Anti-Money Laundering and Counter-Terrorism Financing Act

The purpose of this document is to establish PaySolve’s position with respect to regulatory requirements under the Anti-Money Laundering and Counter-Terrorism Financing Act (AML/CTF). PaySolve is an Australian payments company that seeks to use the existing bank transfer network offered by Australian financial institutions to monitor transactions and link them to objects relevant to our payee client base, such as invoices, funds and customers. Our clients create invoice, fund or customer objects, which are generated by us and contain on them clear payment instructions for the payor to use his or her banking application to transfer the funds to a set bank account controlled by PaySolve. Included in the transfer’s description is a special code which is used by PaySolve to link the transfer to the invoice, fund or customer object. PaySolve can then link payments to invoices, funds or customers. Funds transferred to PaySolve by the payee that are linked to an invoice, fund or customer object are subsequently transferred to the client.

Under the AML/CTF, certain entities are required to enrol with AUSTRAC and comply with various obligations. The determinant of whether an entity is required to do so is whether the entity provides a “designated service”. Under section 6 of the AML/CTF, a designated service is any of the 54 items listed therein. It is the intention of this article to consider whether PaySolve meets any of these items and thus provides a designated service.

It is also important to note that the AML/CTF makes reference to the AML/CTF Rules, which are made by the AUSTRAC CEO and promulgated on the Federal Register of Legislation. This is in contrast the AML/CTF itself, which is Commonwealth legislation passed by the federal parliament, and can only be changed by an act of parliament. The AML/CTF Rules are therefore also relevant to this enquiry.

Whether PaySolve is a financial institution or ADI, or is required to be one

Many items apply to PaySolve only if PaySolve is a financial institution, to wit, an authorised deposit-taking institution (ADI), a bank, a building society, a credit union, or a person specified in the AML/CTF Rules. This includes items 1 through 5.

PaySolve is not the Reserve Bank of Australia, or a person who engages in State banking as defined in the Australian Constitution. The question then turns to whether PaySolve carries on a banking business as defined in the Banking Act 1959 (Cth), as this would render PaySolve an ADI under the AML/CTF, and would also expose PaySolve to a host of other regulatory requirements under the Banking Act 1959 (Cth) and other financial laws and regulations.

Under the Banking Act, a banking business means a business that (1) consists of banking within the meaning of paragraph (xiii) of section 51 of the Australian Constitution, or is a corporation that (2) both takes money on deposit and makes advances of money, or (3) engages in other financial activities prescribed by banking regulations promulgated by the federal government. There is limited case law as to what constitutes banking under the Australian Constitution, as such a term is not referenced with definitions, and was merely supposed to establish the powers of the Commonwealth Parliament. However, the Constitution’s definition of banking would likely fall into a traditional definition thereof given the era of the document’s authorship. The traditional definition of banking can be summarised in (2), to wit, taking money on deposit and providing advances of money. PaySolve does not meet this definition, as it does neither of these things.

As to whether PaySolve engages in financial activities prescribed by the banking regulations promulgated by the Commonwealth, this relates to certain other activities that the Australian Prudential Regulatory Authority (APRA) and the Australian Securities and Investment Commission (ASIC) identifies as requiring registration as an authorised deposit-taking institution (ADI). The most relevant of these is a Purchased Payment Facility (PPF). This is defined as a facility under which a holder of stored value makes payment to another person on behalf of the user of the facility. While PaySolve does have an account for its clients holding transient stored value, it does not make payments to other persons from that account on instruction from its clients. The only person that is paid by the account is the client itself. This does not meet the definition of a PPF, and thus PaySolve is not required to register as an ADI under this provision. The other definition of relevance is a stored value facility (SVF), which is similar but different to a PPF. An SVF is a payment service that enables a customer to store finds in a facility for the purpose of making future payments. Even if the transient holding of clients’ funds could be considered as stored value, PaySolve does not make payments to third parties from client accounts. Only clients can receive the funds credited in their accounts, and are often done so automatically.

For these reasons, PaySolve cannot be considered to be carrying on a banking business, and thus is exempted from registration as an ADI under the Banking Act 1959 (Cth), and is not considered an ADI or bank under the AML/CTF.

Definition Items of a Designated Service

As a consequence of PaySolve not being a financial institution, PaySolve is furthermore not a registered co-operative housing society or similar society under State or Territory law, or by the law of any foreign country. Neither is it a credit union under common or statutory definitions. Since the AML/CTF Rules do not specify PaySolve, PaySolve cannot be considered a financial institution under the five categories provided by the AML/CTF, and thus items 1 through 5 cannot apply.

Items 6 and 7 only apply to entities that provide a loan or is an assignee for the lender of a loan. Since PaySolve neither makes loans nor engages in any business that facilitates loans, these items cannot apply.

Item 8 relates to factoring a receivable. Since PaySolve does not engage in the business of dealing with receivables, this item cannot apply.

Item 9 relates to forfaiting a bill of exchange or promissory note. While PaySolve, at the instruction of our clients, generates invoices that detail what is owed, it has no legal significance and merely serves to inform both the payor of his or her obligations, and the payee of what has been paid or not paid. Neither does PaySolve generate promissory notes. Furthermore, even if PaySolve generated either of these, since PaySolve does not carry on a forfaiting business, item 9 does not apply.

Items 10 and 11 relate to finance leasing. Since PaySolve does not engage in finance leasing, these items do not apply.

Items 12 and 13 relate to the supply of goods, an activity in which PaySolve is not engaged. Thus, these items do not apply.

Items 14, 15 and 16 relate to the provision of a chequebook, a service that PaySolve does not supply. Thus, these items do not apply.

Item 17 applies to those who issue a bill of exchange, promissory note or a letter of credit to a person, where such an instrument is issued by a financial institution. As discussed, even if the provision of bills of exchange, promissory notes or letters of credit applied to PaySolve’s activities, PaySolve is not a financial institution, nor does it represent a financial institution in its generation of invoices. Thus, its activities are not included under item 17.

Items 18,18A, 19, 19A, 20 and 20A apply only to those who issue debit cards, and since PaySolve does not issue a debit card, these items do not apply.

Items 21, 22, 23 and 24 refer to and only include those who issue to a person or increase the value of a stored value card. The AML/CTF Act defines a stored value card as a thing, whether real or virtual, that stores monetary value in a form other than physical cash, or that gives access to monetary value stored in a form other than physical currency. The Act’s definition further provides that the AML/CTF Rules may include or exclude any thing to be stored value card. Section 80.2 of the AML/CTF Rules provide an explicit exemption from the definition of ‘stored value card’ for anything that is merely an account. PaySolve provides clients with an account to temporarily hold funds that have been received on behalf of the client before disbursement.

Items 25, 26, 27 and 28 only apply to those who issue traveller’s cheques, money orders, postal orders or similar orders. Since PaySolve engages in no such activity, these items do not apply.