AML/CTF Amendment Act 2024 – Proliferation Financing & The Exception

A quick look at Section 26F(11) – An Exception, or is it?

Section 26F(11) states:

Exception
26F (11) Despite subsection (1) (AML/CTF Policies), a reporting entity is not required to develop or maintain policies, procedures, systems and controls that specifically deal with the risk of proliferation financing if:
(a) the reporting entity reasonably assesses, under section 26C or 26D, the risk of proliferation financing that the reporting entity may reasonably face as low; and
(b) the reporting entity reasonably assesses that its risk of proliferation financing can be appropriately managed and mitigated by its policies, procedures, systems and controls that manage and mitigate the risks of money laundering or financing of terrorism.
(12) A person who wishes to rely on subsection (11) bears a legal burden in relation to that matter.

A couple of considerations:

1. What if a reporting entity reasonably assesses the risks of proliferation financing it may reasonably face when providing designated services to be very low or non-existent? Can it avail of the exemption, or does it need separate proliferation financing controls to mitigate a very low or non-existent risk? Afterall, any recognised risk assessment methodology does not require controls for a non-existent risk. The answer would appear to be no.
2. What does “bearing the legal burden” mean in the context of the Act as it is not defined (there is a definition of evidential burden). Legal burden generally refers to the obligation to prove a fact requiring a higher standard of proof, for example, beyond a reasonable doubt. Therefore, it will be for the reporting entity to prove, beyond reasonable doubt, that it has reasonably assessed the PF risk to be low and this low PF risk can be appropriately managed by existing ML & TF controls. This will need to be documented with a robust methodology and, perhaps, a legal opinion (which our firm will be happy to opine on).
3. Unfortunately, I strongly suspect that the default setting for a reporting entity’s proliferation financing risk assessment will be low without the reporting entity understanding the wider ramifications. Remember all those current ML/TF Risk Assessments that have ML/TF risk as low. The updated version will be ML/TF/PF risk as low.