How To Report An International Funds Transfer Instruction (Ifti)

Transcription

1 Australian Government Australian Transaction Reports and Analysis Centre Guidance note 11/01 International funds transfer instructions (electronic) when to report Anti-Money Laundering and Counter-Terrorism Financing Act Introduction 1.1 The Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act) is designed to assist in combating money laundering and the financing of terrorism. To achieve these aims, the AML/CTF Act places certain obligations on reporting entities (defined in section 5 of the Act). 1.2 Under section 229 of the AML/CTF Act, the Chief Executive Officer (CEO) of the Australian Transaction Reports and Analysis Centre (AUSTRAC) may, in writing, make Anti-Money Laundering/Counter-Terrorism Financing Rules (AML/CTF Rules). The AML/CTF Rules are legislative instruments and are therefore binding. 1.3 Section 45 of the AML/CTF Act requires a person that sends an international funds transfer instruction (IFTI) out of Australia or receives an IFTI into Australia to submit a report of the instruction to AUSTRAC. 1.4 Section 46 of the AML/CTF Act defines two categories of IFTIs: electronic funds transfer instructions (EFTI) (items 1 and 2) instructions given under a designated remittance arrangement (items 3 and 4). 1.5 The purpose of this guidance note is to assist entities to determine whether certain EFTIs are reportable under the AML/CTF Act. The guidance note is not relevant to instructions given under a designated remittance arrangement. This guidance note discusses: what is an IFTI under items 1 and 2 of section 46 of the AML/CTF Act reporting inter-bank instructions reporting IFTIs that do not include the required transfer information and/or returned IFTIs reporting funds transfer instructions routed via Australia reporting batched international EFTIs reporting funds transfer instructions sent or received in the capacity of a lender for a loan applying the definition of an IFTI to common Society for Worldwide Interbank Financial Telecommunication (SWIFT) message types. 1.6 This guidance note complements Guidance note 09/03: International funds transfer instruction reporting requirements for items 1 and 2 of section 46 of the AML/CTF Act which provides entities with a comparison of key obligations and terms regarding IFTIs under the Financial Transaction Reports Act 1988 (FTR Act) and the AML/CTF Act.

2 2 Definition of an IFTI under items 1 and 2 of section 46 of the AML/CTF Act 2.1 Section 45 of the AML/CTF Act requires the person that is the sender of an IFTI transmitted out of Australia or the recipient of an IFTI transmitted into Australia, to report the instruction to AUSTRAC within 10 business days after the day on which the instruction was sent or received by the person. 2.2 The definition of an IFTI under section 46 of the AML/CTF Act differs from the definition of an IFTI under the FTR Act. Guidance note 09/03 incorporates further explanation and comparison of the AML/CTF Act requirements and the FTR Act. 2.3 An IFTI under items 1 and 2 of section 46 of the AML/CTF Act is an EFTI when it is: accepted at or through a permanent establishment of the ordering institution in Australia and the transferred money is to be, or is, made available to the payee at or through a permanent establishment of the beneficiary institution in a foreign country; or accepted at or through a permanent establishment of the ordering institution in a foreign country and the transferred money is to be, or is, made available to the payee at or through a permanent establishment of the beneficiary institution in Australia. 2.4 EFTIs are defined under sections 8 and 9 of the AML/CTF Act and include: (c) (d) multiple-institution person-to-person electronic funds transfer instructions same-institution person-to-person electronic funds transfer instructions multiple-institution same-person electronic funds transfer instructions same-institution same-person electronic funds transfer instructions 2.5 Generally, the instruction must involve: An instruction from a person (the payer) to a person (the ordering institution) to transfer money controlled by the payer to a third person (the payee) on the basis that the money will be made available to the payee by: (i) being credited to an account held by the payee with a fourth person (the beneficiary institution) (ii) being paid to the payee by a fourth person (the beneficiary institution). 2.6 The instruction or the funds must be passed on or transferred in whole or in part by one or more electronic communications. The AML/CTF Act provides that the ordering and beneficiary institutions must be either an authorised deposit-taking institution (ADI), bank, building society, credit union, or person specified in the AML/CTF Rules (together a financial institution). 2.7 It is AUSTRAC s view that a funds transfer will only be an EFTI under the AML/CTF Act where: the payer and the ordering institution are separate legal entities; and the payee and the beneficiary institution are separate legal entities. Public Legal Interpretation No. 11 Electronic funds transfer instructions and international funds transfer instructions (PLI 11) provides a full overview of AUSTRAC s view in determining whether a funds transfer is an EFTI under the AML/CTF Act.

3 2.8 Reporting entities use various infrastructures to facilitate funds transfers. The AML/CTF Act does not specify, endorse or regulate the infrastructures used to send and receive instructions that are reportable under the Act. 2.9 Regardless of the infrastructure used to transmit funds, where the funds transfer instruction meets the AML/CTF Act section 8 and 9 definition of an EFTI and the section 46 definition of an IFTI, a report about the instruction (an IFTI report) must be submitted under section 45 of the AML/CTF Act The details that must be included in an IFTI report are prescribed in Chapter 16 of the Anti-Money Laundering and Counter-Terrorism Financing Rules Instrument 2007 (No.1) (AML/CTF Rules) and summarised in Guidance note 09/03: International funds transfer instruction reporting requirements for items 1 and 2 of section Inter-bank international funds transfers 3.1 As discussed above, the EFTI provisions under the AML/CTF Act do not apply to funds transfer instructions sent and received by a financial institution acting on its own behalf. That is, the AML/CTF Act only applies to IFTIs requested by a customer of one financial institution, where the transferred money is made available to a customer of a financial institution. 3.2 Therefore, a financial institution sending an instruction on its own behalf (for example, settling a house account held with another financial institution) would not have an obligation to report an IFTI, because the payer and the ordering institution are not separate legal entities. 3.3 Similarly, a financial institution receiving an instruction on its own behalf would not have an obligation to report an IFTI under the AML/CTF Act, because the beneficiary institution and the payee are not separate legal entities. Also note that inter-financial institution transfers where both financial institutions act on their own behalf are exempted from the requirements in Part 5 of the AML/CTF Act, which relate to information which must be included in EFTIs. 3.4 It is important that entities consider the underlying nature and purpose of the transfer when determining whether they are sending and/or receiving a funds transfer instruction on their own behalf. An instruction will not fall outside the definition of an IFTI merely because details of the underlying customer are not included in the instruction that is transmitted or received. 3.5 AUSTRAC expects that, where a financial institution transmits an instruction relating to an underlying customer, it includes sufficient information in the instruction so that the beneficiary institution is able to identify the parties to the transaction. 3.6 Financial institutions should also be cognisant that international funds transfers may be structured to avoid reporting requirements relating to IFTIs. This may include: deliberately disguising payments as inter-bank international funds transfers; or establishing sophisticated arrangements of debt offsetting across a number of entities and jurisdictions where no instruction to transfer money from the financial institution s nostro or vostro account is sent or received. 3.7 Where an entity suspects that an international funds transfer has been deliberately structured to disguise the details of the substance of the transaction, it should consider whether to submit a suspicious matter report (SMR) to AUSTRAC about the transaction.

4 4 Reporting incomplete instructions and instructions relating to transfer instructions which are not completed and/or funds are returned 4.1 There may be situations where a beneficiary institution will not make the transferred money available to the payee. 4.2 The definition of an EFTI in sections 8 and 9 and the definition of an IFTI in items 1 and 2 of section 46 of the AML/CTF Act capture an instruction under which money is to be, or is made available. Therefore, as long as the instruction is to make money available in the specified circumstances, the instruction will be reportable under section For example, where an Australian financial institution refuses to make the transferred money available to the beneficiary customer (payee) due to a name appearing on a sanction list or incorrect and/or incomplete details about the payer, the person that received the instruction into Australia will still be required to submit an IFTI report to AUSTRAC about the instruction. 4.4 Similarly, an Australian entity that sends an IFTI out of Australia would be required to submit a report about that instruction, regardless of whether the beneficiary institution makes the money available to the payee. 4.5 Reports of IFTIs must be reported within 10 business days after the day on which the instruction was sent or received, regardless of whether the beneficiary institution makes the money available to the payee. 4.6 Where IFTIs are received into Australia that do not include complete information about the parties (including the payer and payee) to the transaction, under Part 16.3(3) of the AML/CTF Rules, an entity is required to include as much information about the parties to the transaction as appear in the instruction. However, the name of the payer and the name or an identifier for the institution transmitting the instruction must be included in all reports of IFTIs transmitted into Australia. 4.7 Where an incoming IFTI does not include the required transfer information, under subsection 65(6) and subsection 65(7) of the AML/CTF Act, the reporting entity may refuse to make the transferred money available until it receives the required transfer information, for the purpose of engaging appropriate risk-based systems and controls to identify, mitigate and manage the ML/TF risk that it may reasonably face prior to making the transferred money available to the payee. 4.8 Reporting entities are reminded that if the reason(s) why they refused to make the transferred money available are reasonable grounds for suspicion, they are also required to submit an SMR about the instruction to AUSTRAC. 4.9 Where an entity submits an SMR about an incomplete transfer under an IFTI, AUSTRAC requests that the same transaction number that is included at question 5 of the IFTI report is also included at question 46 of the SMR. 5 Instructions routed via Australia 5.1 If an instruction is: (i) accepted by the ordering institution at or through a permanent establishment in a foreign country; and (ii) the beneficiary institution makes the funds available to the payee at or through a permanent establishment in a foreign country; and (iii) the instruction passes through an interposing institution at or through a permanent establishment in Australia,

5 then the instruction is considered a routed instruction. 5.2 As the ordering institution accepts the instruction from the payer at or through a permanent establishment in a foreign country and the transferred money is to be made available to the payee at or through a beneficiary institution in a foreign country, the instruction does not meet the definition of an IFTI under section 46 of the AML/CTF Act. 5.3 Therefore, it is AUSTRAC s view that routed instructions are not reportable under section 45 of the AML/CTF Act. 6 Batched instructions 6.1 Under section 5 of the AML/CTF Act, a batched EFTI means an EFTI accepted by an ADI or a bank from a particular payer, where: the transfer instruction is one of a particular batch of EFTIs accepted by the ADI or bank from the payer; and the batch is, or is to be passed on or dispatched in a single file that includes the complete payer information in respect of each of the EFTIs in the batch. 6.2 Where a batch of EFTIs are transmitted out of or into Australia, which meet the definition of an IFTI in either item 1 or 2 of the table in section 46, then the person sending or receiving the batch incurs a reporting obligation under section 45 of the AML/CTF Act. 6.3 An individual report must be submitted for each transfer instruction within the batch. It is not sufficient to submit one report relating to the batch. 6.4 Paragraphs 16.2(2) and 16.3(3) of the AML/CTF Act Rules distinguish the information that must be included in an IFTI report depending on whether the IFTI was included in a batch or was transmitted individually. 7 Instructions sent or received in the capacity of a lender for a loan 7.1 Acting in the capacity of a lender, a reporting entity will advance funds under a loan account following receipt of a drawdown request from the borrower. Occasionally, such requests may require the lender to transfer the proceeds of the loan advance to an account in another country. In this instance, the lender will send an instruction out of Australia to transfer funds. 7.2 To be an EFTI under the AML/CTF Act, the payer must instruct the ordering institution to transfer money controlled by the payer. This condition did not apply under the FTR Act. 7.3 It is AUSTRAC s view that where the borrower requests the lender to make an international payment with the proceeds of a loan advance, it is not a transfer of money controlled by the borrower. Rather, it is considered that the money is controlled by the lender. Therefore, where the funds transfer relates to the initial drawdown on credit, it does not meet the definition of an EFTI under the AML/CTF Act, and therefore is also not an IFTI under items 1 or 2 of the table in section 46, and hence is not reportable under section 45 of the AML/CTF Act. 7.4 This view is applicable to all personal, e.g. purchases made on a credit card, and business lending arrangements, including syndicated as well as bilateral lending arrangements. 7.5 Once a loan is drawn down, AUSTRAC considers that the money credited to the borrower s account to be money controlled by the borrower. Any subsequent request

6 by the borrower to transfer that money from their account will be a transfer of money controlled by the payer for the purposes of section 8 and 9 of the AML/CTF Act, thereby making the instruction reportable. 7.6 Not all transactions relating to lending agreements are exempted from the EFTI and IFTI provisions of the AML/CTF Act. Transactions that relate to interest payments and repayments of principal may trigger a reporting obligation where an instruction to transfer money is transmitted internationally (either into or out of Australia) to meet that payment. Ultimately, it is a matter for a reporting entity to determine, based on the circumstances of a particular loan transaction, whether an IFTI reporting obligation arises. 8 Messaging infrastructure 8.1 IFTIs can be sent through a number of different mechanisms. The AML/CTF Act does not specify, endorse or regulate the infrastructure used to send and receive instructions that are reportable under the Act. 8.2 A common infrastructure used to send IFTIs is the Society for Worldwide Interbank Financial Telecommunication (SWIFT) network. 8.3 In recognition of the large proportion of funds transfer instructions transmitted using the SWIFT network, AUSTRAC has provided functionality that allows reporting entities to submit an electronic copy of MT103 and MT202 SWIFT message types when submitting IFTI reports to AUSTRAC. It is the role of the reporting entity when using this function to ensure they include sufficient information in the SWIFT message, or supplement the information in the SWIFT message to ensure it meets the reporting requirements of Chapter 16 of the AML/CTF Rules. 8.4 AUSTRAC has reviewed the SWIFT guidelines 1 relating to common message types that are available within the SWIFT network with a view to determining whether, based on the SWIFT guidelines for their use and the normal industry use of these message types, these message types would normally meet the definition of an IFTI under the AML/CTF Act. 8.5 The majority of SWIFT message types will not normally meet the definition of an IFTI, as they do not involve an instruction from a payer for the transfer of funds to a payee in another country. 8.6 The following paragraphs provide guidance on whether and in what circumstances these message types will impose an IFTI reporting obligation. Please note that this is intended as a guide only, and that ultimately it is a matter for a reporting entity to determine, based on the circumstances of a particular transaction, whether an IFTI reporting obligation arises. 8.7 Further examples can be found at paragraphs of PLI 11. MT The purpose of the MT103 is to instruct a funds transfer. This message type is sent by or on behalf of the financial institution of the ordering customer, directly or through a correspondent, to the financial institution of the beneficiary customer. 8.9 It is AUSTRAC s view that where the MT103 is used in accordance with the SWIFT guidelines and it effects a movement of funds into or out of Australia, it will normally meet the definition of an IFTI and is reportable under section 45 of the AML/CTF Act. 1 SWIFT Message Reference Guide, November 2009

7 MT The purpose of the MT202 is to request the movement of funds between financial institutions It is AUSTRAC s view that where an MT202 is used in accordance with the SWIFT guidelines, it would not normally be reportable under section 45 of the AML/CTF Act Under the SWIFT guidelines, the MT202 must not be used to order the movement of funds relating to an underlying customer credit. Therefore, the MT202 does not represent an instruction from a payer at a permanent establishment of the ordering institution for the transfer of funds to a payee at a permanent establishment of the beneficiary institution in another country If the MT202 is used to facilitate the movement of funds relating to an underlying customer credit (outside the SWIFT guidelines) to a payee in another country, then the MT202 may meet the definition of an IFTI. In these circumstances, the instruction would be reportable under section 45 of the AML/CTF Act Where the MT202 is used outside the SWIFT guidelines and/or related to an underlying customer, AUSTRAC recommends that reporting entities seek their own legal advice to determine their reporting obligations under the AML/CTF Act AUSTRAC is aware that the MT202 has been used for customer-related transfers. The structure of the MT202 is not designed for customer-based transfers. Therefore, the MT202 lacks transparency regarding the parties involved in the transaction. It is AUSTRAC s view that sending and receiving MT202 messages for customer-based transactions may severely limit an entity s ability to: identify, manage and mitigate any money laundering/terrorism financing risk associated with the payment include the information required in an IFTI report about the parties to the transaction. MT202COV 8.16 In November 2009, SWIFT introduced a new message type known as the MT202COV The SWIFT guidelines state that an MT202COV must: not be used to convey customer credit transfer instructions only be used to order the movement of funds related to an underlying customer credit transfer that was sent with the cover method not be used for any other inter-bank transfer (for these transfers the MT202 must be used) The sending institution effects the ordering customer s instruction by sending an MT103 customer credit transfer message to the beneficiary institution. Where there is no direct relationship between the sending institution and the beneficiary institution, the sending institution sends an MT202COV message to its correspondent bank to cover the payment.

8 8.19 An example of a typical transaction flow is illustrated by the following figure: Adapted from SWIFT Message Reference Guide, November When the MT202COV message is used in accordance with the SWIFT guidelines, AUSTRAC does not require a report of the MT202COV instruction. The MT202COV as a cover payment is used in conjunction with the MT103 message to effect the one funds transfer instruction. It is AUSTRAC s view that the MT103 best represents the IFTI and that the MT103 must be reported to AUSTRAC. MT In certain circumstances, rather than contacting their account provider directly to request a funds transfer, a person may request another financial institution to contact their account provider to request a funds transfer. The financial institution has no authority to effect a transaction on the account held by the person and therefore sends an MT101 request for transfer to the account provider The financial institution cannot be considered the ordering institution under sections 8 or 9 of the AML/CTF Act, as it has no power to effect a transfer from the customer s account It is only when the account provider accepts the request (MT101) and effects the funds transfer request (either through a domestic or international transfer) that the criteria set out in sections 8 and 9 are met. In this case, the person would be the payer and the account provider would be the ordering institution Where the funds are made available to the payee in a country other than where the account provider accepted the instruction (usually through the transmission of an MT 103), then an IFTI reporting obligation will arise for the sender or receiver of that instruction in Australia. MT The MT199 is used by financial institutions to send or receive information for which another message type is not applicable When used in accordance with the SWIFT guidelines, the free format information included in the MT199 is unlikely to meet the AML/CTF Act sections 8 and 9 definition of an EFTI and the section 46 definition of an IFTI. Therefore, AUSTRAC

9 considers that sending or receiving a MT199 would not normally incur an IFTI reporting obligation under section 45 of the AML/CTF Act AUSTRAC does not regulate or endorse the SWIFT system. Reporting entities, however, are encouraged to use the SWIFT message types in accordance with the guidelines set by SWIFT to ensure the quality and uniformity of data in reports submitted to AUSTRAC Where SWIFT message types have been used outside of the SWIFT guidelines, it is the reporting entity s responsibility to identify and determine if those instructions meet the definition of an EFTI and an IFTI and hence ensure they are reported under section 45 of the AML/CTF Act and in accordance with the requirements of Chapter 16 of the AML/CTF Rules. Further information AUSTRAC officers are able to assist reporting entities, their staff and the public in providing general information relating to the AML/CTF Act. Enquiries can be directed to the AUSTRAC Help Desk via: to [email protected] telephone or (a local call within Australia). The information contained in this document is intended only to provide a summary and general overview on these matters. It is not intended to be comprehensive. It does not constitute, nor should it be treated as, legal advice or opinions. This document may contain statements of policy which reflect AUSTRAC s administration of the legislation in carrying out its statutory functions. The Commonwealth accepts no liability for any loss suffered as a result of reliance on this publication. AUSTRAC recommends that independent professional advice be sought. The information contained herein is current as at the date of this document. Reporting entities should note that in relation to activities they undertake to comply with the AML/CTF Act, they will have obligations under the Privacy Act 1988, including the requirement to comply with the National Privacy Principles, even if they would otherwise be exempt from the Privacy Act. For further information about these obligations, please go to or call March 2011 Commonwealth of Australia Australian Transaction Reports and Analysis Centre (AUSTRAC) PO Box 5516 West Chatswood NSW 1515 Telephone: Facsimile: Website: [email protected]