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Digital Currency will no Longer Fly Under the Radar – Proposed Reforms of the AML/CTF Regime

Posted on September 7th, 2017 by Sophie Gerber in AML/CTF

The rise in the popularity of digital currency has caused worldwide concern as governments grapple with how it should be regulated.  The proposed regulation requires a balancing act to deter individuals from using digital currency for illegal activities while maintaining the qualities of a decentralised currency that are so central to the popularity of digital currency.

The Australian Government has been no less concerned by the recent boom in digital currency and during 2016 conducted a review with regard to its potential regulation. The result of this review is the Anti-Money Laundering and Counter-Terrorism Financing Amendment Bill 2017 (“the Bill”). The Bill was introduced into the Australian Parliament on the 17 August 2017.

The Bill updates the current AML/CTF Act to bring businesses that convert digital currency to “regular”/fiat currency within its ambit.

Broadly speaking the Bill would see the following changes made to the current AML/CTF Act:

  • The definition of ‘e-currency’ will be repealed and replaced with a definition of ‘Digital Currency’, which will capture currencies not backed by a ‘physical thing’ such as Bitcoin.
  • AUSTRAC will be required to establish and maintain a Digital Currency Exchange Register;
  • All Digital Currency Exchanges in Australia must enroll and register on the Digital Currency Exchange Register (“Registration”);
  • AUSTRAC may impose conditions on the Registration of a Digital Currency Exchange Provider such as the value, or the kinds of digital currency that may be exchanged by any such provider;
  • AUSTRAC may cancel a Registration where they believe that continued Registration may involve a risk of money laundering, financing of terrorism or other serious crime risks, or there has been a breach of the relevant Registration conditions; and
  • A Digital Currency Exchange Provider must:
    1. adopt and maintain an AML/CTF program to identify, mitigate and manage the Money-Laundering and Terrorism Funding risks their business may face when conducting its services;
    2. report suspicious matters and transactions involving physical currency that exceed $10,000 or more (or foreign equivalent) to AUSTRAC; and
    3. identify and verify the identities of their customers and keep certain records related to transactions, customer identification and their AML/CTF program for seven years.

The Bill imposes serious penalties for Digital Currency Exchanges[1] that do not comply with the new rules including the imposition of criminal penalties. As well as acting as a deterrent to crime, it is also intended that regulating digital currencies in this way will give these exchanges greater legitimacy and improve their reputation.

The Bill must now pass through both houses of parliament before being enacted into Australian law.

It is proposed that for digital currency exchanges already operating in the industry there will be a transitional period of 6 months from the date Bill receives Royal Assent. This should enable digital currency exchanges to implement the required procedures and controls to comply with the new AML/CTF obligations.

In addition, it is proposed that a second transitional period of 12 months from the date the Bill commences should apply to newly regulated Digital Currency Exchange Providers. It is intended that the transition period “will enable the businesses to implement a plan to meet their compliance and reporting obligations, and achieve full compliance, by the end of the 12-month policy principle period.”

The Bill proposes a transition period for the new rules of up to 18 months, which should be ample time for digital currency exchange providers to prepare and implement the new systems.

We will continue to update you as the Bill moves through Parliament.

The above is an overview of the Bill and the new obligations it imposes on digital currency providers. If you would like to discuss the requirements in more detail or would like advice on how to prepare for the changes please contact us.

[1] Whereby the entity exchanges digital currency for money (whether Australian or not) or exchanging money (whether Australian or not) for digital currency, where the exchange is provided in the course of carrying on a digital currency exchange.

Victoria Dryden

Victoria works primarily with the legal services team at Sophie Grace Legal and assists in the drafting and review of legal documentation for participants in the financial services industry. Victoria also supports the Compliance Consultants in the provision of AFSL, ACL and on-going compliance services to clients. Victoria provides advice and legal services to clients and assists with the preparation of legal documentation, negotiation and advocacy on behalf of clients. Victoria also assists in implementing ongoing compliance support and the preparation of AFSL and ACL applications and variations. Victoria is admitted as a Barrister and Solicitor in New Zealand and as a Solicitor in New South Wales.