The Australian Parliament has passed the Anti-Money Laundering and Counter-Terrorism Financing Amendment Act 2024 (the Act) introducing significant reforms to combat financial crime. The legislation aims to modernise Australia’s Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) framework, aligning it with international standards set by the Financial Action Task Force (FATF).
The Explanatory Memorandum to the Act outlines three primary objectives of:
- to extend the AML/CTF regime to certain higher-risk services provided by real estate professionals, professional service providers including lawyers, accountants and trust and company service providers, and dealers in precious stones and metals—also known as ‘tranche two’ entities;
- to improve the effectiveness of the AML/CTF regime by making it simpler and clearer for businesses to comply with their obligations; and
- to modernise the regime to reflect changing business structures, technologies and illicit financing methodologies.
Modernising the framework
The 2024 amendments reflect technological advancements and emerging risks, particularly in the virtual asset sector. The legislation replaces the term ‘digital currency’ with ‘virtual assets’, broadening the scope of AML/CTF laws to cover a wider array of transactions involving digital assets and with the intention of ensuring coverage of stablecoins, utility tokens, governance tokens and non-fungible tokens (NFTs).
The Act defines a ‘virtual asset’ as:
(1) a digital representation of value that:
(a) functions as any of the following:
(i) a medium of exchange;
(ii) a store of economic value;
(iii) a unit of account;
(iv) an investment; and
(b) is not issued by or under the authority of a government body; and
(c) may be transferred, stored or traded electronically.
(2) A virtual asset is a digital representation of value that:
(a) enables a person to vote on the management, administration or governance
of arrangements connected with a digital representation of value; and
(b) is not issued by or under the authority of a governing body.
(3) A virtual asset is a digital representation of value of a kind prescribed by the AML/CTF Rules
The definition of ‘virtual assets’ excludes money, digital representations of value used exclusively within electronic games, customer loyalty or reward points, digital representations of value similar to electronic game assets or loyalty points that are not intended by the issuer to be convertible into another digital representation of value or money and digital representations of value prescribed by the AML/CTF Rules.
The legislation also introduces new designated services within the virtual asset sector, including:
- exchanges between one or more forms of virtual assets;
- certain virtual assets transfers on behalf of a customer (subject to the AML/CTF Rules);
- virtual asset safekeeping services; and
- participation in and provision of designated services involving the offer or sale of virtual assets.
Virtual asset safekeeping services are defined broadly and intended to cover multi-signatory arrangements. According to the Explanatory Memorandum, this would include services having the ability to hold, trade, transfer or spend the virtual asset per the owner or user’s instructions. Persons who solely provide a software application (such as software developers) and ancillary infrastructure providers like cloud solutions are said to be excluded.
virtual asset safekeeping service:
(a) means a service in which virtual assets or private keys are controlled or managed for or on behalf of a person (the customer) or another person nominated by the customer under an arrangement between the provider of the service and the customer, or between the provider of the service and another person with whom the customer has an arrangement (whether or not there are also other parties to any such arrangement)
The changes also contemplate that AML/CTF compliance obligations (including reporting obligations) will cover transfers of value broadly, such as electronic funds transfers and transfers of virtual assets.
Following the EU’s planned implementation of the travel rule, the Act introduces the rule for virtual asset transfers, subject to certain carve-ours and some flexibility to adapt specific requirements to facilitate compliance.
VASPs will also need to take steps to identify self-hosted wallets and report transactions to unverified self-hosted wallets to AUSTRAC.
Professional services firms will also have requirements to comply with AML/CTF laws in relation to certain dealings and transactions involving virtual assets.
The changes for virtual asset service providers will take effect by 31 March 2026.
The reforms will see the term DCE replaced by VASP as Australia’s AML/CTF laws come into closer alignment with global standards.
They will involve substantial changes for DCEs who fall within the existing regime as well as bringing many new entity types within the AML/CTF regime for the first time. This will mean a busy 18 months as DCEs look to uplift their existing policies and procedures while grappling with new reporting and compliance obligations. For others, it will mean applying to AUSTRAC to become enrolled as a VASP for the first time and likely backlog as AUSTRAC begins to process applications across a range of industries. We expect more news from AUSTRAC on these transitional arrangements in the coming months.
