Philip Ruddock (Berowra, Liberal Party, Attorney-General) Share this | Link to this | Hansard source

I present a revised explanatory memorandum to the bill and move:

That this bill be now read a second time.

The primary purpose of the Financial Transaction Reports Amendment Bill 2006 is to vary the amendments to the Financial Transaction Reports Act 1988—the FTR Act—made by schedule 9 of the Anti-Terrorism Act (No 2) 2005. Schedule 9 comes into force on 14 December 2006. The bill also needs to come into operation by that date.

The bill amends the definition of ‘account’ for the purposes of division 3A of part II of the FTR Act. The new definition of ‘account’ will only apply to division 3A of part II of the FTR Act.

The bill amends the definition of ‘customer information’ in sections 17FA and 17FB of the FTR Act.

The bill restricts the application of division 3A of part II of the FTR Act to authorised deposit taking institutions—ADIs—to ensure that division 3A of part II of the FTR Act does not apply to non-bank money remittance businesses.

The bill will now ensure, by means of new section 17FC, that the provision of customer information in an international funds transfer instruction—IFTI—is not required where the IFTI is transmitted from a place outside Australia to another place outside Australia and merely passes through Australia.

The bill will also ensure, by means of new subsection 17FA(1A), that there is no gap in the legislation if an Australian bank that is asked to send a funds transfer instruction to a foreign bank is not able to deal directly with the foreign bank but has to go through an intermediary bank in Australia. The intermediary bank will be able to act on any information it receives from the originating bank. It will not have to make its own inquiries of the original customer.

The bill amends paragraph 29(4)(ba) of the FTR Act to refer to ‘an ADI’ rather than ‘a cash dealer’ to ensure consistency with the amendment to restrict division 3A of part II of the FTR Act to ADIs only.

Finally, the bill amends section 42A of the FTR Act to include a reference to schedule 3AA.

Division 3A of part II of the FTR Act brings Australia into closer compliance with Financial Action Task Force special recommendation VII. The changes in the bill will ensure that the practical concerns raised by industry have been addressed and resolved before division 3A comes into operation.

I commend the bill to the House.

Arch Bevis (Brisbane, Australian Labor Party, Shadow Minister for Aviation and Transport Security) Share this | Link to this | Hansard source

It is both extraordinary and disappointing that nearly a year from the passage of the Anti-Terrorism Bill (No. 2) 2005 the parliament is already returning to fix the Howard government’s sloppy legislation. We should be under no illusions about what this bill amends, despite the innocuous-sounding title. This bill represents a significant rewrite of important provisions of the Anti-Terrorism Act (No. 2) 2005 which are yet to take effect.

To that extent, this is a backdoor revisitation of the Prime Minister’s joint communique with the states and territories at the special COAG meeting on counterterrorism last year. The measures we are amending today were themselves brought forward for the government’s long-delayed anti money laundering regime. The Anti-Terrorism Act (No. 2) 2005 purported to implement the special recommendations of the Financial Action Task Force in relation to combating terrorism funding.

The Financial Action Task Force, the FATF, is an intergovernmental body designed to develop and promote policies to combat international money laundering and terrorist financing. To that end FATF developed two different sets of recommendations, firstly the 40 recommendations on anti money laundering, the latest update of which took place in 2003; and then, following the September 11 attacks, in October of 2001 another set of nine special recommendations specifically related to the financing of terrorist activity.

In 2003 the Minister for Justice and Customs promised that Australia’s Financial Transactions Reports Act 1988 would be updated and brought into line with both the special and general recommendations. As is the way with the Howard government, by 2005 almost nothing had been done. An FATF task force visited Australia and reviewed our operations and legislative framework to evaluate our compliance with the recommendations.

The report of the task force is an embarrassing read. It is a list of failures of the Howard government to keep Australia up to date with international standards designed to fight terrorism. It is inexcusable that fully five years after 11 September 2001, the Howard government is yet to deliver a comprehensive legislative response to the threat of terrorist financing.

The FATF report found that Australia was compliant with only nine out of the 40 recommendations on anti money laundering. Nine out of 40—less than one quarter! That, on its own, would be an international embarrassment for Australia, but the report went on. Of the nine special recommendations dealing with antiterrorism financing, Australia was not compliant with a single one. Zero out of nine for counter-terrorist financing!

The FATF findings confirmed what we all know: the Howard government has been soft on financing of terrorism. It is big on rhetoric; soft of action. Australia’s complete and absolute failure to deal with terrorist financing is on display for the world to see. For all of the Howard government’s tough talk on terrorism it is unable to bring in legislation to ensure that Australia has world’s best practice standards on money laundering and on antiterrorism. This is why Labor says that the Howard government is soft and weak on terrorist financing. All we see is inadequate consultation, shoddy legislation and delay after delay in getting strong laws that are needed put in place.

Thankfully, the international embarrassment of the FATF report seems to have spurred the government into some activity. Last year we saw some small attempts by the government to bring Australia into line with world standards on this issue through the Anti-Terrorism Act (No. 2) 2005. That bill, amongst other things, was designed to bring Australia up to speed with a number of the recommendations. However, the new provisions introduced by that bill were only a stopgap measure. They were designed to provide a temporary fix while the government’s long-delayed revision of the Financial Transactions Reports Act 1988 was being drafted. Unfortunately, it is nearly a year later and there is still no end in sight.

In any case, the problem with the legislation was simply the utter lack of consultation, and we are seeing that now. During the course of the Senate committee inquiry into the bill we found that the Attorney-General’s Department had not consulted with industry on the final text of the bill. In a characteristic display of arrogance and hubris, the Anti-Terrorism Bill (No. 2) 2005 was sprung on parliament and the government attempted to ram it through on Melbourne Cup day. Similarly, the Senate inquiry was to be limited, effectively, to a single day.

Ultimately the government was forced into a back-down and later managed to extract a week-long Senate inquiry—evidently not long enough. Fast forward a few months and industry has finally managed to convince the Howard government that the changes introduced in the Anti-Terrorism Bill (No. 2) 2005 will, if allowed to come into force, devastate sections of industry. This is not scaremongering by the Labor Party; this is stated explicitly in the government’s own explanatory memorandum, which says:

If the amendment to restrict the application of Division 3A of Part II of the FTR Act to ADIs is not made, then certain legitimate non-bank money remitters assert that they could be put out of business.

So the Howard government’s own initial legislation was so poorly drafted and so little consultation was held that the government was not even apprised of the fact that its changes would spell ruin for many Australian businesses. Thank heavens the Howard government has now come to its senses and accepted industry’s point of view that the shoddy legislation will destroy jobs. Labor will support this legislation, but we are certainly not happy with it. We will support the legislation because we have to. If we do not, then if the explanatory memorandum is to be believed legitimate Australian businesses will be put out of business.

The bill introduces a number of changes to the legislation. Basically, the bill does three things: it provides a new definition of ‘account’ for certain parts of the act, it provides a new definition of ‘customer information’ for parts of the act and it removes non-ADI—that is, authorised deposit institutes; basically banks—cash dealers from the operation of certain sections of the act. I will deal with each of these in turn. Firstly, the bill alters the definition of ‘account’ under the act. The new definition of account will apply only to division 3 of the act—that is, the division dealing with international funds transfer instructions. The changes to the definition of account bring this section into line with that in the draft AMLCTF bill and were brought about due to the concerns of industry. Bringing the definition of account into line with the draft AMLCTF bill means that industry will only have to go through one rather than multiple systems changes. Labor supports these changes.

However, a further point of contention has been raised by the Australian Bankers Association with the current definition and the inclusion of credit cards. This is because credit card account numbers are quite often used as stand-alones in a transaction. No signature is required if the credit card is being used to purchase something over the phone or over the internet. The Attorney-General’s Department has indicated that it will discuss the matter of credit card accounts further with the ABA. However, I think we seriously have to ask ourselves why this was not done before the current bill was introduced.

The next change that this bill makes is the alteration of the definition of ‘customer information’ to allow a greater latitude for the use of ID numbers attached to international funds transfer instructions. Currently, every time a bank sends an instruction for the transfer of funds to another institution overseas, a range of information must be included. The range of information that may be included was expanded substantially when the government introduced a raft of new amendments. There is now a wide range of information that may be included, including the customer’s address, ABN and date and location of birth. In any case, the proposed amendment will allow for much greater use of identification numbers rather than account numbers. Account numbers will now only be required to be included when the instruction relates to the transfer of money directly from a single account held by the customer. In other words, an identification number will suffice. This amendment is designed to simplify the transfer of IFTIs and provide a more practical option for financial institutions.

Division 3A under the legislation as it stands imposes substantial obligations on certain types of cash dealers—that is, those who are not authorised deposit institutes. An authorised deposit institute, or ADI, as I mentioned earlier, is essentially a bank. It is defined in legislation to be a body corporate for the purposes of the Banking Act 1959, the Reserve Bank of Australia or a person who carries on state banking within the meaning of the Constitution. The legislation as it stands—that is, prior to this amending bill—although it is not yet in force, requires a cash dealer to supply customer information alongside an international funds transfer instruction where the cash dealer who is not an authorised deposit-taking institution is acting on behalf of another person who is also not an authorised deposit-taking institution.

So if I am a cash dealer and I am sending an international funds transfer instruction on behalf of another who is also not an ADI then I am obliged to include certain information to identify the customer: account numbers, names, addresses et cetera. This is a requirement of special recommendation VII of the FATF. However, one of the main changes of this bill is to significantly restrict the application of this section. The bill will effectively remove non-ADI cash dealers from the operation of division 3A. That is, there will not be any requirement for those dealers to include customer information with any outgoing international funds transfer instructions. The stated reason for this is that it is impractical to require IFTIs sent from an institution in one country to the same institution in another to include originator information, because in effect this would require the institution to pass on the information to itself.

These changes are necessary to compensate for poor drafting and a lack of proper consultation in the first place. We have no wish to see legitimate cash dealers put out of business through no fault of their own but because the Howard government brings shoddy legislation before parliament. However, these are changes that cannot stand in the long term. If you have a situation where some cash dealers are subject to these requirements but others are not, then you are essentially erecting the financial equivalent of the Maginot line—a strong, impenetrable fortress that can be easily circumvented.

As I noted above, the requirement for cash dealers to include customer information in IFTIs is stated under FATF special recommendation VII, and there are serious concerns that the bill before us would effectively be a backwards step in our compliance with those standards. The department has suggested that the current framework of the FTR Act is unsatisfactory for the proper implementation of this requirement and that the special recommendation VII obligations will be properly enacted when the final version of the AMLCTF bill is released. Of course, this still leaves the problem of when we are actually going to see the final version of the AMLCTF legislation. We are still waiting for the final legislation some 3½ years after it was promised.

Philip Ruddock (Berowra, Liberal Party, Attorney-General) Share this | Link to this | Hansard source

You saw it today.

Arch Bevis (Brisbane, Australian Labor Party, Shadow Minister for Aviation and Transport Security) Share this | Link to this | Hansard source

We saw it today. It got introduced today?

Philip Ruddock (Berowra, Liberal Party, Attorney-General) Share this | Link to this | Hansard source

Yes.

Arch Bevis (Brisbane, Australian Labor Party, Shadow Minister for Aviation and Transport Security) Share this | Link to this | Hansard source

I stand corrected. That is one of the problems of having two bills on before 10.30, Attorney. I am delighted that it was introduced today and I look forward to the opportunity to have a look at it. I thank the Attorney.

A further issue with the bill was identified by the Australian Bankers Association, the ABA, with its application to the hub-and-spoke system. As identified in submissions to the Senate inquiry, the ABA noted that a number of their member organisations operated via a system whereby payments sent by other institutions to one of their offshore sites are routed through Australia. I bring this up at this point because the response of the Attorney-General’s Department was that they, to quote from the department themselves, ‘would like to seek further input from the ABA before any amendments were made to the bill to clarify this situation’.

It seems somewhat odd to me and the Labor Party that the government continually puts the cart before the horse in this way. It comes up with unworkable legislation and then seeks to consult with industry, after the fact, in trying to fix it when what is clearly required in good government is having some understanding of the industry and how it works—before you wrap it up in red tape. It is industry that is doing the job for government. The Attorney-General, Mr Ruddock, and the Minister for Justice and Customs, Senator Ellison, should be paying consultancy fees to the Australian Bankers Association, such are the efforts to which it has had to go to educate the ministers and their departments on these matters.

It strikes me as more than absurd that, for all the talk about the importance of combating terrorism, the Prime Minister and the Attorney-General have proven themselves singularly incapable of providing a legislative response that is adequate. I note that the parliament was recalled at great expense to fix improperly drafted antiterror legislation by changing one word. In this context, I have been extremely critical of the government for putting Australia’s national security at risk through its shoddy drafting and casual approach to legislation.

I also note that the Howard government initially attempted to give the Anti-Terrorism Bill (No. 2) 2005 just that one-day Senate inquiry. I well recall that day and being up in the press gallery lampooning the government for its arrogance in trying to rush through such important legislation without any proper scrutiny by the Senate. This bill and its consumption of parliamentary sitting time could have been completely avoided if the executive had drafted its legislation properly or had allowed the Senate and the House of Representatives adequate time for scrutiny of the education—or indeed if the executive had consulted meaningfully with the stakeholders before rushing unworkable and error riddled legislation through the Senate.

Sadly, this government, now far too long in office, has adopted an arrogant approach in its treatment not only of the Australian people but also of this place. Now that it has a majority in both houses, this government has shown a complete disregard for the proper processes of review that have traditionally been the function of the Senate in particular. I know that my colleague Senator Ludwig and others in the Senate have over the years provided extraordinarily careful scrutiny of these matters before Senate committees. It is that scrutiny which ensures that legislation is correct before it is enacted. It is that scrutiny which this government has jettisoned in its lust for power in the aftermath of obtaining a majority in the Senate as well as a majority in this place. The result of that arrogance and disregard for what have in the past been proper processes of review, particularly in the Senate, is faulty legislation in a number of areas. In this area, dealing with antiterrorism matters, we have seen it occur all too frequently. As a parliament and as a people, we are all the worse off for that. I move:

That all words after “That” be omitted with a view to substituting the following words: “while not declining to give the bill a second reading, the House:

(1)

notes the failure of the Howard Government to draft the Anti-terrorism Bill (No. 2) 2005 correctly;

(2)

notes that the Howard government initially attempted to give the Anti-Terrorism Bill (No.2) 2005 a one-day Senate inquiry, and that the government finally allowed only a shortened inquiry;

(3)

notes that this Bill and its consumption of parliamentary sitting time could have been completely avoided if the Executive would:

(a)

draft its legislation properly; or

(b)

allow the Senate adequate time for scrutiny of the legislation; and

(c)

consult meaningfully with stakeholders before rushing unworkable and error-riddled legislation through the Senate.

(4)

notes that the Parliament was recalled in late 2005 at great expense to fix improperly drafted anti-terror legislation by changing one word;

(5)

criticises the government for putting Australia’s national security at risk through its shoddy drafting and sloppy approach to legislation;

(6)

notes the extended delay in bringing forward the anti-money laundering regime due to botched consultation with affected industries; and

(7)

notes the Howard government’s failure to meet the FATF mutual evaluation on anti-money laundering and counter-terrorism financing, scoring just nine out of 40 on anti-money laundering, and zero out of nine on counter-terrorism financing”.

Harry Jenkins (Scullin, Australian Labor Party) Share this | Link to this | Hansard source

Is the amendment seconded?

Lindsay Tanner (Melbourne, Australian Labor Party, Shadow Minister for Finance) Share this | Link to this | Hansard source

I second the amendment.

Philip Ruddock (Berowra, Liberal Party, Attorney-General) Share this | Link to this | Hansard source

I am pleased to have heard the critique of the government’s performance from one who did not even know that important legislation in this area had been introduced into the parliament today. One would think that, claiming perfection, one would not put oneself in a position of such immediate embarrassment.

In summary, the primary purpose of the Financial Transaction Reports Amendment Bill 2006 is to vary amendments to the Financial Transaction Reports Act 1998 made by schedule 9 of the Anti-Terrorism Bill (No. 2) 2005. The current amendments are necessary to address the representations made by the non-bank money remittance businesses that the current application of division 3A of part II of the FTR Act could affect their business operations. Those businesses pointed out that they do not have the systems in place to recognise same institution funds transfers, where effectively they would be sending customer information to themselves—in other words, they do not use the Society for Worldwide Interbank Financial Telecommunication, SWIFT, style systems which would recognise such transfers.

The amendment to restrict division 3A of part II of the FTR Act to authorised deposit-taking institutions, ADIs, will mean that, on this issue, the FTR Act will not fully comply with special recommendation VII of the Financial Action Task Force. However, that issue will be resolved by the Anti-Money Laundering and Counter-Terrorism Financing Bill 2006, the AMLCTF Bill, which I introduced today, in the first tranche of reforms. Under that bill there will be provision for rules to be made that will extend the operation of the relevant provisions of the bill to entities other than ADIs. The amendments in the Financial Transaction Reports Amendment Bill 2006 will be replicated in the AMLCTF Bill, when it is enacted, thereby ensuring a consistent approach is maintained. I am pleased to say that industry have examined the specific amendments and they have confirmed that the amendments will meet their concerns. While it has taken time to develop the AMLCTF Bill, industry have been extensively consulted in relation to that bill. I commented when I introduced the bill that the Minister for Justice and Customs had consulted very extensively.

These matters do require getting a difficult balance. That balance is ensuring that businesses are not unreasonably affected by measures that are absolutely essential to deal with terrorism financing. They appreciate the importance of that. They appreciate the importance of being FATF compliant. But, interestingly, if you take a rigorous view of these matters, you might well drive businesses out of business in addressing the particular problem. If you pursue the approach that we have, where you develop risk based programs in which you work with those who are in the best position to be able to identify suspect transactions, you can put forward measures of the sort that we have seen in the AMLCTF Bill that I introduced into the House today.

This consultation has been vital in formulating a package that accommodates industry’s needs both operationally and on a cost basis. The government does not apologise for taking time to consult with industry to get the bill right in what is a complex area. I might say it is certainly the case that if you look at why these changes have been made you will see that the amendments were drafted on the basis of issues that were identified by industry during the AMLCTF Bill consultation process, and those issues were raised after the ATA legislation—the antiterrorism legislation—had been introduced and passed by parliament late last year. The government amendments reflected later comments received by industry. In other words, industry did not form fixed and instant views when it saw the legislation. Industry have raised additional issues as the consultation process has progressed. This is the main reason we had to make government amendments to the initial amendments.

Other issues have been raised, but I do not intend to canvass them because I think each of them was raised in another place. The importance of dealing with these issues comprehensively, effectively and in a balanced way is the approach that this government take, and we do not apologise for ensuring that we consult fully and properly with all those who are likely to be affected. I commend the bill to the House and reject the amendment because I think it is only there for colour.

Kim Wilkie (Swan, Australian Labor Party) Share this | Link to this | Hansard source

The original question was that this bill be now read a second time. To this the honourable member for Brisbane has moved as an amendment that all words after ‘That’ be omitted with a view to substituting other words. The question now is that the words proposed to be omitted stand part of the question.

Question agreed to.

Original question agreed to.

Bill read a second time.