When a reporting entity suspects that the activities of a person or a transaction they are conducting may be linked to a crime such as money laundering or terrorism financing (ML/TF), a suspicious matter report (SMR) must be submitted to AUSTRAC.
If you submit an SMR, you must take care to not disclose any information about the report, as this may be considered “tipping off” which is a criminal offence. This article explores the key considerations as outlined by AUSTRAC.
Purpose of the tipping off offence
If a criminal becomes aware that an SMR has been submitted about them, they could take steps to hide their activities, which could hinder law enforcement investigations.
On the other hand, the subject of the SMR may in fact be innocent, and disclosing information about the report to others could compromise their reputation and privacy.
Potential penalties
A breach of the tipping off offence provisions is a criminal offence and can result in a penalty of up to two years imprisonment, 120 penalty units, or both.
Managing customer relationships without tipping them off
If you have a customer who is the subject of an SMR, you may decide to:
- Temporarily not provide a service to them until you are satisfied that they don’t pose an unacceptable level of ML/TF risk.
- Engage in enhanced customer due diligence (ECDD) whereby you conduct additional checks on a customer’s identification, gather extra information, or perform additional verification.
While taking these steps helps to address ML/TF risks posed by a customer and protect your business from criminal exploitation, if not handled correctly, they could tip off the customer.
You must use judgment in communicating with the customer to avoid committing the tipping off offence. For example, if following an SMR you decide to terminate a business relationship with a customer, you must assess the justification you can provide to the customer without tipping them off.
Similarly, when performing ECDD, you should identify any risk of tipping off before performing these measures and consider ways to manage that risk. AUSTRAC states that “If you consider that applying specific ECDD measures would tip off the customer, you should not perform them – but you should document the reasons for this decision.”
If carrying out some ECDD measures such as gathering extra information would likely tip off the customer, you can still perform a range of other ECDD measures, such as:
- Undertaking a more detailed analysis of the customer’s KYC information already collected.
- Verifying or re-verifying KYC information including using reliable and independent sources that do not require direct contact with the customer.
- Undertaking more detailed analysis and monitoring of the customer’s transactions – both past and future.
Key takeaways
If you submit a suspicious matter report about someone, you must be careful not to tip them off about the report as this can hinder law enforcement investigations and have other potential negative consequences. Tipping off is a criminal offence that can lead to up to two years imprisonment. You must take care when managing customer relationships and performing enhanced customer due diligence after a suspicion is formed about an individual to ensure that your actions do not tip them off.
