In the post September 11 world, money laundering has become a global issue. In its 2007 Global Anti-Money Laundering Survey, KPMG estimates global money laundering flows exceeded US$1 trillion.

Money laundering encompasses funds deposited or invested in financial institutions sourced from criminal activities such as drug trafficking, arms dealing, corruption and terrorist activities.

The Australian Anti-Money Laundering and Terrorism Financing Act 2006 (AML/CTF Act) was passed by federal parliament in December last year. The AML/CTF Act has been implemented in Australia to improve the existing anti-money laundering and counter-terrorism financing system. This new law aims to bring Australia into line with higher international standards and prevent and detect money laundering and terrorism financing.

In this issue we answer some of the most frequently asked questions on the AML/CTF Act.

Q. What are the requirements of the AML/CTF Act?

A. Under the new regulations, financial service providers will need to keep detailed customer records and report any unusual activity to AUSTRAC on a regular basis. This means trustees and their fund managers must implement processes and procedures for:

• assessing the money laundering risk of customers, products and services;
• ongoing customer due diligence;
• employee due diligence; and
• customer identification and re-verification.

Financial service organisations will need to lodge their first compliance report under the new regulations with AUSTRAC by 31 March 2008.

Q. When will the anti-money laundering legislation be implemented?

A. The first tranche of Australia's anti-money laundering reforms covers financial services organisations including banks, fund managers, stock brokers, insurers and trustees. The regulations will be phased in over two years, with the second tranche covering real estate agents, lawyers and accountants to follow.

Australia's new anti money-laundering legislation is "principles-based". Rather than enforcing strict rules, AUSTRAC has set objectives and broad obligations so each organisation can implement and adjust their programs in line with their products, operating structure and business environment.

Q. What forms of identification do investors need to provide?

For individuals
Original certified copy and in English of ONE of the following:

• IFSA/FPA approved form;
• Current driver's license;
• Current passport;
• Citizenship certificate;
• Birth certificate;
• Council rates notice (within the last 3 months);
• ATO tax notice (within the last 12 months and must show evidence of debt); or
• Letter from a current State School principal stating name and address of applicant.
  

For Trusts and SMSF
Original certified copy and in English of the following:

• IFSA/FPA approved form
• Extract of Trust Deed

The extract should include the pages which:

• Show the trust name;
• Show the trustees name(s);
• Show the trustees signature(s) with witness signatures; and
• Registered and or service address- not a PO Box.

For Corporations and Corporate Trusts
Original certified copy and in English of one of the following:

• Registration certificate

Q. What if my clients don't have this documentation - is there any other identification they can provide?

The above identification documents are the prescribed identification documentation from AUSTRAC.

Q. Do the requirements differ for each product?

A. No

Q. What are the different phases of the AML/CTF Act, when are they scheduled, and what do they involve?

The requirements and timelines are applicable to all AFSL license holders.

Q. My client already holds an existing Vanguard account. Does he/she need to provide identification?

Existing investors will not be required to provide additional identification at the outset but from time to time Vanguard may need to verify your clients' identity.

If your client is setting up a new investment or plan in an alternative name you will be subject to the investor verification process.

Q. Will the AML/CTF Act affect the establishment of a new account?

From 12 December, all new investors or investors setting up a new account will be required to provide Vanguard with verification of their identity when submitting their initial application form.

Q. Does Vanguard intend to issue new Product Disclosure Statements (PDSs) to reflect the changes required by the AML/CTF Act?

A. Details of the verification requirements will be outlined in Vanguard's index fund PDSs. These PDSs will contain application forms with specific AML/CTF Act requirements. Soft copies of the index funds PDSs will be available by 12 November via Vanguard's website www.vanguard.com.au. The forms are in line with ISFA and FPA identification forms released by these associations jointly on 7 November 2007.

Q. Who is the regulator of the new reforms?

A. The Australian Transaction Reports and Analysis Centre (AUSTRAC) is the regulator of the new reforms, which are based on the recommendations of the Financial Action Task Force (FATF). FATF, which comprises 33 countries including Australia, was established in 1989 in response to growing international concerns about the financing of terrorism activities.