AML/CTF Obligations in Australia

Section 1.1: Legal Foundation and Regulatory Context

1.1.1 The AML/CTF Act 2006

The Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act) is the central legislation in Australia that governs how reporting entities must prevent and detect money laundering and terrorism financing.

It was introduced to:

• Strengthen Australia’s compliance with international standards (especially those set by the Financial Action Task Force – FATF)
• Equip AUSTRAC with regulatory powers to supervise compliance
• Mandate detailed requirements around customer identification, transaction monitoring, reporting, and training

1.1.2 AML/CTF Rules and Regulations

Supporting the Act are:

• The AML/CTF Rules – legally binding legislative instruments that prescribe operational detail (e.g. how to conduct KYC)
• Regulations under the AML/CTF Act – further legislative clarity, such as exemptions and threshold values

1.1.3 Role of AUSTRAC

AUSTRAC (Australian Transaction Reports and Analysis Centre) serves as both:

• Australia’s financial intelligence unit (FIU): collecting and analysing reports from businesses to identify suspicious financial activity
• Primary AML/CTF regulator: monitoring compliance, conducting assessments, and enforcing penalties

Section 1.2: What Is a Reporting Entity in the Credit Sector?

Any business that provides a designated service under the AML/CTF Act is a reporting entity. For credit providers, this typically includes:

• Mortgage brokers
• Non-bank lenders
• Finance companies offering consumer or commercial credit
• Aggregators or introducers operating on behalf of credit providers

Key designated services relevant to credit include:

Being a reporting entity triggers obligations to register with AUSTRAC and implement a compliant AML/CTF Program.

Section 1.3: Structure of an AML/CTF Program

All reporting entities must maintain a written AML/CTF Program tailored to their size, structure, and risk exposure. There are two main types:

1.3.1 Standard AML/CTF Program

Required for entities that deal directly with customers (e.g. lenders and brokers). Divided into two parts:

• Part A: Governance and Oversight
  • Risk assessment
  • Board approval
  • Staff training
  • Independent review
  • Monitoring and reporting
• Part B: Customer Identification and Verification
  • Know Your Customer (KYC) procedures
  • Ongoing customer due diligence (CDD)
  • Enhanced due diligence (EDD) for high-risk customers

1.3.2 Joint AML/CTF Program

Used when two or more entities share AML/CTF responsibilities (e.g. lender and aggregator model). Requires clear allocation of obligations between parties.

Section 1.4: Key AML/CTF Obligations for Credit Providers

A reporting entity must comply with five core obligations:

1.4.1 Enrolment and Registration

• All reporting entities must enrol with AUSTRAC.
• Certain business types (e.g. remittance service providers) must also register and renew annually.

1.4.2 Know Your Customer (KYC)

• Identify and verify customers before providing a loan or designated service.
• Must use reliable, independent documentation (e.g. government-issued ID, utility bills, employment records).
• EDD must be conducted for high-risk customers.

1.4.3 Ongoing Customer Due Diligence (OCDD)

• Monitor transactions for consistency with the customer’s risk profile.
• Identify changes in behaviour that might indicate suspicious activity.
• Periodically review customer identity information.

1.4.4 Transaction Reporting

Reporting obligations include:

All reports must be submitted through AUSTRAC Online.

1.4.5 Recordkeeping

• Records must be kept for:
• 7 years for customer identification and transaction records
• Records must be retrievable and secure
• Includes SMRs, training logs, internal audits, and third-party arrangements

Section 1.5: AML/CTF Risk Assessment

Every AML/CTF Program must be underpinned by a documented risk-based assessment that identifies:

• The types of products or services offered (e.g. personal loans, asset finance)
• Customer types (e.g. PEPs, offshore residents, shell companies)
• Delivery channels (e.g. online vs. face-to-face)
• Geographic risk (e.g. jurisdictions with weak AML laws)

The risk assessment should be reviewed at least annually and updated if:

• New products or services are launched
• Material changes to business operations occur
• AUSTRAC issues revised guidance

Section 1.6: Roles and Responsibilities in AML/CTF Compliance

Compliance with the AML/CTF Act is not simply a back-office function — it is a legal, operational, and cultural responsibility that spans all levels of a credit business. This section outlines the core roles and responsibilities within an organisation to ensure adherence to Australia’s AML/CTF regime.

1.6.1 Board of Directors / Senior Management

Ultimate accountability for AML/CTF compliance rests with the organisation’s governing body. Directors and senior executives must:

• Approve the AML/CTF Program and any material amendments
• Oversee implementation and ensure adequate resourcing
• Understand the business's exposure to money laundering and terrorism financing risks
• Receive and review regular compliance reports from the Compliance Officer
• Take corrective action when non-compliance or breaches are identified

Why It Matters: AUSTRAC has clearly stated that tone and commitment at the top are critical. In several enforcement actions, failure to engage at the board level has resulted in increased penalties and reputational damage.

1.6.2 AML/CTF Compliance Officer (Mandatory Appointment)

Every reporting entity must appoint a designated Compliance Officer — typically someone in a senior management or legal/compliance position — with responsibility for overseeing the AML/CTF Program.

Key Responsibilities:

• Develop, implement, and maintain the AML/CTF Program
• Conduct the business-wide ML/TF risk assessment
• Ensure reporting obligations (e.g. SMRs, TTRs) are met
• Coordinate staff training across business units
• Monitor changes in legislation and update policies accordingly
• Liaise with AUSTRAC and respond to audit or review requests
• Commission independent reviews as required

The Compliance Officer should be independent of front-line sales functions wherever possible, and report directly to senior management.

1.6.3 Frontline Staff (e.g. Lenders, Brokers, Customer Service)

Frontline staff play a vital role in identifying suspicious customer behaviour and ensuring KYC processes are followed.

Key Responsibilities:

• Verify customer identity and conduct due diligence during onboarding
• Escalate suspicious activity or red flags to the Compliance Officer
• Avoid tipping off customers during SMR investigations
• Complete AML/CTF training and stay updated on reporting thresholds and expectations
• Ensure that documentation is complete and securely retained

Examples of frontline obligations:

• A mortgage broker noticing inconsistencies in a payslip
• A lender detecting unusual source of funds for a loan repayment
• A support staff member observing nervous or evasive customer behaviour

1.6.4 Middle and Back Office (e.g. Risk, Finance, Audit)

These teams support AML/CTF compliance by:

• Analysing transaction trends and assisting with threshold monitoring
• Supporting the recordkeeping and data retention requirements
• Conducting second-line assurance checks and thematic reviews
• Testing controls as part of internal audit programs

They are particularly valuable in identifying systemic risks, such as:

• Concentration of high-risk customers in one product
• Failure to monitor specific channels (e.g. mobile loan apps)
• Lapses in record retention or outdated risk models

1.6.5 IT and Data Teams

With increasing use of digital onboarding and transaction platforms, IT and data roles now have AML/CTF implications.

Key Contributions:

• Implement transaction monitoring systems with calibrated rule sets
• Integrate sanctions screening tools
• Maintain access and security protocols to prevent data tampering
• Support reporting through data analytics and automated alerts

In advanced settings, data scientists may also work with compliance teams to build machine learning models that identify suspicious behaviour more accurately over time.

1.6.6 External Consultants or Third Parties

When outsourcing any AML/CTF function (e.g. ID verification or transaction monitoring), the reporting entity remains legally responsible for compliance. Due diligence must be conducted on:

• The provider’s qualifications and licensing (e.g. credit aggregators or KYC vendors)
• Their AML/CTF practices and alignment with your program
• Contractual terms including audit rights, liability, and breach notification requirements

Outsourcing does not remove responsibility — oversight must be active and documented.

1.6.7 Summary of Role Matrix

Section 1.7: AML/CTF Program Lifecycle – Review, Audit, and Continuous Improvement

The AML/CTF Program is not a “set and forget” obligation. Like any risk management framework, it must evolve in response to:

• Internal changes (e.g. new products, mergers, staff turnover)
• External changes (e.g. updated laws, AUSTRAC guidance, global risks)
• Findings from breaches, audits, or real-world case studies

This section outlines the lifecycle of an effective AML/CTF Program, including how to maintain and improve it over time.

1.7.1 Initial Risk Assessment and Program Development

The first step in creating a compliant AML/CTF Program is conducting a business-wide risk assessment (BWRA). This involves identifying:

• Product risks: e.g. unsecured loans, high-value finance, digital channels
• Customer risks: e.g. offshore borrowers, cash-heavy businesses, PEPs
• Channel risks: e.g. online vs. in-branch, introducer models
• Geographic risks: e.g. servicing customers in high-risk or sanctioned countries

The Program must then be documented to reflect these risks, with controls, responsibilities, and processes tailored accordingly.

1.7.2 Program Implementation and Communication

Implementation involves:

• Rolling out policies and procedures to all relevant business units
• Training staff (especially customer-facing roles) on their AML/CTF responsibilities
• Embedding transaction monitoring systems and reporting workflows
• Ensuring the Board and senior management are briefed and engaged

All employees must be able to access the AML/CTF Program and know how it affects their role.

1.7.3 Ongoing Monitoring and Reporting

The Program must include a structured plan for:

• Ongoing customer due diligence (OCDD)
• Event-based reviews (e.g. if a customer changes behaviour or risk profile)
• Transaction monitoring (either manual or software-driven)
• Suspicious Matter Report (SMR) triaging by the Compliance Officer

Where practical, this should include data analytics or exception reporting to detect anomalies that wouldn’t otherwise be seen.

1.7.4 Independent Review (Mandatory)

AUSTRAC requires all AML/CTF Programs to be independently reviewed:

• At least every 2 years, or more frequently for high-risk businesses
• Conducted by a qualified internal auditor or external consultant
• Covering both Part A and Part B of the Program
• Resulting in a written report and action plan

Common review focus areas include:

The Board must be informed of review outcomes and approve any necessary program amendments.

1.7.5 Lessons from Breaches and Enforcement Cases

Real-world enforcement actions provide vital insights into what works and what doesn’t. As part of continuous improvement:

• Review AUSTRAC media releases and enforcement reports
• Benchmark your controls against known failures
• Run simulations or “tabletop exercises” to test your response plans
• Integrate findings into revised training and procedures

For example, if a competitor was fined for failing to monitor third-party transactions, ensure your own transaction monitoring rules account for those channels.

1.7.6 Adapting to Change – Internal and External

Internal changes that should trigger a program update:

• New lending or product streams (e.g. Buy Now Pay Later)
• Entry into new jurisdictions
• Onboarding of a new aggregator or partner
• Major changes in technology or systems
• Staff restructuring

External changes that must be monitored:

• Legislative amendments (e.g. to the AML/CTF Act or Privacy Act)
• New AUSTRAC guidance, typologies, or consultation papers
• FATF mutual evaluations or updates to high-risk jurisdiction lists
• Emerging threats such as scams, synthetic identity fraud, or cryptocurrencies

The Compliance Officer must track these developments and initiate updates to the Program when required.

1.7.7 Summary – Building a Living Compliance System

Module 1 Summary and Reinforcement: AML/CTF Obligations in the Credit Sector

Key Concepts Recap

To ensure robust compliance with the AML/CTF regime, credit licensees and their employees — especially Responsible Managers — must understand the following:

The Legislative Framework

• The AML/CTF Act 2006 and its supporting Rules and Regulations form the basis of anti-money laundering and counter terrorism financing obligations in Australia.
• These laws are enforced and supervised by AUSTRAC, which acts as both a regulator and financial intelligence unit (FIU).

Designated Services and Reporting Entities

• If your business provides designated services, such as personal loans, asset finance, or mortgage broking, you are a reporting entity under the Act.
• This status brings with it a suite of enforceable compliance obligations.

The AML/CTF Program Structure

• Standard Programs apply to entities dealing directly with customers.
• Programs consist of:
  • Part A: Governance, oversight, training, and reporting
  • Part B: Customer identification (KYC) and verification protocols

Mandatory Compliance Components

Roles and Responsibilities

• Board/Senior Management: Accountable for approving and resourcing the program
• Compliance Officer: Day-to-day oversight, reporting, and training
• Frontline Staff: Customer verification, red flag detection, reporting
• Back Office/IT: Transaction monitoring, data integrity, system testing

Continuous Improvement

• AML/CTF Programs must be reviewed regularly, including:
  • Annual internal reviews
  • Independent audits every two years
  • Updates prompted by AUSTRAC alerts, industry trends, or internal changes

Red Flags to Remember

As part of daily operations, all staff should be alert to suspicious or unusual behaviour, including:

• Structured cash transactions below $10,000
• Rapid loan repayment or offshore fund transfers
• Applicants unwilling to provide basic documentation
• Use of synthetic or stolen identities
• Loan funds used in ways inconsistent with stated purposes

Interactive Learning Reinforcement (Optional for Course Delivery)

If delivering this module in a digital or blended learning environment, consider including:

• Scenario-Based Quizzes:
  Example: “You are a mortgage broker and a client wants to split a $30,000 personal loan into three $10,000 applications. What should you do?”
• Drag-and-Drop Compliance Checklist:
  Learners match steps in the SMR process, or sequence the lifecycle of an AML/CTF Program.
• Flashcard Terms: Key terms like KYC, SMR, EDD, PEP, TTR, and CDD.
• Downloadable Toolkits:
  • AML/CTF Risk Assessment template
  • Staff escalation form for suspicious matters
  • Sanctions screening guide

Final Reflection Questions

These can be used as assessment or journal prompts:

• What part of your business has the highest risk of being exploited for financial crime?
• How confident are you in your current AML/CTF procedures — and where might you need improvement?
• Do your employees feel empowered to report suspicious behaviour?
• What’s one change you’ll make in your business this quarter to enhance AML/CTF compliance?

Section 2.1: What Is Money Laundering?

Definition of Money Laundering

Money laundering is the process of concealing the origins of illegally obtained money so that it appears to come from a legitimate source. It allows criminals to profit from illegal activities while avoiding detection by authorities.

The crime is defined under various provisions of the Criminal Code Act 1995 (Cth) and enforced alongside the regulatory obligations of the AML/CTF Act. In Australia, money laundering can attract criminal penalties, including imprisonment, even for reckless or negligent conduct in facilitating it.

Three Stages of Money Laundering

Understanding the methodology of money laundering is essential for financial services professionals. It typically occurs in three main stages:

1. Placement

Illicit funds are introduced into the financial system. This is the riskiest phase for criminals because the funds are still identifiable as “dirty” money.

Examples:

• Cash deposits into bank accounts
• Loan repayments made with unexplained funds
• Purchasing prepaid cards or casino chips

2. Layering

A series of transactions are undertaken to disguise the origin of the money. This may include converting the money into different forms or transferring it through various accounts to create complexity.

Examples:

• Electronic transfers between unrelated accounts
• Foreign currency exchanges
• Rapid movement of funds across jurisdictions

3. Integration

The funds are reintroduced into the economy as seemingly legitimate assets, investments, or business income.

Examples:

• Purchasing real estate or luxury assets
• Investing in legitimate businesses
• Taking out loans and repaying them with laundered funds

Common Channels Used in Credit Services

The credit industry is often targeted for laundering activities due to its flexibility and broad access to the financial system. Key examples include:

These risks require staff in credit businesses to stay alert to suspicious indicators, particularly where clients display non-standard behaviours or resist disclosure of source of funds.

Legal Framework and Enforcement

Money laundering is an offence under:

• Criminal Code Act 1995 (Sections 400.3 – 400.9)
• Proceeds of Crime Act 2002
• AML/CTF Act 2006

Penalties vary depending on the amount of money and level of intent but can reach up to 25 years imprisonment for individuals involved in laundering serious criminal proceeds.

In addition to criminal liability, failure to detect or report suspicious activity can result in:

• Regulatory sanctions from ASIC or AUSTRAC
• Civil penalty orders
• Enforceable undertakings or licence suspension for credit businesses

Section 2.2: What Is Terrorism Financing?

Definition of Terrorism Financing

Terrorism financing involves collecting or providing funds with the intention or knowledge that they will be used to support terrorist acts, terrorist organisations, or individuals engaged in terrorism-related activities.

Unlike money laundering, where the funds originate from criminal activity and are disguised to appear legitimate, terrorism financing can involve legally obtained funds (e.g. salaries, donations, grants) that are then diverted to support illegitimate and unlawful objectives.

Key Legal References

Terrorism financing is addressed under:

• Criminal Code Act 1995 (Division 103)
• Charter of the United Nations Act 1945
• AML/CTF Act 2006 (Sections relating to SMRs and customer due diligence)

It is a criminal offence to intentionally or recklessly deal with funds that are to be used for terrorism-related purposes. Penalties include up to life imprisonment.

How Terrorism Financing Differs from Money Laundering

Why Credit Services Are a Target

Financial institutions — including credit providers — can be used to facilitate terrorism financing without realising it. This is especially true for services involving:

• Personal loans where funds are diverted
• Small business finance used to mask fundraising for illegitimate groups
• Third-party transfers to overseas accounts or organisations in high-risk regions
• Cash-intensive repayment patterns inconsistent with customer profile

In some cases, terrorism financing has been disguised as charitable donations, remittances, or microloans.

International Obligations and Sanctions

Australia maintains a list of individuals, groups, and organisations associated with terrorism under:

• The Consolidated List (published by the Department of Foreign Affairs and Trade – DFAT)
• UN Security Council sanctions and FATF recommendations

It is a strict liability offence to deal with a person or organisation on these lists, even unintentionally. All financial service providers must screen transactions and customer names against these sanctions lists as part of their AML/CTF obligations.

Risk Indicators of Terrorism Financing in Credit Businesses

Staff should remain vigilant for:

• Frequent international transfers to high-risk jurisdictions
• Customers donating or sending funds to unknown charities
• Multiple personal loans under different names linked to the same contact details
• Applicants unwilling to disclose the purpose of the loan
• Rapid loan repayments that don’t align with the customer’s income profile

Even small or one-off transactions may be part of a broader network of terrorism-related activity.

The Importance of Frontline Vigilance

Terrorism financing often relies on low-profile financial activity. This means that detection is highly dependent on:

• Frontline staff noticing inconsistencies
• Accurate and up-to-date KYC processes
• Proper escalation to the Compliance Officer when red flags arise

Section 2.3: Common Red Flags in Credit Services

Credit providers — including mortgage brokers, bank lenders, and Tier 2 banking professionals — are often on the front lines of detecting suspicious activity. While many transactions may appear routine, specific behaviours, patterns, and inconsistencies can serve as red flags for money laundering or terrorism financing.

This section provides a breakdown of common red flags seen in credit environments, why they matter, and how to respond.

1. Unusual Loan Applications

Red Flags:

• Clients who apply for multiple personal loans in a short timeframe
• Inconsistent or falsified employment or income documentation
• Applications where the declared purpose of the loan is vague or inconsistent with the customer’s profile
• Loan requests for amounts just below mandatory reporting thresholds (e.g. $9,900)

Why It Matters: Layering and structuring are core tactics in laundering. Breaking transactions into smaller, less detectable amounts is a common avoidance tactic.

2. Third-Party Involvement

Red Flags:

• Loan repayments or deposits made by individuals not listed on the application
• Use of guarantors with no clear relationship to the borrower
• Irregular third-party funders in the property settlement process
• Instructions from someone other than the named customer

Why It Matters: Third-party involvement is frequently used to obscure the source of funds, link criminal networks, or bypass sanctions screening.

3. Inconsistent Identity or KYC Information

Red Flags:

• Applicants providing multiple sets of identity documentation or mismatched information
• Discrepancies in name spellings, dates of birth, or residential addresses
• Customers reluctant to provide KYC documentation or pushing to expedite onboarding
• Inability to verify the authenticity of documents

Why It Matters: False or inconsistent identity data is a hallmark of criminal efforts to avoid detection or create synthetic identities for fraud and laundering.

4. Rapid Loan Repayment Behaviour

Red Flags:

• Loans repaid far earlier than the agreed term using lump sums
• Source of repayment funds does not align with declared income
• Round-number repayments made in cash or from multiple unrelated accounts
• Loan paydowns immediately after settlement

Why It Matters: Quick repayment using unexplained funds is a method of integrating “cleaned” money into the system through a seemingly legitimate financial transaction.

5. High-Risk Jurisdictions or Sanctioned Entities

Red Flags:

• Loan proceeds sent to, or repaid from, high-risk jurisdictions or countries under UN or Australian sanctions
• Clients associated with entities on DFAT’s Consolidated List
• Use of addresses or contact details linked to sanctioned regions

Why It Matters: Facilitating transactions with high-risk jurisdictions or sanctioned persons can result in breaches of international sanctions and expose the organisation to severe penalties.

6. Behavioural and Communication Clues

Red Flags:

• Applicants overly concerned with privacy or unwilling to meet in person
• Clients insisting on using cash or resisting electronic documentation
• Agitated or evasive when asked to explain loan purpose or funding source
• Providing irrelevant details to distract or overwhelm staff

Why It Matters: Behavioural cues often reflect an attempt to avoid scrutiny or manipulate the process. Staff awareness training is critical for recognising these softer indicators.

Putting It Into Practice

The most effective way to detect red flags is through:

• Consistent KYC practices
• Real-time transaction monitoring
• Well-trained staff who know what to look for
• Clear internal reporting pathways for raising suspicions

Red flags alone do not prove illegal activity — but they must prompt further questioning and, where necessary, escalation to the Compliance Officer and potentially to AUSTRAC via an SMR.

Section 2.4: Case Studies – Real-World Examples in Australian Credit Services

Understanding theory is important, but the practical application of AML/CTF obligations becomes clearer through real-world case studies. These examples are drawn from actual enforcement actions, regulatory investigations, and AUSTRAC guidance. They demonstrate how financial crime can manifest in credit settings — and what lessons Responsible Managers, compliance teams, and frontline staff should take away.

Case Study 1: Loan Structuring to Avoid Reporting Thresholds

Scenario: A client applied for three separate personal loans of $9,800 within two weeks at three different branches of a non-bank lender. The declared purposes were inconsistent — including "travel", "medical expenses", and "vehicle upgrade". All loans were repaid in cash within two months.

What Went Wrong:

• The amounts were just under the $10,000 TTR threshold.
• There were signs of structuring (deliberate avoidance of detection).
• No SMR was lodged, and no staff escalated the pattern of transactions.

Outcome: AUSTRAC flagged the institution during routine transaction monitoring. The business was issued an enforceable undertaking and required to upgrade its transaction monitoring system and staff training.

Lesson: Red flags must be considered in aggregate. Structured behaviour across branches or loan officers still presents a compliance risk, and staff should be trained to recognise patterns.

Case Study 2: Terrorism Financing via Legitimate Loan Channels

Scenario: An individual applied for a $20,000 unsecured personal loan through a small finance provider, declaring the purpose as "renovations". The funds were transferred overseas within two days to a bank in a high-risk jurisdiction known for terrorist activity. The same applicant was found to have previously sent funds to charities with known links to proscribed terrorist organisations.

What Went Wrong:

• Inadequate KYC procedures failed to flag prior patterns of international transfers.
• No sanctions screening was conducted on the destination bank.
• No escalation occurred despite the abnormal loan usage.

Outcome: The individual was later arrested and charged with terrorism financing. The credit provider was required to undergo a full AML/CTF Program review and retrain all Tier 2 staff.

Lesson: Terrorism financing often appears benign until after the fact. Institutions must conduct ongoing due diligence, especially regarding offshore transfers and use of funds inconsistent with stated loan purposes.

Case Study 3: Fraudulent Identity and Synthetic Loans

Scenario: A mortgage broker submitted applications under four different names for separate properties using falsified payslips, utility bills, and bank statements. The broker had recruited accomplices to act as applicants, with loan funds ultimately channelled back to a single account.

What Went Wrong:

• KYC documents were not properly verified.
• There was no consistent process for verifying employment or financial status.
• Red flags (same IP address used for applications, similar document formatting) were ignored.

Outcome: The broker was prosecuted for fraud and money laundering. The aggregator platform suffered reputational damage and implemented stricter document verification technology.

Lesson: Fraudulent identity usage is a growing risk in lending. Technology tools (e.g. digital ID verification, IP monitoring) must support manual KYC checks.

Case Study 4: High-Value Asset Laundering via Equipment Finance

Scenario: A client acquired four pieces of heavy machinery using finance from a credit provider and sold them offshore shortly after finalising settlement. Funds were funnelled into shell companies linked to organised crime groups.

What Went Wrong:

• No monitoring was in place post-settlement.
• The repayment structure changed suddenly, with lump sums from overseas funders.
• Due diligence on the buyer and resale channels was insufficient.

Outcome: The provider was not held criminally liable but was criticised in an AUSTRAC review for inadequate transaction monitoring and lack of risk-based controls.

Lesson: Asset finance providers need a compliance strategy for physical goods, particularly when financed assets are high-value, portable, or easily re-sold.

Summary of Key Learnings

Section 2.5: Preventative Measures for Credit Businesses

Credit providers have a legal and ethical obligation to prevent their services from being used to facilitate financial crime. While detection is important, the most effective strategy is prevention — reducing opportunities for laundering or terrorism financing before they occur.

This section outlines the key preventative measures that Responsible Managers, compliance teams, and credit professionals should implement.

1. Adopt a Risk-Based Approach (RBA)

Under the AML/CTF Act, reporting entities are expected to tailor their compliance efforts based on risk exposure. This includes:

• Assessing the nature, size, and complexity of your business
• Identifying the products and services most vulnerable to misuse
• Evaluating customer profiles, including occupation, source of funds, and geography
• Monitoring delivery channels (e.g. online lending vs. in-person broking)

Risk Categories

A dynamic risk assessment should underpin all decisions — including customer onboarding, enhanced due diligence, and monitoring.

2. Strengthen Know Your Customer (KYC) Processes

Robust customer identification is the foundation of AML/CTF compliance. Key actions include:

• Using electronic ID verification (eIDV) tools where possible
• Verifying all information with reliable and independent sources
• Checking documents for inconsistencies (e.g. mismatched names, dates, formatting)
• Verifying employment and income through third-party sources if possible

For higher-risk clients, enhanced due diligence (EDD) should be triggered — requiring additional documentation, source-of-funds checks, and possible face-to-face verification.

3. Implement Effective Transaction Monitoring

All reporting entities must monitor customer transactions on an ongoing basis. This includes:

• Reviewing transactions for unusual amounts, timing, or patterns
• Monitoring for activity inconsistent with known customer profiles
• Using software systems or rules-based filters to flag anomalies
• Investigating triggers for suspicious matter reporting

Thresholds and triggers should be reviewed periodically and customised to your business model (e.g. residential lending vs. asset finance).

4. Conduct Sanctions Screening

It is essential to screen both customers and counterparties against:

• DFAT's Consolidated List of persons and entities subject to UN or Australian sanctions
• Internal watchlists or known high-risk entities
• Jurisdictions subject to enhanced scrutiny (e.g. FATF grey/blacklist countries)

This should be done:

• At the time of onboarding
• Before disbursing loan funds
• As part of periodic customer reviews

Automated screening tools are highly recommended to reduce oversight risk.

5. Deliver Targeted AML/CTF Training

Training is a mandatory requirement under the AML/CTF Act and should be:

• Role-specific (e.g. lenders, brokers, support staff, compliance team)
• Delivered at induction and annually thereafter
• Regularly updated to reflect changes in law, case studies, and risk trends

Training should cover:

• How to identify and escalate suspicious activity
• Red flags for laundering and terrorism financing
• How to verify identity documents and recognise fraud
• When and how to submit an internal SMR

Staff performance in AML/CTF training should be tracked and documented.

6. Foster a Culture of Compliance

Preventing financial crime goes beyond systems and processes — it requires a compliance mindset embedded across all levels of the organisation. This includes:

• Leadership actively supporting AML/CTF priorities
• Making compliance part of performance metrics
• Encouraging staff to speak up when they notice irregularities
• Holding all employees to account for compliance failures

A healthy culture reduces the likelihood of deliberate or negligent breaches.

7. Maintain and Review Your AML/CTF Program

The AML/CTF Program should not be static. It must:

• Reflect current risk exposure and regulatory expectations
• Be reviewed annually, and more frequently in times of change (e.g. product launch, system overhaul)
• Include documented procedures for:
  • KYC and verification
  • Transaction monitoring and escalation
  • SMR/TTR/IFTI reporting
  • Training and recordkeeping
  • Independent auditing

Programs must be approved by senior management or the board.

Summary of Preventative Measures