27 July 2008

Aussie Govt Bullion Snooping

Australia, like most countries, has money laundering legislation and a regulator to go with it. AUSTRAC (Australian Transaction Reports and Analysis Centre) administers the Financial Transaction Reports Act 1988 (FTR Act). They also now administer the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act). Similar legislation has been enacted in many other countries.

A lot of the new AML/CTF laws around the world are a result of the Financial Action Task Force (FATF). Created in 1989, it "is an inter-governmental body whose purpose is the development and promotion of national and international policies to combat money laundering and terrorist financing". Note that Australia's FTR Act came into being before FATF, and for a while Australia's AUSTRAC was "state of the art" in anti-money laundering in the world. It was admired for its data collection and matching system but in recent years had fallen behind.

One of FATF's self appointed roles is to report on the robustness of a country's money laundering systems and its noting that Australia's system had weaknesses is what prompted the Government to instigate a review of the FTR Act, resulting in the new AML/CTF Act. I suspect that FATF's assessments of other countries' system also resulted in similar changes to their legislation.

So if you are looking for someone to blame for new "know your customer" rules, FATF is up there. But you also have to blame 911, because this also revitalised FATF as Governments looked for expertise on how to tighten up on money flows. While I certainly think that there is a need to close off terrorism's money supply, I cannot help but think that Governments' new found interest in "fixing" their systems was more about the AML part rather than the CTF part. In other words, use terrorism to tighten up on tax evasion, and don't worry about privacy while you do it.

In Australia the old (although it is still in force) FTR Act basically had two key reporting mechanisms in respect of bullion: cash transactions report and suspicious transactions report. The first had to be filled out for any transaction involving more than $10,000 cash. Note that this $10,000 level has not changed in my understanding since the Act came into being in 1988. Funny how Government's never index anything to inflation, except maybe fines!

The second one had/has to be filled out if the business suspected the transaction was for or involved a criminal purpose. There is not real guidance given on this but in practise the rule is if in doubt, fill one out. This is because it acts sort of like a get out of jail card - if the transaction ended up being criminal and you hadn't filled out a suspect transaction report, the police may consider you in on the transaction (especially if is was really sus). Filling one out is then just a real cover your arse exercise.

The AML/CTF Act has given this reporting a makeover. Of particular interest to buyers of physical precious metal should be the changes to the cash transactions report. I understand this will now be called the transactions report, ie the word "cash" is dropped. I also understand that this means that anything that is a designated service (check out the link for a big list of what this covers, bullion gets its own special table #2) over $1,000 has to be reported. This is a big change because prior to this, only cash transactions above $10,000 had to be reported.

My advice to anyone who wishes to accumulate physical metal and as a result values their privacy should do so before the end of this year when the new report comes into play. I don't condone criminal activity, but I also believe that if you are buying physical precious metal you rightly don't want any records that you have done so as this opens you up for theft (either from your fellow man - eg criminal breaks into coin dealer and steals customer list - or from the Government itself at some future time when fiat currencies collapse). The ability to buy small amounts of metal from your local coin/bullion dealer in cash was the only way to do this and it looks like this door will soon close.

UPDATE 11 August - it appears that advice from AUSTRAC was wrong, we have alternative adivce that only cash transactions of bullion above $10,000 will need to be reported. It is also possible that the limit above which identification is required will be above $1,000, but not sure what it will be at this stage. Will keep you informed.

UPDATE 1 July 2009 - Perth Mint has received approval to set the limit above which some form of identification for a bullion transaction is required from $1,000 to $5,000.

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