AUSTRALIA Law and Practice Contributed by: Andrew Stone, Dhanushka Jayawardena, Andrew Choi and Chris Kinsella, Holding Redlich
• report annually on US account holders to the Aus - tralian Taxation Office, which transmits data to the IRS; and • implement due diligence procedures for new and existing investors. CRS Framework The CRS applies to alternative funds as “financial institutions” under Australian domestic legislation. Key obligations include: • identifying account holders’ tax residency through self-certification procedures; • collecting “tax identification numbers” for report - able persons; • annual reporting to the Australian Taxation Office on foreign tax residents from participating jurisdic - tions; and • maintaining detailed records of due diligence pro - cedures and investor classifications. Due Diligence Requirements Both regimes require funds to implement robust KYC procedures, including: • collecting self-certification forms from all investors; • conducting reasonableness tests on investor dec - larations; • maintaining documentation supporting tax resi - dency determinations; and • regularly reviewing investor status changes. Thresholds and Exemptions Although the regimes provide exemptions from report - ing for small funds, alternative funds typically have significant assets under management rendering them ineligible for reporting relief. Limited exemptions exist for certain local client bases, but most institutional alternative funds fall within full reporting scope. Compliance Challenges Alternative funds face particular difficulties with: • complex ownership structures involving multiple intermediaries; • determining beneficial ownership through invest - ment chains;
• managing reporting for feeder fund arrangements; and • co-ordinating compliance across multiple fund vehicles. Penalties and Enforcement Non-compliance risks include FATCA withholding taxes (30% on US-source payments), CRS penal - ties under domestic law, and potential exclusion from global financial systems. The regimes create significant operational overhead for alternative fund managers, requiring dedicated compliance resources and systems integration. 4.11 Anti-Money Laundering (AML) and Know Your Customer (KYC) Regime The Anti-Money Laundering and Counter-Terrorism Financing Act (2006) (Cth) (the “AML/CTF Act”) is the primary legislation, which is supported by rules issued by the Australian Transaction Reports and Analysis Centre (AUSTRAC), the national financial intelligence unit and AML/CTF regulator. The AML/CTF (counter-terrorism financing) regula - tions apply to reporting entities, which can include product issuers and fund managers. Key obligations on reporting entities include: • customer due diligence – including the identifica - tion of a customer (and its beneficial owners), verification of customer identity and conducting ongoing monitoring of customer transactions and keeping KYC information up-to-date. Report - ing entities must take extra steps with higher-risk persons (eg, customers who invest via complex offshore structure) including verifying sources of funds or wealth and applying more intensive and frequent transaction monitoring); • record-keeping – maintenance of detailed records of transactions, customer identification and com - pliance activities for at least seven years; • reporting requirements – including suspicious matter reports for transactions suspected of involving money laundering or terrorism financing, threshold transaction reports for cash transactions over AUD10,000, and international funds transfer instructions for international wire transfers;
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