Australian bitcoin exchanges to face requirements that put CBA in hot water

Digital currency exchanges in Australia will need to abide by anti-money laundering and counter terrorism funding reporting requirements under a new proposal.
Written by Chris Duckett, Contributor

Australian Transaction Reports and Analysis Centre (Austrac) will have oversight of digital currency exchanges in Australia under proposed government amendments to Australia's anti-money laundering and counter terrorism funding laws.

Minister for Justice Michael Keenan said in a statement on Thursday that it would be the first time those exchanges would face regulation.

"The threat of serious financial crime is constantly evolving, as new technologies emerge and criminals seek to nefariously exploit them," he said. "These measures ensure there is nowhere for criminals to hide."

According to the explanatory memorandum for the amendments, digital currency exchange providers will need to be registered on an Austrac Digital Currency Exchange Register, create an anti-money laundering and counter terrorism funding program, identify and verify their customers, report "suspicious matters and transactions involving physical currency" that exceed AU$10,000, and keep certain records for seven years.

The memo said the regulation is needed because some businesses are avoiding digital currencies due to riskiness.

"Continued non-regulation of digital currency exchange providers under the AML/CTF [anti-money laundering and counter terrorism funding] regime may impede the development or use of these currencies in the future and the growth of this sector and may also increase the likelihood that the sector could by targeted for nefarious purposes," the memo reads.

Although some providers currently comply with a voluntary code of conduct, the sector did not think it was enough, the memo said.

Austrac revealed in 2014 that it was able to track every Australian dollar conversion into bitcoin.

"Australia is very fortunate among its international counterparts, in that we are one of the few countries which currently collects all international funds transfers, into or out of Australia," John Schmidt, CEO of Austrac, told Senate Estimates at the time.

"At some point, a person will be purchasing bitcoin using Australian dollars, for example, and then, if they are dealing in substances or services, will want to convert those bitcoins back into the legitimate currencies of wherever they are, so they can gain the benefit of them.

"Because we get the international funds transfers instructions, it is possible using other intelligence sources to identify transactions where people are purchasing bitcoins."

The amendments would also see Austrac's investigation and enforcement powers increased, seizure powers by customs and police officers "at the border" given a boost, and some low-risk sectors deregulated.

"Stopping the movement of money to criminals and terrorists is a vital part of our national security defences and we expect regulated businesses in Australia to comply with our comprehensive regime," Keenan added. "Austrac has a strong track record in ensuring our financial institutions comply with the law."

Earlier this month, Austrac began civil penalty proceedings against the Commonwealth Bank of Australia (CBA), alleging the bank had been involved in "serious and systemic non-compliance" with the Anti-Money Laundering and Counter-Terrorism Financing Act.

Austrac detailed 53,700 breaches of the Act, which included failing to hand 53,506 threshold transaction reports (TTRs) for cash transactions over AU$10,000 to Austrac through intelligent deposit machines (IDMs) for almost three years between November 2012 and September 2015.

In response, CBA claimed that much of the blame for the lack of filing was due to a "coding error".

"The issue began after an unrelated software update to the IDMs in late 2012," the bank said. "Following the software update, a coding error occurred which meant the IDMs did not create the TTRs needed. This error became apparent in 2015 and within a month of discovering it, we notified Austrac, delivered the missing TTRs, and fixed the coding issue.

"The vast majority of the reporting failures alleged in the statement of claim (approximately 53,000) relate specifically to this coding error. We recognise that there are other serious allegations in the claim unrelated to the TTRs."

Last week, CBA reported AU$9.88 billion in profit for the 2017 financial year, with CEO Ian Narev announcing he will leave the bank in mid-2018.

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