the explanatory memorandum as to the appropriateness of making these provisions subject to such high civil penalties. The committee also notes that the equivalent financial criminal penalties in relation to two of the provisions are up to 60 penalty units,^[19] which is substantially lower than up to 20,000 penalty units for an individual or 100,000 for a body corporate for breach of the proposed civil penalty provisions.

1.13 The committee requests the Minister's advice as to the appropriateness of making certain provisions, including a failure to notify of a change of circumstances, subject to civil penalties of up to 20,000 penalty units for an individual (or $4.2 million) and 100,000 penalty units (or $21 million) for a body corporate.

Immunity from civil or criminal liability^[20]

1.14 Proposed section 76R provides that no action, suit or proceeding (whether criminal or civil) lies against the Commonwealth, the AUSTRAC CEO or a member of the staff of AUSTRAC in relation to the publication of the Digital Currency Exchange Register or a list of the names of persons whose registration has been cancelled. This therefore removes any common law right to bring an action to enforce legal rights (for example, a claim of defamation). The committee notes that this applies even if the action taken was not done in good faith.

1.15 The committee expects that if a bill seeks to provide immunity from liability, particularly where such immunity could affect individual rights, this should be soundly justified. In this instance, the explanatory memorandum provides no explanation for this provision, merely restating the terms of the provision.^[21]

1.16 The committee requests the Minister's advice as to why it is considered appropriate to provide immunity from civil or criminal liability so that affected persons will no longer have a right to bring an action to enforce their legal rights. The committee considers it may be appropriate, at a minimum, for proposed section 76R to be amended to provide that the immunity only applies to actions taken in good faith, and requests the Minister's response in relation to this matter.

Fair hearing rights^[22]

1.17 Proposed subsection 76S(1) states that before the AUSTRAC CEO makes a decision to refuse to register a person as a digital currency exchange provider, to impose conditions on registration or to cancel a person's registration, they must give a written notice to the person, with reasons provided, allowing the affected person to make a submission in relation to the proposed decision. However, proposed subsection 76S(2) provides that the AUSTRAC CEO is not required to give this notice if satisfied that it is inappropriate to do so because of the urgency of the circumstances. This would appear to remove the fair hearing requirements in these circumstances. The explanatory memorandum does not give a justification for limiting the right to a fair hearing in this way.

1.18 The committee notes it is unclear what circumstances may be so urgent in relation to a decision not to register a person. It is also unclear why it is necessary to remove the requirement to give notice regarding cancellation in urgent circumstances, given proposed section 76K gives a power to suspend registration, which could be used in urgent situations before a decision is made to cancel registration.

1.19 The committee therefore requests the Minister's advice as to why it is necessary and appropriate to remove the requirement to notify an affected person before a decision is made not to register the person, to impose conditions on registration or to cancel registration.

1.20 A number of items in the bill propose broadening the search and seizure powers currently exercisable by police and customs officers at the border. These powers would enable police and customs officers to seize physical currency and bearer negotiable instruments produced or found during a search, in certain circumstances. As recognised in the explanatory memorandum,^[24] the Guide to Framing Commonwealth Offences provides that seizure should only be allowed under a warrant, noting that seizure is a significant coercive power and the Commonwealth has consistently taken the approach that it should require authorisation under a search warrant.^[25] The Guide also states that there is a very limited range of circumstances where it may be appropriate to allow officers the ability to seize pending issue of a warrant, such as where reasonably necessary to resolve a situation of immediate emergency.^[26] The explanatory memorandum appears to reinterpret this to say that the Guide contemplates there is a limited range of circumstances where it may be appropriate to allow for seizure, such as where it may not be possible or practical to obtain a warrant.^[27] The committee does not consider this is the appropriate test and affirms its scrutiny view that seizure should only take place under a warrant, unless seizure is necessary to resolve a situation of immediate emergency.

1.21 The committee notes that it is possible to provide that a police or customs officer may, without a warrant, secure an item pending issue of a warrant authorising seizure. The explanatory memorandum does not explain why this approach was not adopted. The committee also notes that provisions in the Act currently give certain powers to police and customs officers to seize such items (in more limited circumstances), and notes that the fact that powers already exist in the Act to enable the seizure of certain items does not, of itself, provide a justification for including such powers in the bill currently under consideration.

1.22 The committee requests the Minister's detailed justification for provisions that give police and customs officers the power to seize physical currency and bearer negotiable instruments without a warrant. In particular, the committee seeks the Minister's advice as to:

[1] Schedule 1, item 20, proposed section 76A. The committee draws Senators' attention to this provision pursuant to principle 1(a)(i) of the committee's terms of reference.

[4] Attorney-General's Department, A Guide to Framing Commonwealth Offences, Infringement Notices and Enforcement Powers, September 2011, pp 22–25.

[6] Attorney-General's Department, A Guide to Framing Commonwealth Offences, Infringement Notices and Enforcement Powers, September 2011, p. 23.

[10] Attorney-General's Department, A Guide to Framing Commonwealth Offences, Infringement Notices and Enforcement Powers, September 2011, p. 23.

[11] Schedule 1, item 20, proposed sections 76K and 76L. The committee draws Senators' attention to these provisions pursuant to principle 1(a)(iv) of the committee's terms of reference.

[12] Senate Standing Committee for the Scrutiny of Bills, First Report of 2015, 11 February 2015, pp 21–35.

[13] See also Senate Standing Committee on Regulations and Ordinances, Delegated Legislation Monitor No. 17 of 2014, 3 December 2014, pp 6–24.

[15] Schedule 1, item 20, proposed subsections 76A(11) and 76P(3); item 73, proposed subsection 199(13); and item 75, proposed subsection 200(16). The committee draws Senators' attention to these provisions pursuant to principle 1(a)(i) of the committee's terms of reference.

[17] See Schedule 1, item 73, proposed subsection 199(13) and item 75, proposed subsection 200(16).

[20] Schedule 1, item 20, proposed section 76R. The committee draws Senators' attention to this provision pursuant to principle 1(a)(i) of the committee's terms of reference.

[22] Schedule 1, item 20, proposed subsection 76S(2). The committee draws Senators' attention to this provision pursuant to principle 1(a)(iii) of the committee's terms of reference.

[23] Schedule 1, item 67, proposed subsection 199(2A); item 71, proposed subsection 199(5); item 72, proposed subsection 199(10); and item 74, proposed subsection 200(13A). The committee draws Senators' attention to these provisions pursuant to principle 1(a)(i) of the committee's terms of reference.

[25] Attorney-General's Department, A Guide to Framing Commonwealth Offences, Infringement Notices and Enforcement Powers, September 2011, pp 82–83.

[26] Attorney-General's Department, A Guide to Framing Commonwealth Offences, Infringement Notices and Enforcement Powers, September 2011, p. 39.

Australian Senate Standing Committee for the Scrutiny of Bills - Scrutiny Digests