Have you lent money? If so, can you spare $21 million?

As COVID-19 restrictions are slowly lifted and businesses endeavour to return to normal, people may find themselves lending monies to third parties or related entities to keep a business afloat, assist a restructure, or regular operational lending. 

Regulation of commercial lending is marginal compared to consumer lending. However, many fall into the trap of thinking they do some loan, guarantee and security agreements, a couple of searches and registrations and can then lend away and make money.

Lending money may be a ‘designated service’ covered by Anti-Money Laundering and Counter-Terrorism Financing Act (AML/CTF Act) and your loan may require you to be registered with AUSTRAC.

So what? Serious penalties can be incurred by any entity found to have made a loan or loans and not complied with requirements under AML/CTF Act. Fines, per offence, can be up to $21,000,000 for a company and $4,200,000.00 for an individual.

When do requirements under the AML/CTF Act apply?

The AML/CTF Act provides that the “making of a loan, where the loan is made in the course of carrying on a loans business”, is deemed to be the provision of a “designated service”.  Any person who provides a “designated service” is regarded as a “reporting entity” for the purposes of the AML/CTF Act and must comply with the requirements under this Act.

To better understand what these provisions capture we must breakdown the meaning of some key words and phrases.

• “loan”

Under the AML/CTF Act a loan can include an advance of money, provision of credit or financial accommodation, payment of an amount for, on account of, on behalf of or at the request of a person where there is an obligation to repay the amount or a transaction which effects a loan of money.  Very few exclusions to this definition apply.

• “business”

Under the AML/CTF Act a business is a “venture or concern in trade or commerce, whether or not conducted on a regular, repetitive or continuous basis”.

• “person”

Under the AML/CTF Act a person can be a company, trust, individual, partnership, corporation sole or body politic.

The breadth of the above definitions casts a wide net over any transactions provided by almost any entity type that, in substance, provides a loan to a borrower, even if the loan is a one-off.  Even loans between entities within the same group structure may be subject to the AML/CTF Act requirements.

What do I need to do as a lender (reporting entity)?

As a reporting entity under the AML/CTF Act, lenders must enroll with Australian Transaction Reports and Analysis Centre (AUSTRAC) and added to the Reporting Entities Roll.

Whilst all of this sounds daunting, it is relatively quick and easy to comply with.

Lenders must:

• Have an AML/CTF Policy;
• Appoint a designated AML/CTF Officer;
• Adopt “Know Your Client” processes and documents. This is a glorified 100 points of I.D. and can be done manually or now can be done via e-verification (Australia Post, ID Me, etc…);
• Conduct a Risk Profile of your designated service based on your clients, the purpose of their loans, where funds are sent, and the type of lending provided. The higher the risk the greater the due diligence;
• Conduct initial and bi-annual AML/CTF training for the AML/CTF Officer and key staff involved in the lending process. Online training can be as little as $100 per person and takes 45 minutes to know the basics.
• Board approval of the policy;
• Conduct an external review every 2 years;
• Lodge an annual return which takes 15 minutes with AUSTRAC;
• Report any suspicious matters; and
• Keep records supporting the above and your loan dealings.

Registration

If you have lent monies in the past and decide to register with AUSTRAC, any instances of lending prior to enrollment and AML/CTF Act compliance can be investigated by AUSTRAC and they may take action against you. Traditionally, AUSTRAC did not do so and was more interested in encouraging parties to register and comply going forward. However, in light of the Banking Royal Commission, AUSTRAC has taken a more assertive role on compliance and may prosecute.

If you are planning to lend in the future then it is best to establish a new lending entity and enroll with AUSTRAC before you commence lending.

Summary

Requirements under the AML/CTF Act must be complied with by almost all lenders especially so considering the substantial penalties that apply for non-compliance.

Queries

Should you have any queries regarding anything we have detailed or need any assistance concerning this area of law (such as creating an AML/CTF compliance pack and registration), please contact the author or any member of our Banking & Finance team.

Disclaimer

This information and the contents of this publication, current as at the date of publication, is general in nature to offer assistance to Cornwalls’ clients, prospective clients and stakeholders, and is for reference purposes only. It does not constitute legal or financial advice. If you are concerned about any topic covered, we recommend that you seek your own specific legal and financial advice before taking any action.