Lawyers are always wary of retrospective laws, because clients can be deemed to be breaking the law after the event, even when they were acting legally at the time.

Under FATA, proposals by foreign investors to acquire 15% or more of the voting power or issued shares of an Australian corporation (what’s called a ‘substantial interest’) must be notified to the Treasurer. Some types of investment have a monetary threshold, and you don’t need to apply for approval if you are under it. There are higher thresholds for US investors. Other investments like residential real estate (generally speaking) have no threshold. There are also notification requirements for aggregated interests over 40%. The Treasurer has the power to block the foreign investment or put conditions on it if it’s considered contrary to the national interest.

The FATA amendment extends the notification requirements when the foreign investor proposes to acquire 15 percent or more of potential voting power or the right to issued shares. The intent is to capture more complex financing arrangements, like options to acquire shares and convertible notes. The amendment is seen as a clarification of the prior law. It was not clear whether it actually applied to potential interests of this kind.

Fortunately, the amendment includes some protection for investors from its retrospective application: you have 30 days after the FATA amendment receives royal assent to notify the Treasurer that you entered into a foreign investment proposal subject to FATA (as amended) after 12 February 2009, if you have not already done so.

Since the Treasurer announced the proposed changes last year (in fact on 12 February 2009), the government thinks that most investors who made their notifications in the intervening period should have been aware of the coming changes, and made voluntary notifications (i.e., as if the new law was already passed). If you haven’t, you should make notification immediately: criminal penalties could apply if you have not given notice by the end of the 30 day period.

APRA has identified two types of IER schemes whereby superannuation benefits held by APRA-regulated funds are illegally accessed under the guise of transfers or rollovers into SMSFs:

• The fraudulent use of a member’s identification by an unrelated party to steal the member’s benefits without their knowledge or consent.
• The member participates with a promoter to access the member’s benefits. In many cases, the participant ends up with a considerably reduced benefit after “fees‟, tax and penalties are deducted.

The letter outlines a number of suggestions that trustees should consider integrating into benefit payment processes that may assist in verifying the validity of transfer/rollover requests to SMSFs starting with Proof of Identity checks to confirm they are dealing with their member (or authorised representative).

REP184 also highlights examples where ASIC decided to adopt a no-action position regarding specified non-compliance with the provisions, and features an appendix detailing the relief instruments it executed.

The announcement does not affect the Financial Claims Scheme, which will continue protection of deposits of up to $1 million  in authorised deposit-taking institutions (ADIs) until the cap is reviewed in October 2011.

The Council of Financial Regulators – consisting of the heads of the Reserve Bank, Treasury, ASIC and APRA - has advised the Government that bank funding conditions have improved such that the Guarantee is no longer needed, and that no Australian institution will need the Guarantee to fund themselves.

Existing guaranteed liabilities of ADIs will continue to be covered by the Guarantee to maturity for wholesale funding and term deposits, or to October 2015 for at call deposits. The final date for ADIs to apply for access to the Guarantee is 24 March 2010.

John  Schmidt was appointed CEO of Australian Transaction Reports and Analysis Centre (AUSTRAC) in September 2009 and he has wasted no time in actively enforcing Austrac’s new supervisory strategy. 

AUSTRAC’s supervision strategy for 2009-10 outlines its approach to supervising compliance across the different industry sectors it regulates under Australia’s anti-money laundering and counter-terrorism financing laws as it moves from a start-up stage to “business as usual.”

Enforceable undertakings
In recent months AUSTRAC has commenced a new enforceable undertakings regime and AUSTRAC has issued its first remedial direction for non-compliance with the AML/CTF Act.

So far it has accepted enforceable undertakings from Barclays Bank PLC, Mega International Commercial Bank Co, Ltd and PayPal Australia Pty Ltd.

Mega International Commercial Bank Co, Ltd, headquartered in Taipei, Taiwan, subsequently  gave an enforceable undertaking to APRA in relation to the operation of its Australian branch to complete a substantial program of remedial action to rectify shortcomings in its current operations.

Mega ICBC’s remedial program includes a temporary cessation of account-opening activity until otherwise agreed by APRA, an overhaul of the branch’s risk management and internal control systems, and a review of the suitability of senior management in Australia. Mega ICBC has confirmed that the heads of the bank’s branch offices in Sydney and Brisbane have already been replaced.

 An enforceable undertaking is a written undertaking that is enforceable in a court, given to and accepted by the AUSTRAC CEO. They are generally an alternative to civil or administrative action where there has been a contravention of the AML/CTF Act, the regulations or the AML/CTF Rules.

Austrac’s first acceptance of enforceable undertakings was from Barclays Bank PLC and Mega International Commercial Bank Co,. Ltd , following a number of deficiencies and breaches, including reporting breaches of Australia’s anti-money laundering and counter-terrorism financing (AML/CTF) laws.

Barclay’s breaches were identified following an on-site assessment.

The undertakings from Barclays and Mega ICBC require the companies to:

• review transactions for a period of seven years and provide AUSTRAC any outstanding reports required by law;
• develop and implement proper systems and controls to ensure
• that the company complies in the future with its reporting and AML/CTF program obligations;
• submit to AUSTRAC an independent expert report detailing the company’s compliance with the AML/CTF laws.

The companies will also be required to submit similar reports in 2010 and 2011.

AUSTRAC has also accepted an enforceable undertaking from PayPal Australia Pty Ltd after an assessment of PayPal revealed deficiencies in the systems PayPal had in place to assess and manage its money laundering and terrorism financing risk in relation to its online payments business.

In the undertaking which ends 31 December 2011 PayPal has agreed to:
• strengthen its existing systems and controls to comply with risk assessment requirements;
• submit to AUSTRAC an independent expert report detailing PayPal Australia’s compliance with AML/CTF laws and a plan to remedy identified deficiencies.

AUSTRAC has also recently issued its first remedial direction for non-compliance with the AML/CTF Act.

The direction was issued to Ms Mojgan Zojaji, trading as Little Persia, a remittance service provider, for failure to adopt and maintain an AML/CTF program.

Austrac’s supervisory strategy
AUSTRAC has changed its approach because the staggered implementation of the AML/CTF Act is now complete and all its obligations are now in effect and the Minister’s Policy (Civil Penalty Orders) Principles 2006, which placed conditions on the circumstances in which AUSTRAC would take enforcement action, no longer apply to many obligations.

AUSTRAC describes its new approach to supervision as a spectrum:

At a lower end are activities such as mailouts, e-newsletters and articles in industry magazines. These activities can achieve a high level of coverage across a large number of reporting entities, but are not tailored to individual entities. They are designed to improve entities’ general understanding of their obligations but are less effective at improving levels of compliance than more intensive forms of supervision.

In the middle of the spectrum are themed reviews and monitoring of transaction and compliance reports. These activities are more resource intensive but still apply to a broad range of reporting entities.

On-site assessments are the highest level of supervisory intervention. These activities are tailored to individual reporting entities and consequently have a more direct impact on improving compliance. Where these activities do not result in improved compliance, they are likely to result in direct enforcement action.

The strategy outlines the different approaches AUSTRAC will take to banks and other lenders, non-banking financial services, gambling and bullion and money service businesses.

Compliance Reports
Austrac has announced that compliance reports for 2009 business activities must be lodged between 1 January and 31 March 2010. These reports will reflect business activities from 1 January to 31 December 2009 and should be lodged through AUSTRAC’s internet-based system, AUSTRAC Online.

The 2009 AML/CTF compliance report asks reporting entities to answer questions relating to four broad topics:
• AML/CTF programs – Part A (the identification, management and reduction of the risk of money laundering and terrorism financing faced by a reporting entity)
• AML/CTF programs – Part B (customer identification procedures)
• ongoing customer due diligence and reporting requirements
• correspondent banking relationships and electronic funds transfer instructions.

Banks and other lenders, non-banking financial service providers, and gambling, bullion and money service businesses covered by the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 are required to submit these reports.

The paper outlines four proposals which would amend the Corporations Act 2001 (Corporations Act). These proposals are to:

• require a proper purpose for accessing a register to be demonstrated before a company is required to provide access;
• set down a three-tiered fee structure for obtaining access to a register, with the fee chargeable to be based on the number of members a company has;
• require a company to provide an electronic copy of its register in a format compatible with the requestor’s software; and
• require a requestor who seeks access to a company’s register which is kept electronically to view that register on computer.

Proper purpose test

Under the Government’s proposals, companies will be authorised to refuse requests for copies of their share registers unless the request is made for a “proper purpose”.

The test would require a person to state, in writing, the purpose for which they are seeking to access the company’s register. If the company considers that purpose to be improper, the applicant will have the right to have the decision reviewed by a court.

A non-exhaustive list of improper purposes would be specified in the Corporations Regulations. Four purposes that have already been identified as improper uses of the register are:
• the solicitation of donations from shareholders by specific groups in the community, such as charities;
• the solicitation of clients by brokers;
• the gathering of information regarding the personal wealth of shareholders; and
• the making of an off-market offer to purchase securities in a listed company, other than for a takeover

The Australian Securities and Investments Commission (ASIC) will also produce guidance material on what purposes can generally be considered proper.

New offences will be established that relate to issues such as improper use of register information and false or misleading applications.

The proper purpose test will not apply to applications to view a share register.

Fees

A base fee of $250 would be payable for a copy of a company register with under 5,000 members. For a company with between 5,000 and 20,000 members, an additional $0.05 would be paid per member. For companies with over 20,000 members a fee of $1,000 plus $0.01 for each additional member would be payable.

Submissions close on 24 February 2010.

Related posts:
Who can access your member register?
AXA v Direct Share decision

The ACMA also identified that email campaigns conducted by CommSec in January, February and March 2009, did not provide an option to unsubscribe.

The Spam Act requires that all commercial electronic messages include some form of unsubscribe facility, and that when a person or business withdraws their consent, they receive no further messages from that provider.

In addition to reviewing its compliance systems, CommSec has undertaken to pay to the Commonwealth a financial component of $55,000. An implementation plan has been agreed with the ACMA which includes the appointment of an independent consultant to assess CommSec’s system reviews, quarterly audits on its email campaigns for 12 months and the introduction of an annual training program. CommSec will report regularly to the ACMA on its progress.

The PPG provides guidance to senior management, risk management and IT security specialists on the importance of an overarching framework, systematic IT asset life-cycle management, effective monitoring processes and robust IT security reporting and assurance mechanisms.

It also contains a section on service provider management.

Existing margin lenders and advisers on margin loans must apply to ASIC for an AFSL authorisation by 30 June 2010 if they intend to continue to provide a margin lending financial service after the application period closes.

The list includes:

Corporations Amendment (Financial Market Supervision Enhancements) Bill
to establish a framework to provide for the Australian Securities and Investments Commission (ASIC) to assume responsibility for supervision of Australia’s domestically licensed financial markets

Tax Laws Amendment (2010 Measures No. 1) Bill
to give effect to the Government’s 2008-09 Budget measure to provide funding for an optional superannuation clearing house service amongst other things

Personal Property Securities (Corporations and Other Amendments) Bill
to amend Commonwealth legislation, in particular the Corporations Act 2001 and the Personal Property Securities Act 2009, that deals with the creation, registration, prioritising, extinguishment and enforcement of security interests in personal property

Health Insurance Amendment (Diagnostic Service Measures) Bill
to remove the requirement for pathology request forms to be presented to a particular provider in order to increase patient choice and competition in the pathology market, bringing pathology into line with other diagnostic services.