AUSTRACs guidance on submitting more effective suspicious matter reports SMRs

Overview

In April 2021, the Australian Transaction Reports and Analysis Centre (AUSTRAC) released new suspicious matter reporting resources.

The resources provide guidance to reporting entities on how to submit better quality suspicious matter reports (SMRs). Specifically, AUSTRAC released:

• A Suspicious Matter Reporting Reference Guide (SMR Reference Guide); and
• A Suspicious Matter Reporting Checklist (SMR Checklist).

The SMR Reference Guide contains guidance on red flag indicators, as well as examples of both good and bad quality SMRs.

The SMR Checklist contains a list of SMR tips for easy reference when creating and submitting an SMR.

SMR obligations

Reporting entities who provide, or who are proposing to provide, a designated service outlined in section 6 of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) (AML/CTF Act) have suspicious matter reporting obligations (see: section 41, Anti-Money Laundering and Counter-Terrorism Financing Act 2006 [Cth]). Specifically, SMRs are required to be submitted to AUSTRAC if the entity suspects on reasonable grounds that a person is not who they claim to be, or the provision or prospective provision of a designated service relates to:

• terrorism financing;
• money laundering;
• an offence against a Commonwealth, State or Territory law;
• proceeds of crime; or
• tax evasion.

SMRs are required to be submitted within 24 hours if the suspicion relates to terrorism financing, or within 3 business days if the suspicion relates to money laundering or any other offence.

SMRs submitted by a reporting entity are subject to the 'tipping off' prohibitions outlined in section 123 of the AML/CTF Act (see: section 123, Anti-Money Laundering and Counter-Terrorism Financing Act 2006 [Cth]). This means that if an SMR obligation has arisen and the reporting entity has communicated information to the AUSTRAC Chief Executive Officer (CEO), the reporting entity must not disclose to anyone other than the AUSTRAC CEO or a member of staff of AUSTRAC that the information has been communicated to the AUSTRAC CEO (see: section 123, Anti-Money Laundering and Counter-Terrorism Financing Act 2006 [Cth]).

The rise in SMR submissions

Over the past four years, there has been a rapid increase in the number of SMRs submitted to AUSTRAC. In its 2019-20 Annual Report, AUSTRAC reported a 258 percent increase in SMRs since 2016-17, relating to the submission of approximately 265,000 SMRs in 2019-20 (see: page v, 2019-20 AUSTRAC Annual Report).

The rise in the number of SMRs submitted to AUSTRAC is partly driven by recent regulatory action, in which significant penalties have been imposed on reporting entities for a range of breaches. Of particular relevance were breaches involving a failure to report SMRs in accordance with legislative and regulatory requirements.

Given the increased focus on SMR submissions, combined with the consequences of non-compliance with reporting obligations, it is important for reporting entities to ensure they are submitting SMRs that align with legislative and regulatory requirements.

Enhancing the quality of your suspicious matter reporting: what you need to know

AUSTRAC's latest SMR resources clearly articulate expectations in relation to the completeness, accuracy and timeliness of SMR submissions. Specifically, AUSTRAC have emphasised that the following should be considered when creating an SMR:

• full visibility of suspicious activity;
• effective description of red flags;
• documenting an appropriate crime type keyword;
• documenting ECDD actions performed and findings;
• including all relevant know your customer (KYC) information;
• clear and structured reporting; and
• timely SMR submissions. 

Summarised below are the operational implications of AUSTRAC's guidance on each of the above SMR considerations.

Full visibility of suspicious activity: Ensure your SMRs contain the six essential key elements – who, what, where, when, why and how, in your SMR submission. Key information to include to ensure AUSTRAC and partner agencies can determine if a crime has been committed include:

• individual account names;
• specific dollar amounts;
• key event dates; and
• details of previously reported SMRs relating to the customer or the matter.

Effective description of red flags: Outline all of the reasons for your suspicion, including potential indicators of money laundering, terrorism financing or other serious crime, in a logical and readable format. Red flags may include potential instances of:

• structuring or layering of funds;
• unusual transaction volumes or values;
• transactions involving high risk jurisdictions;
• transactions triggering internal reporting policies; or
• transactions involving sanctioned entities or individuals.

Document an appropriate crime type keyword: Include the suspected or known crime type that is specific to the matter outlined in the submitted SMR e.g. money-laundering or insider trading.

Document ECDD actions performed and findings: Articulate the ECDD activities that were completed prior to submitting your SMR, as well as the results of these activities.

Include all relevant KYC information: Capture all information about the people connected to the suspicious activity in the appropriate fields and sections. Such information may include:

• passport details;
• drivers licence;
• residential address;
• telephone number;
• email address;
• occupation or source of wealth information;
• description of physical appearance; and
• open search information gathered as part of ECDD activities performed.

Clear and structured reporting: Poorly structured and unclear explanations can make further analysis difficult. When articulating grounds for suspicion:

• provide matter details in chronological order;
• use clear and simple language;
• use appropriate punctuation;
• avoid the use of internal acronyms and jargon; and
• use subheadings.

Timely SMR submissions: The timeliness of an SMR submission impacts the ability of enforcement agencies to effectively detect and disrupt criminal activity. Late submissions may allow criminal activity to remain undetected, therefore permitting it to continue.

Suspicions related to terrorism financing are required to be submitted within 24 hours whist suspicions related to money laundering or any other offences are required to be submitted within 3 business days.

Non-compliance with suspicious matter reporting timeframes may expose an organisation to civil penalties and reputational damage. Additionally, such non-compliance may act as a precursor to further enforcement action.

Given the increased scrutiny over the reporting and compliance programs that reporting entities have in place to detect suspicious activity, it is important for reporting entities to be able to demonstrate that their SMR framework is robust, fit-for-purpose and implemented effectively. In particular, reporting entities may need to consider the following risk and operational factors in the context of the new SMR guidance:

• whether personnel involved in the investigation and reporting of suspicious matters have the necessary competency to prepare high quality SMRs;
• whether appropriate controls have been implemented to ensure the timely reporting of SMRs;
• the ability to collect necessary information for inclusion in SMRs from third party distributors, agents or other entities involved in customer identification procedures;
• whether it is necessary to implement quality assurance or other checking processes to ensure SMRs are produced to a high quality; and
• the level of oversight that boards and senior management have over the quality of SMRs submitted.

For more information on AUSTRAC's SMR guidance please click here. 

Authors: Samantha Carroll, Partner and Philip Hardy, Partner, Risk Advisory.

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