Afterpay Touch Group Limited (ASX: APT), a technology-driven payment company which aims to provide its customers with a great purchasing experience was under AUSTRAC’s radar since June 2019 when its subsidiary Afterpay Pty Limited received a notice to carry out an audit with respect to its AML/CTF compliance. The notice was issued as per section 162(2) of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006, under which an external auditor was to focus on certain key areas over the period from 19 January 2015 till 13 June 2019 and prepare an audit report within a specified time frame. A final version of the audit copy was supposed to be submitted to AUSTRAC within 120 days after the appointment of the external auditor.
On 26 June 2019, Afterpay shared with AUSTRAC the detailed information of 3 candidates eligible for doing the external audit process. On 29 July 2019, APT confirmed that AUSTRAC hired Mr Neil Jeans as the external auditor, who is a Melbourne based specialist AML/CTF firm, Initialism.
On 25 September 2019, APT confirmed that auditor Mr Neil Jeans, provided the confidential interim report to AUSTRAC and he advised that the work was under progress to finalise the evaluation of, and test implementation along with fulfillment of numerous AML/CTF Programs in place during and after the notice period.
On 25 November 2019, Afterpay confirmed that the Final Audit Report from the external independent auditor Mr Neil Jeans has been received and is also submitted to AUSTRAC as per AUSTRAC notice along with a copy of the covering letter (written to Afterpay Board) which contains a summary of the Audit’s finding and recommendation.
Through the audit, it was confirmed that the current program of the company was in line with the AML/CTF Act. The audit also clarified that Afterpay is a low-risk business with respect to its susceptibility to be used for terrorist financing or money laundering. Auditor, Mr Neil Jeans also confirmed that the company has a strong compliance culture and recommends that the company should retain its current level of Board as well as senior management for supervision of AML/CTF compliance as the business develops.
The company also reaffirmed that till date, it had not recognised any money laundering or terrorism financing activity through its system. Now, AUSTRAC will consider the report and make a decision on further steps.
The release of this announcement had a positive impact on its share price, which zoomed up by 7.051% by the end of the day’s trading. The shares on 25 November 2019 opened at a price of $32.260, at a gap up of $1.77 from its previous close. Around 2,450,396 shares traded on ASX. APT has a market cap of 7.71 billion and has approximately 252.74 million outstanding shares.
Auditor, Neil Jeans findings:
Below is the summary of the findings of the Audit.
- Governance and Oversight: Through the audit process, Neil Jeans confirmed that during the time frame from a start-up to an ASX 100 company, its Board and Senior Management control, as well as governance, has developed substantially. Now, an appropriate degree of awareness and engagement is there in the company.
- Understanding Risk: Audit proved that Afterpay is a low-risk business with respect to its exposure to be used for terrorist financing or money laundering. The risk controls are in place and should ideally be in line with business growth. It was recommended that the company must improve its current controls to find Politically Exposed Persons along with their related risk. Further, it was noted that the company had already started a project to tackle this issue.
- AML/CTF Program: With regards to the AML/CTF compliance, the audit confirmed that the company’s AML/CTF Program has evolved with time and is in line with the AML/CTF Act and Rules. APT started providing the designated services from February 2015, and its first AML/CTF Program was completed in June 2016.
- Essential AML/CTF Controls: As per the legal advice in 2016, APT’s initial focus was on the AML/CTF controls upon merchants. At present, AML/CTF controls are more focused on customers, given the Designated Service APT offers.
While reaching these conclusions, the Auditor findings say that the company is in accordance with its AML/CTF commitments, from the outset and with time, based upon legal advice from leading Australian law firms.
The first legal advice concluded that APT’s business model resulted in the requirement of the AML/CTF Designated Service – factoring receivables from merchants, which was inappropriate as per the auditor. He feels that the initial advice provided to the company did not reflect APT’s business model.
After analysing the APT’s buy now pay later business, he concluded that the company has not provided the factoring receivables Designated Service. The Designated Service provided by APT is that of loans to end-users so that they can buy products from these merchants, and this action represents the provision of a loan along with the refund of a loan.
Based on the original legal advice received involving the Designated Services being provided along with the added support from the additional legal advice, the company developed its AML/CTF Program.
Outcome of the auditor’s report described that due to inaccurate legal advice provided in the early stage to the company, which otherwise has a compliance-focused culture, resulted in historic non-compliance with the AML/CTF Act as well as Rules.
On 26 November 2019, the stock of APT is trading at $32.215 (AEST 03:10 pm), down by 1.302% from previous close.
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