On balance, probably not.
With general practices across the Eastern states now having weathered the worst of the payroll tax storm, some players seem to have spotted a new threat on the horizon in the form of anti-money laundering rules.
Whether it is or is not a threat, though, depends very much on individual practice structure.
What is actually happening?
On a broader level, the federal government is trying to crack down on organised crime.
It’s doing this by broadening anti-money laundering (AML) and counter-terrorism financing (CTF) rules.
Under the existing laws, certain businesses – namely gambling services, bullion dealers and financial services organisations – have to meet reporting requirements, conduct customer due diligence, have a governance framework and develop an AML/CTF program.
From 1 July this year, the laws will be extended to encompass real estate professionals, conveyancers, some jewellers, lawyers, accounts and – crucially – trust and company services providers providing certain “designated services”.
But none of those are general practices…
The actual text of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006, as updated in March this year, looks at whether a business is providing “designated services” rather than what professional sector it is operating in.
“It’s about what you do, not about what you are,” RSM Medical Services senior manager Young Han told The Medical Republic.
Per table six of part five of the legislation, for instance, a professional services provider would be subject to AML/CTF laws if it “is receiving, holding and controlling (including disbursing) or managing a person’s: (a) money; or (b) accounts; or (c) securities and securities accounts; or (d) virtual assets; or (e) other property; as part of assisting the person in the planning or execution of a transaction, or otherwise acting for or on behalf of a person in a transaction, in the course of carrying on a business (other than in a circumstance covered by subsection (5C))”.
Theoretically, this could capture a general practice business if it was structured so that patient fees are handled through a trust (i.e., all patient fees go into a central clearing account, where the practice deducts a management fee and then pays the net to practitioners).
Ms Han says it is relatively common for practices in Queensland, where GPs are exempt from payroll tax, to operate in this way.
But while it may appear to fit, Ms Han says it is unlikely that a practice trust setup would trigger AML/CTF laws.
Official guidance on designated services clarifies that when a professional service provider holds or manages funds (e.g., a central practice clearing account) “and the receiving, holding and controlling of money or property is incidental to the provision of services”, it won’t be counted as a designated service.
“[Practice trust accounts are] not transactional, and all the transactions they have are per patient payment, and it’s directly linked to Medicare,” Ms Han tells TMR.
“So it’s not like what they do is going to actually hide what they are receiving.
“[These laws are] more about … about real estate, lawyers, accountants, body corporate and those [businesses] where they’re actually holding a big lump sum of money on behalf [of another party].
“… When that transaction was happening without this rule in place, there was a high opportunity [of the business] mixing money around or hiding money, because when it goes to the trust account it’s like a clearing account. They don’t really report it or record it, because it’s a transactional movement – and that’s what [the new rules are] really targeting.
“If you actually have that as your mindset, and then actually look through what medical practices are actually doing, it’s nothing like that.
“They are not holding a big lump sum of money for a transactional event.
“They are merely just holding it. Even in the trust model, they are merely just touching it and then going out. When they do that, they are still actually providing … a disbursement summary, reconciling everything which is connected to PRODA [and] all of the other reporting authorities.
“There’s really a very thin opportunity [for] money laundering.”
Ok, so do I not have to worry?
Ms Han says she does see some risk for practice entities that help doctors set up trusts or companies, act as trustee or director for practitioner entities or provide a registered office address for multiple entities.
“When the Thomas and Naaz [case] happened, a lot of people went through a very creative restructuring,” she says.
“They were like, ‘let’s open up a bank account and have all the independent contractors as a director who has control over that bank account’, because they wanted to work around it.
“… [All those medical practitioners] wanted to have the visibility and control, because they’re afraid of ‘what if a practitioner is not paying us’, so some of them actually said, ‘let’s set up a company or a trust and then let us have the control over the bank account’.
“They basically all have total control over the whole thing. And they are actually creating that structure that could get caught [under the new laws].”
The vast majority of practices, Ms Han reiterates, are unlikely to be affected by the change in AML/CTF laws.
Related
Phew. So I’m probably out of the woods?
Healthcare accountant David Dahm encourages practices to double check with their accountancy providers to ensure their business models and structures are sound.
“These are federal rules, and it’s another refresh look at everyone about how they do their business with each other, and it affects all industries,” he tells TMR.
Most people, he says, will find that they have been doing things correctly.
“And if you haven’t, then there’s another good opportunity to review that,” Mr Dahm says.
“And you’ll probably find you make money from it … people have got money that is missing, and they have realised, ‘oh, hang on, our books don’t actually reconcile properly’, so you probably make money on the exercise.
“Once you start to see what those gaps are, you’ll be a lot more vigilant on closing those gaps.”
