I was closely involved with the introduction of the anti-money laundering legislation back in 2008 that included the first tranche of bodies to be subject to that law.
As the 2008 Explanatory Memorandum then said the second tranche would be introduced shortly.
From 2008 to 2025 nothing happened, except to Australia’s reputation internationally.
2026
In 2026 the second tranche is being covered and that is happening from 1 July 2026.
In that long hiatus, my interest has, understandably, waned. But for the moment, read on.
An IP must comply with all of the unmet obligations of the company?
Going back into the archives, in 2011, there was a circular issued by AUSTRAC which said that an insolvency practitioner
“must comply with all of the same obligations that apply to the company itself”.[1]
This extended to submitting compliance reports even if the external administrator was not appointed during the period to which the report related. This was said to be
“because the external administrator is the only person with the authority to act in the company’s name”.[2]
The fact that AUSTRAC or any regulator says anything does not necessarily make it the law.
In an article entitled “Last man standing” I queried the attitude of government and regulators in relation to insolvency practitioners that they would be the recipient of any unattended duties of the company in insolvency whether paid for or not. Invariably there would be no funds for the practitioner in performing the duties.
It’s the insolvent company and its owners under scrutiny – the law should draw the line at imposing responsibility on the insolvency practitioner for the company’s defaults.
I went on to discuss and disagree with AUSTRAC, at least without clear legislative direction.
Many, many years later I wonder whether that issue has been resolved, that is, why should we expect an unfunded insolvency practitioner to attend to AML obligations of the company in insolvency? And even if there are funds why would that cost take priority over creditors?
This issue was raised generally in the 2023 PJC Report on Corporate Insolvency.
That 2010 AUSTRAC circular was withdrawn soon after my article appeared but now, it’s probably true.
Unrealistic expectations
I and others have raised similar issues in Australia, but in the broader context of the unrealistic expectations imposed on IPs to perform duties that are properly the role of the state.
As Keay’s Insolvency, 2022, says, the IP is not there as a panacea for everything nor to provide a default role in attending to any unmet or consequential obligations associated with the insolvency – simply because the IP is “the last person standing”.
If there are funds available, attention to AML tasks means that creditors’ expected funds are depleted; if that is to be the case, then the reality of creditors funding the AML tasks rather than the state should be transparent.
If there are no funds, in what world of supposed reality do we impose work on citizens to work for the state for free?
An answer is to accept that IPs can raise their charge our rates to cover the cost over all estates – cross-subsidisation; a reality met with some opposition.
Even if Australia might not think so, AML tasks are important, and the community bears the cost of them, in the interests of greater savings through prevention. Lawyers and accountants and others impacted can impose that cost on their clients.
IPs are different – they have no client, they do not act at the direction of creditors, they perform a mix of public and private functions.
Private work funded by creditors, public functions by the state
As has been said, private work should be done by the private sector and paid out of funds otherwise available for creditors, while public functions should be performed by public officials and paid for out of public funds: P Heath, Insolvency Law Reform: The Role of the State (1999) NZLRev 569. See also Rebuilding the structure of the Australian insolvency system, Murray & Harris; The Last Man Standing, Murray; and Keay’s Insolvency 11th ed, Murray and Harris, ch 1, 12 ed pending.
When my AML interest returns, I’ll look at this further.
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[1] AUSTRAC External Administration and AML/CTF Act Obligations Information Circular No 76 (2011), since withdrawn.
[2] See also D McCafferty “AMI (Administrators Appointed) — just in case you didn’t know!” (15 June 2011).
One Response
Where the IP is not a sole practitioner the relevant reporting entity is the partnership or incorporated accounting practice he/she utilises. A major role to be performed whether the administration is funded or unfunded is investigation into examinable affairs. That logically includes transactions to which the company has been a party. The requirement to lodge a SMR arises where there is an objective suspicion. It would seem therefore that that requirement merely adds a form if anything is discovered as part of usual role.