In a significant step towards making digital currency mainstream, the Australian government has introduced into parliament a bill to regulate the activities of digital currency exchange service providers.
If enacted in its current form, the provisions of the Anti-Money Laundering and Counter-Terrorism Financing Amendment Bill 2017 (the Bill) will mean that businesses providing convertible digital currency exchange services (for example by exchanging money for bitcoin or vice versa) will need to be registered with, and subject to mandatory reporting obligations to, the Australian Transaction Reports and Analysis Centre (AUSTRAC), Australia’s financial intelligence and regulatory agency.
The key measures of the Bill affecting digital currency exchanges are:
- digital currency exchanges will be required to:
- obtain registration with AUSTRAC. Registrations can be granted subject to conditions and, in some circumstances, cancellation;
- perform customer due diligence by identifying and verifying the identities of their customers;
- report to AUSTRAC certain suspicious matters, and any transactions involving physical currency of $10,000 or more;
- adopt and maintain an anti-money laundering and counter-terrorism financing program to identify, manage and manage money laundering and terrorism financing risks;
- keep certain records about transactions and customer identification for seven years;
- it will be a criminal offence to provide digital currency exchange services without an AUSTRAC registration. Penalties of up to 2 years’ imprisonment and/or 500 penalty units (currently equal to $105,000) apply for a first offence, with significantly increased penalties applying for repeat offences. Offenders can alternatively be pursued under the civil penalty provisions which currently provide for penalties of up to $21 million for corporations and $4.2 million for individuals;
- the establishment of a Digital Currency Exchange Register recording details of those approved by AUSTRAC to provide digital currency exchange services.
The Bill marks the first legislative steps taken by the Australian government to impose reporting obligations on virtual currency exchanges under Australia’s anti-money laundering and terrorism financing laws. The measures contained in the Bill implement some of the recommendations made in the government’s statutory review of Australia’s anti-money laundering legislation in April 2016 and will bring Australia’s laws into line with similar measures already in place in the United States of America, Canada and the European Union. By focusing on the activities of bitcoin exchange providers, the Bill effectively targets the 'entry' and 'exit' points of the digital currency system - that is, when a person either uses regular money to buy digital currency or when they seek to convert digital currency back into regular money. As a result, the Bill’s measures will not affect how digital currency can be transferred between users and in particular will not affect the privacy of such transactions.
The text of the Bill and its explanatory memorandum are available here. The Bill was introduced in the lower house on 17 August 2017 and has been scrutinised by the Senate Legal and Constitutional Affairs Legislation Committee. The Committee reported on 16 October 2017 recommending that the government further consider certain definitions used in the bill and also that the bill be passed. On 24 October 2017 the bill was referred to the Federation Chamber, a subordinate body of the House of Representatives that is able to consider bills in details and make amendments to them.
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Thanks to Senior Associate Gilbert Tsang for his assistance in preparing this alert.