Australia is taking steps to strengthen its defences against financial crime through significant reforms to its anti-money laundering and counter-terrorism financing (AML/CTF) laws. These reforms will extend the AML/CTF regime to include more businesses, known as Tranche 2 entities, encompassing professions such as lawyers. This expansion is a response to the increasing complexity of financial crimes and the recognition that services provided by the legal profession can be exploited for illicit activities like money laundering and terrorism financing.
For legal professionals, these reforms mean new anti-money laundering obligations under the AML/CTF regime. This guide aims to provide clarity on these changes, helping lawyers understand their compliance requirements and prepare for the implementation of these important reforms. It will cover key aspects of the expanded AML/CTF regime and offer practical insights for legal practices navigating these new obligations.
The AML/CTF Regime Expansion: Implications for the Legal Profession
Decoding AML/CTF: Understanding Australia’s Framework for Financial Crime Prevention
Australia’s Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) regime was established in Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) to create a regulatory framework for businesses offering specific designated services and products. This framework is designed to prevent money laundering, terrorism financing, and other serious financial crimes. With billions of dollars generated annually from illegal activities and corrupt practices, the importance of this regime cannot be overstated. The AML/CTF regime aims to combat these financial crimes by imposing obligations on certain businesses to identify, manage, and report risks.
Why Now? Understanding Why Lawyers are Now Under AML/CTF Scrutiny
The expansion of the AML/CTF regime to include lawyers is a response to the increasing complexity of financial crimes and a recognition of the crucial role lawyers play in transactions and advisory capacities. Lawyers, like other professionals, can be vulnerable to exploitation by criminal elements. Criminals may seek to use lawyers’ services to:
- Conceal the proceeds of crime
- Prevent assets from being reached to avoid future liabilities
- Disguise beneficial ownership using complex legal structures
- Circumvent regulatory controls
- Give illegal activities an appearance of legitimacy
- Retain control over assets gained through criminal activity
- Avoid asset detection and confiscation
- Evade taxes using established tax shelters
- Obstruct law enforcement investigations
Globally, legal services are recognised as being at high risk of being misused for money laundering. Australia is one of the few countries that does not currently regulate lawyers under its AML/CTF regime, making this reform necessary to align with international standards and close a potential loophole. Including lawyers as “Tranche 2 entities” aims to provide legal practices with the necessary tools to prevent the misuse of their services by criminals and to help lawyers identify early warning signs of suspicious transactions and criminal activities. This expansion is also in line with recommendations from the Financial Action Task Force (FATF), the global body dedicated to combating money laundering and terrorist financing.
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Mark Your Calendar: Key Dates for Lawyers to Commence AML/CTF Compliance
The commencement of AML/CTF obligations for lawyers in Australia is scheduled for July 1, 2026. This date marks when the substantive obligations will come into effect for lawyers providing designated services.
However, in preparation for this, law firms can begin enrolling with the Australian Transaction Reports and Analysis Centre (AUSTRAC) from March 31, 2026. This early enrolment period is designed to allow newly regulated entities to start the administrative processes required under the new regime.
It is important for legal professionals to note these key dates and understand that while the formal commencement is in 2026, preparation and planning should begin well in advance to ensure compliance by the deadline.
Decoding Your AML/CTF Compliance Requirements as a Lawyer
AUSTRAC Enrolment: Your First Step to AML/CTF Compliance as a Legal Practice
Lawyers who provide designated services must enrol with AUSTRAC under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth). This enrolment is a fundamental initial step for legal practices to achieve AML/CTF compliance. The enrolment process is scheduled to commence on March 31, 2026.
Enrolment will be managed through AUSTRAC’s online platform, AUSTRAC Online. This platform enables reporting entities to:
- Handle their details efficiently
- Submit necessary reports seamlessly
Law firms should regularly check the AUSTRAC website and stay informed through communications from their relevant Law Societies for specific guidance and updates regarding the enrolment procedure. Enrolling with AUSTRAC is more than an administrative formality; it is a prerequisite for accessing AUSTRAC’s resources. These resources include the online portal for submitting compliance reports and receiving important regulatory updates.
Crafting Your Practice’s AML/CTF Program: A Tailored Compliance Strategy
A core obligation for legal practices is to develop and maintain a comprehensive AML/CTF program. This program must be specifically tailored to the nature, size, and complexity of the practice. It should serve as a documented framework detailing how the law firm will manage and mitigate the risks of money laundering and terrorism financing.
Key components of an AML/CTF program include:
- Risk Assessment: Regularly assess the specific money laundering and terrorism financing risks relevant to the firm’s clients, designated services, service delivery channels, and operational jurisdictions.
- AML/CTF Policies and Procedures: Establish clearly defined policies, procedures, systems, and internal controls. These should be designed to manage identified risks and ensure ongoing compliance with AML/CTF obligations.
- Governance Arrangements: Implement appropriate governance structures, including senior management oversight and approval of the AML/CTF program.
- AML/CTF Compliance Officer: Appoint a senior-level individual responsible for overseeing the AML/CTF program’s implementation and effectiveness. For sole practitioners, this responsibility rests with the individual.
- Employee Due Diligence: Implement procedures for conducting due diligence on employees involved in AML/CTF functions to evaluate potential risks.
- AML/CTF Training: Provide regular and relevant training to all employees. This training should ensure they understand money laundering and terrorism financing risks, their AML/CTF obligations, and the firm’s compliance policies.
- Independent Review: Conduct an independent evaluation of the AML/CTF program at least every three years to assess its effectiveness and identify areas for improvement.
The AML/CTF program must be documented, approved by senior management, and regularly updated to reflect changes in operations or risks. Adopting a risk-based approach requires firms to implement measures proportionate to their specific risks, moving beyond a mere checklist approach to compliance.
Customer Due Diligence (CDD) for Lawyers: Meeting Your ‘Know Your Client’ Obligations
Lawyers providing designated services must conduct Customer Due Diligence (CDD) on their clients. This requirement applies both before providing designated services and throughout the business relationship. CDD involves several essential steps:
- Identify and Verify the Customer: Verify the identity of beneficial owners by collecting information such as name, date of birth, and address. Use reliable and independent sources for verification.
- Understand the Business Relationship: Gain a clear understanding of the nature and purpose of the business relationship with the client.
- Assess Risks: Evaluate potential money laundering and terrorism financing risks associated with providing services to the client.
- Ongoing Monitoring: Continuously monitor the client’s transactions and activities to detect unusual or suspicious behaviour.
- Enhanced Due Diligence (EDD): Apply EDD measures for high-risk clients, such as politically exposed persons.
- Simplified Due Diligence (SDD): In low-risk scenarios, SDD measures may be applied.
Initial CDD must be completed before providing a designated service, with some exceptions. For existing clients before the new obligations, CDD may be triggered by a suspicious matter report or a significant change in the business relationship that elevates the client’s risk assessment to medium or high. Implementing effective CDD procedures requires significant adjustments to client onboarding processes.
Reporting to AUSTRAC: A Lawyer’s Guide to Obligations and Timely Submissions
As reporting entities, lawyers have several reporting obligations to AUSTRAC. These obligations include:
- Suspicious Matter Reports (SMRs): Submit SMRs if there are reasonable grounds to suspect that a transaction or client activity is related to criminal activity, proceeds of crime, or terrorism financing. Additionally, submit an SMR if there is suspicion that a client is not who they claim to be. The threshold for reporting suspicions is intentionally low and broad.
- Threshold Transaction Reports (TTRs): Required for transactions involving physical currency of AUD 10,000 or more.
- International Value Transfer Service (IVTS) Reports: Necessary for all transactions involving the transfer of value into or out of Australia.
- Cross Border Movement (CBM) Reports: Required when physically moving AUD 10,000 or more in cash or bearer negotiable instruments into or out of Australia.
- Annual Compliance Reports: Reporting entities may also need to submit annual reports summarising their AML/CTF compliance efforts.
Suspicious matters must be reported to AUSTRAC promptly upon forming a suspicion. It is strictly prohibited to “tip off” a client about a suspicious matter report. Balancing client confidentiality with the legal duty to report suspicious activities requires careful judgment and comprehensive training within law firms.
AML/CTF Record-Keeping: Essential Practices for Legal Compliance and Data Management
Legal practices must maintain accurate and complete records related to their AML/CTF obligations for a minimum of seven years. These records must include:
- Customer Due Diligence Documentation: All information from the CDD process, including client identification and verification records.
- Transaction Details: Information related to all transactions associated with designated services.
- AML/CTF Program Records: Documents pertaining to the firm’s AML/CTF program, such as risk assessments, policies, procedures, training materials, and independent review reports.
- AUSTRAC Reports: Copies of any reports submitted to AUSTRAC, including SMRs, TTRs, IVTS reports, and CBM reports.
Records must be stored in a manner that ensures they are readily accessible for audits and investigations by AUSTRAC or law enforcement agencies. Whether physical or electronic, the security and integrity of these records must be maintained in compliance with privacy regulations. The seven-year retention period necessitates adequate storage capacity and well-organised record management systems.
If you have any questions or need further assistance with your AML/CTF compliance, consider seeking professional legal advice to ensure your practice meets all necessary requirements.
Designated Services for Lawyers: Identifying AML/CTF Triggers
Designated Legal Services: A Clear Breakdown of AML/CTF Responsibilities
The amended Anti-Money Laundering and Counter-Terrorism Financing Act 2024 (Cth) specifies a range of legal services that are now considered “designated services.” These designated services trigger anti-money laundering obligations for lawyers who provide them. It is important to note that not all legal services fall under these obligations; the focus is primarily on transactional work that carries a higher risk of being exploited for money laundering.
The designated services for lawyers encompass a wide array of activities, reflecting the government’s intent to cover substantial legal services that could potentially be misused for illicit financial activities. These services can be categorised as follows:
- Property Transactions: Assisting clients in buying, selling, or transferring real estate, including residential, commercial, and agricultural properties, as well as leasing and conveyancing.
- Entity Transactions: Facilitating the buying, selling, or transferring of legal entities such as companies or trusts. This category also includes services related to selling or transferring shelf companies and creating or restructuring legal entities or arrangements. Activities may involve drafting board and corporate resolutions, minutes of meetings, and agreements.
- Funds Management: Receiving, holding, controlling, or managing client funds and/or property, which may include money, accounts, securities, or other assets. This can involve managing trust accounts, holding money in trust, investing client funds, managing settlements, and holding funds in a fiduciary capacity. Exceptions might apply, such as when payments are solely for a lawyer’s legal fees.
- Transactional Work: Carrying out transactional activities, specifically in equity and debt financing.
- Fiduciary/Nominee Roles: Acting, or arranging for another person to act, as a director, partner, trustee, or pursuant to a power of attorney. This also includes acting, or arranging for another person to act, as a nominee shareholder. These roles are considered higher risk due to the level of control or management they involve over assets or entities.
- Registered Office Services: Providing a registered office address or principal place of business for a legal entity.
Lawyers must carefully assess the services they offer against this list to determine if their practice will be subject to the AML/CTF regime as a reporting entity. The broad scope of these designated services suggests that many legal professionals, particularly those in property law, corporate and commercial law, and trusts and estates, will likely be affected by these new anti-money laundering obligations.
Getting AML/CTF Ready: Actionable Steps for Your Legal Practice
Practice Review: Is Your Firm Providing Designated Services? A Self-Assessment Guide
Legal practices should begin by thoroughly reviewing the services they currently offer to determine whether they fall under the definition of ‘designated services’ as outlined in the amended Anti-Money Laundering and Counter-Terrorism Financing Act 2024 (Cth). This initial step is crucial for identifying if your firm will be classified as a reporting entity and, consequently, subject to the new anti-money laundering obligations.
When conducting this review, consider the following questions:
- Does your legal practice currently undertake any of the likely new “designated services”? Examine the list of designated services to identify any that your firm provides.
- Does your legal practice intend to continue offering these “designated services”? Evaluate whether your firm wishes to keep providing these services, considering the new compliance obligations.
- Are there “designated services” your firm could cease offering? Determine if there are any services that could be discontinued to avoid AML/CTF regulatory obligations.
- Could any “designated services” be referred to other legal practices? Explore the possibility of outsourcing certain services to firms that are already equipped for AML/CTF compliance.
By carefully assessing your service offerings against the scope of designated services, your legal practice can strategically plan for the necessary anti-money laundering and counter-terrorism financing compliance measures or adjust service offerings as needed.
AML/CTF Risk Assessment 101: Building a Robust Framework for Your Practice
Initiating an AML/CTF risk assessment is a vital step in preparing your legal practice for the upcoming anti-money laundering and counter-terrorism financing obligations. This process involves identifying and evaluating the specific risks your firm may encounter, which is essential for developing a tailored and effective AML/CTF program.
To begin building a robust risk assessment framework, consider these key aspects:
- Identify client services that may be high risk. Determine which of your current client services could be more susceptible to money laundering or terrorism financing risks.
- Evaluate altering or removing high-risk services. Consider modifying or eliminating services that pose a higher risk to mitigate potential compliance burdens.
- Consider your client base. Analyse the types of clients your firm serves, as certain client demographics or industries may present higher risk profiles.
- Assess designated services provided. Evaluate the specific designated services your firm offers and the associated risks with each.
- Review service delivery methods. Examine how your services are delivered, as certain channels may be more vulnerable to illicit activities.
- Analyze operational jurisdictions. Take into account the jurisdictions in which your firm operates and conducts transactions, as some regions may carry higher risks.
AUSTRAC recommends that firms consider four key elements—customer types, designated services, service delivery, and jurisdictions—when assessing their unique risk landscape. Starting this risk assessment early will provide a solid foundation for your practice’s broader AML/CTF compliance strategy.
Stay Informed to Stay Compliant: Key Resources for AML/CTF Updates and Expert Support
Staying informed about the evolving AML/CTF regulatory landscape is essential for ensuring ongoing compliance and effectively adapting your legal practice’s anti-money laundering and counter-terrorism financing program. Numerous resources are available to help legal professionals remain up-to-date and well-supported during this period of reform.
Key resources for staying informed and compliant include:
- Monitor AUSTRAC’s website and communications. Regularly check the Australian Transaction Reports and Analysis Centre (AUSTRAC) website for the latest updates, guidance materials, and announcements regarding AML/CTF reforms.
- Engage with the Law Council of Australia. Stay connected with the Law Council of Australia for sector-specific updates and resources relevant to the legal profession’s AML/CTF obligations.
- Consult your state Law Society. Keep abreast of communications and resources provided by your state Law Society, as they will offer guidance tailored to your jurisdiction.
- Register directly with AUSTRAC. Consider registering on AUSTRAC’s website to receive direct updates and notifications.
- Explore AUSTRAC training resources. Utilise the training programs and educational materials offered by AUSTRAC to enhance your firm’s understanding of AML/CTF compliance.
- Seek guidance from legal professional bodies. Take advantage of resources, hotlines, and online hubs provided by legal professional bodies for AML/CTF inquiries and support.
By proactively utilising these key resources, your legal practice can stay ahead of regulatory changes, access expert support, and ensure a smooth and effective transition to the new anti-money laundering and counter-terrorism financing regime.
AML/CTF and Legal Professional Privilege: Balancing Obligations
Legal Professional Privilege & AML/CTF: Safeguarding Client Confidentiality in the New Regime
The Anti-Money Laundering and Counter-Terrorism Financing Amendment Act 2024 (Cth) acknowledges and respects Legal Professional Privilege (LPP). This means the fundamental principle of LPP remains unchanged under the amended Act. Lawyers are not obligated to report privileged information in Suspicious Matter Reports (SMRs). The legislation ensures that the long-standing common law doctrine of LPP is preserved within the new anti-money laundering and counter-terrorism financing regime.
This explicit protection ensures that the new anti-money laundering obligations for the legal profession are carefully balanced with the need to maintain client confidentiality. The Anti-Money Laundering and Counter-Terrorism Financing Act 2024 (Cth) does not override Legal Professional Privilege, allowing lawyers to continue protecting client confidentiality while meeting their anti-money laundering obligations.
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Asserting LPP to AUSTRAC: A Lawyer’s Step-by-Step Guide to the Formal Process
If AUSTRAC requests information or documents and a lawyer believes that the information is protected by Legal Professional Privilege (LPP), they can refuse to provide it. However, to formally assert LPP, a specific procedure must be followed. Lawyers are required to submit a prescribed LPP Form to the CEO of AUSTRAC. This form must detail the grounds for claiming privilege.
It is important to note the following points regarding asserting Legal Professional Privilege to AUSTRAC:
- Prescribed Form Required: To assert LPP, lawyers must use the official LPP Form, which will be made available on the AUSTRAC website.
- Submission Trigger: The LPP Form is only required when a lawyer is directly refusing to provide information to AUSTRAC. There is no need to submit this form if a Suspicious Matter Report (SMR) is not filed because the information is believed to be privileged.
- No Waiver by Description: Providing AUSTRAC with a description of the information or document for which LPP is being claimed does not automatically waive Legal Professional Privilege.
Ministerial guidelines will be issued in the future to provide further guidance on managing and resolving assertions of Legal Professional Privilege. Lawyers should monitor the AUSTRAC website for the release of the LPP form and these guidelines to ensure they adhere to the correct process when asserting LPP.
Conclusion
The Anti-Money Laundering and Counter-Terrorism Financing Amendment Act 2024 (Cth) brings significant reform by extending anti-money laundering and counter-terrorism financing (AML/CTF) obligations to Australian lawyers providing designated services, commencing on July 1, 2026. These obligations mandate enrolment with AUSTRAC, the development of a tailored AML/CTF program, conducting thorough customer due diligence, adhering to strict reporting requirements, and maintaining comprehensive records. While the reforms acknowledge Legal Professional Privilege (LPP), legal practices must also be aware of their responsibilities under the Privacy Act 1988 (Cth).
To ensure your practice is ready for these changes and to confidently navigate the complexities of the new anti-money laundering and counter-terrorism financing regime, we encourage you to seek expert guidance. Contact our experienced team at Client A today to discover how our specialised knowledge in AML/CTF compliance for the legal profession can assist your firm in effectively preparing for and meeting these important new obligations.
