101 Checklist of All AML/CTF Compliance Risks & Red Flags for Australian DNFBPs

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Introduction

Designated Non-Financial Businesses and Professions (DNFBPs) in Australia, such as lawyers, accountants, and real estate agents, play a crucial role in the financial system but are also vulnerable to exploitation for money laundering and terrorism financing. The Australian Transaction Reports and Analysis Centre (AUSTRAC) and the Financial Action Task Force (FATF) have highlighted that the designated services these DNFBPs provide can be misused for criminal activity, including obscuring beneficial ownership and integrating illicit funds, underscoring the need for robust anti-money laundering and counter-terrorism financing (AML/CTF) compliance.

For your DNFBP, understanding and mitigating these money laundering and terrorism financing risks is paramount, especially with the impending Tranche 2 reforms to the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth). This guide offers an essential checklist and insights into AML/CTF red flags to help your organisation develop effective compliance programs, conduct thorough customer due diligence (CDD), and implement a risk-based approach, thereby strengthening Australia’s collective defence against financial crime.

Understanding DNFBPs & the Impact of Tranche 2 AML Regulations

The Vulnerability of Your DNFB to Money Laundering & Terrorism Financing (ML/TF) Risks 

DNFBPs in Australia—including lawyers, accountants, real estate agents, dealers in precious metals and stones, and casinos—are recognised as sectors with heightened exposure to money laundering and terrorism financing (ML/TF) risks. These professions often act as critical gatekeepers in the financial system, facilitating high-value transactions and the creation of complex corporate or trust structures. Such roles inherently carry vulnerabilities if not properly safeguarded.

Historically, many DNFBPs have operated outside the full scope of Australia’s AML/CTF obligations. This regulatory gap has made Australia an attractive venue for illicit financial activities and placed the country at odds with international standards, particularly those set by the FATF.

The services DNFBPs provide can be exploited, either knowingly or unwittingly, to:

• Obscure beneficial ownership
• Disguise the origin of illicit funds
• Integrate criminal proceeds into the legitimate economy

AUSTRAC’s 2024 Money Laundering National Risk Assessment highlights that criminals exploit professional service providers to establish complex business structures and banking arrangements that conceal illicit activity. The absence of AML/CTF obligations for many DNFBPs has contributed to these vulnerabilities, creating compliance gaps that criminals can leverage.

For example, real estate agents and legal professionals often facilitate transactions involving high-value assets like property, which are attractive for laundering proceeds of crime. Similarly, accountants and trust and company service providers may be involved in creating opaque ownership structures that hinder transparency.

The money laundering environment in Australia is characterised by persistent exploitation of legitimate financial channels, including those involving DNFBPs. Criminals use various methods such as:

• Layering through multiple accounts
• Using nominee directors or shareholders
• Exploiting cash-intensive businesses

The involvement of politically exposed persons (PEPs) and connections to high-risk jurisdictions further increase the vulnerability of DNFBPs to ML/TF risks.

Navigating Tranche 2 Reforms & New AML Compliance Obligations for Australian DNFBPs

The Tranche 2 reforms, effective from 1 July 2026, represent a significant expansion of Australia’s AML/CTF regulatory framework. These reforms extend comprehensive AML/CTF obligations to DNFBPs, including lawyers, accountants, real estate agents (including buyers’ agents and property developers), conveyancers, dealers in precious metals and stones, and trust and company service providers. This extension aligns Australia with FATF standards and addresses previously identified regulatory gaps.

Under these reforms, DNFBPs must:

• Enrol and Register with AUSTRAC: DNFBPs are required to enrol and register with AUSTRAC by 29 July 2026, ensuring they are formally recognised as reporting entities subject to AML/CTF obligations.
• Develop and Maintain a Risk-Based AML/CTF Program: DNFBPs must create tailored AML/CTF programs that reflect their specific size, complexity, and ML/TF risk profile. These programs should include comprehensive risk assessments, CDD, ongoing monitoring, staff training, and independent reviews at least every three years.
• Conduct Customer Due Diligence (CDD) and Enhanced Due Diligence (EDD): DNFBPs are obligated to identify and verify their customers and beneficial owners, understand the nature and purpose of business relationships, and apply enhanced scrutiny to higher-risk customers such as PEPs or those connected to high-risk jurisdictions.
• Report Suspicious Matters and Threshold Transactions: DNFBPs must submit Suspicious Matter Reports (SMRs) to AUSTRAC within prescribed timeframes when they suspect ML/TF activities. They must also report Threshold Transaction Reports (TTRs) for cash transactions of AUD 10,000 or more.
• Maintain Detailed Records: Comprehensive record-keeping of customer identification, transactions, risk assessments, and reports is mandatory, with records retained for a minimum of seven years.

The reforms also address the interaction between AML/CTF obligations and legal professional privilege (LPP). Legal professionals are not required to disclose information subject to LPP but must still comply with AML/CTF requirements such as establishing programs, conducting CDD, and reporting suspicious matters where privilege does not apply.

The scale of these reforms is substantial, bringing an estimated 100,000 additional businesses under AUSTRAC’s regulatory supervision. Many DNFBPs, especially small to medium-sized enterprises, may face a steep learning curve in implementing these obligations. Early preparation, education, and where necessary, seeking specialist advice, are essential to navigate this transition effectively.

Furthermore, the reforms enhance Australia’s international standing by addressing FATF-identified deficiencies related to DNFBPs. Compliance will improve the credibility and trustworthiness of DNFBP sectors, strengthen client relationships, and facilitate access to global markets where stringent AML/CTF standards are expected.

The Essential AML/CTF Risk & Red Flag Checklist for Your DNFBP Compliance

Cross-Sector Client Profile Red Flags for DNFBPs

Identifying potential risks early in client interactions is a cornerstone of effective AML/CTF compliance for all DNFBPs. Certain client behaviours and profile characteristics can serve as universal warning signs, prompting your organisation to conduct further scrutiny as part of your risk-based approach.

These red flags, often emerging during CDD or ongoing monitoring, are applicable across various DNFBP sectors and are crucial for a robust AML compliance program:

Red Flag Category	Description of Red Flag	Potential Implication
Identification Reluctance	Client is unusually reluctant to provide identification documents or information, or offers vague or suspicious details.	May be an attempt to conceal their true identity or use a fraudulent one to facilitate criminal activity.
Suspicious Documents	Identification documents provided appear counterfeit, altered, or expired.	Suggests the use of a fraudulent identity, a common tactic in ML/TF.
PEP Involvement	Client is a PEP, a close associate, or a family member of a PEP, with unusual transactions.	Indicates a higher risk of involvement in bribery, corruption, or the misappropriation of state funds.
Adverse Media Reports	Client is the subject of adverse media reports concerning financial crime, corruption, or links to criminal groups.	Points to potential involvement in illicit activities or association with high-risk individuals or entities.
Known Criminal Associations	Client has known criminal associations or convictions for serious offences, particularly financial crimes.	Increases the likelihood that funds or activities are linked to criminal activity.
Unusual Secrecy/Evasiveness	Client exhibits unusual secretiveness or evasiveness about their identity, beneficial ownership, or source of funds/wealth.	May be an attempt to hide illicit connections, obscure the true beneficial owner, or the purpose of transactions.
Lack of Verifiable Presence	Client operates a business lacking a verifiable online presence, where one would typically be expected.	Could indicate a shell company or a front for illicit operations, a common tool in financial crime.
Informal Communication	Client uses non-business email addresses (e.g., free webmail) for significant business transactions without good reason.	May suggest an attempt to avoid formal business records or scrutiny associated with AML compliance.
Acting for Undisclosed Third Party	Client appears to be acting on instructions from an undisclosed third party or is an unsuitable representative.	The true controlling party or beneficial owner may be attempting to remain hidden from reporting entities.
Frequent Detail Changes	Client frequently changes personal or contact details without a clear or logical reason.	Could be an attempt to evade detection or make tracing difficult for AML/CTF purposes.
Profile/Transaction Mismatch	Client’s stated occupation or financial profile is inconsistent with the nature or scale of requested transactions.	Suggests that funds may originate from undisclosed or illicit sources, requiring EDD.
Disinterest in Commercials	Client shows little interest in the commercial aspects or risks of a transaction, focusing only on its completion.	The transaction may be a means to an illicit end, such as laundering funds, rather than a genuine commercial venture.
High-Risk Jurisdiction Links	Client is from, or has significant unexplained links to, a high-risk jurisdiction known for weak AML/CTF controls.	Raises the risk of involvement with funds from high-risk sources, a key concern for AUSTRAC.
Undue Haste	Client pressures for transactions to be completed with undue haste without a legitimate commercial reason.	Urgency may be an attempt to rush illicit funds through the system before detection by AML compliance programs.
Complex/Obscuring Ownership	Client’s entity has an overly complex ownership structure designed to obscure beneficial ownership.	This is a common method used to hide the true individuals controlling or benefiting from criminal activity.

Sector-Specific Anomalies & Red Flags for Accountants

Accountants are integral to financial reporting and corporate structuring, making their services potentially attractive for misuse in ML/TF schemes. Specific anomalies and red flags can indicate that an accountant’s services are being exploited to create opaque structures, disguise beneficial ownership, or legitimise illicit funds.

Recognising these sector-specific indicators is vital for maintaining robust AML/CTF compliance and upholding the integrity of the financial system:

Accountant-Specific Red Flag	Description of Red Flag	Potential Implication
Unjustified Complex Structures	Client requests the creation of unusually complex corporate or trust structures, especially involving multiple jurisdictions, without clear economic or legal justification.	Attempt to obscure beneficial ownership, layer funds, or facilitate tax evasion, a key concern for AML compliance.
Shell Company Involvement	Transactions involve shell companies or entities with no apparent commercial activity or economic substance.	Use of such entities to disguise the origin of funds or facilitate pass-through transactions as part of a money laundering scheme.
Frequent Ownership Changes	Frequent or unexplained changes in company directors, shareholders, or beneficial owners, particularly if nominees are used.	Attempt to obscure control or distance illicit actors from the entity, hindering CDD efforts.
Persistent Operating Losses	A company client consistently reports operating losses but continues to trade without a plausible explanation.	May be a front company used to launder funds or disguise other illicit activities, requiring a thorough risk assessment.
Sudden Dormant Co. Activity	A previously dormant company or a newly formed entity suddenly engages in large or unusual financial activity.	Could indicate the activation of a shell company for money laundering purposes, triggering AML/CTF scrutiny.
Circular Transactions	Transactions appear circular, with funds moving between related entities or returning to the originator with no clear commercial purpose.	Classic layering technique to confuse the audit trail and obscure the source of illicit funds from reporting entities.
Trust Account Misuse (Banking)	Client requests the use of the accountant’s client trust account for transactions that should ordinarily be conducted through the client’s own bank accounts.	Attempt to use the accountant’s professional status to add legitimacy or obscure fund movements, a high-risk activity.
Unexplained Trust Funds	Unexpected or unexplained funds are received into the client trust account, followed by immediate instructions for their onward payment.	The trust account may be used as a temporary holding facility for illicit funds, bypassing standard AML controls.
Falsified Records	Client provides financial statements or records that appear falsified, incomplete, or intentionally misleading.	Attempt to disguise illicit income, evade taxes, or mislead authorities, constituting financial crime.
Unusual Payment Methods	Client is involved in transactions using unusual means of payment, such as large volumes of cash or cryptocurrencies, for services.	These payment methods can offer anonymity and may be preferred by those involved in ML/TF.
Bypassing Professional Advice	Client requests the formation of legal persons or arrangements without seeking appropriate legal or tax advice.	May indicate an attempt to bypass proper scrutiny or create structures for illicit purposes, a red flag for AML/CTF compliance.
Disinterest in Rationale	Client shows disinterest in the commercial rationale or tax implications of structures being created, focusing only on speed or opacity.	Suggests the primary motive may not be legitimate business, but rather the facilitation of criminal activity.
Nominee Overuse	Client requests that the accountant act as a nominee director or shareholder for multiple unrelated entities without clear justification.	This can be a method to obscure the true beneficial owner and control of various entities involved in illicit schemes.
Trade-Based ML Indicators	Transactions involve over-invoicing or under-invoicing of goods or services, particularly in international trade.	This is a common technique in trade-based money laundering to move value across borders illicitly.
Disproportionate Fees	Client makes significant payments for services that appear disproportionate to the actual work performed by the accountant.	Could be a way to inject illicit funds into the legitimate financial system or to compensate the accountant for complicity.

Sector-Specific Anomalies & Red Flags for Real Estate Agents

The real estate sector is highly susceptible to ML/TF due to the high value of transactions and the ability of property to store and transfer wealth. Real estate agents, as gatekeepers in these transactions, must be vigilant for sector-specific red flags.

These indicators can help identify attempts to use property deals to obscure the origins of illicit funds, disguise beneficial ownership, or integrate criminal proceeds into the legitimate economy, which is crucial for AML/CTF compliance:

Real Estate Red Flag	Description of Red Flag	Potential Implication
Overpayment/No Negotiation	Buyer is willing to purchase a property significantly above the asking price or market value without negotiation.	May be an attempt to quickly inject a large sum of illicit funds into a legitimate asset, a common money laundering tactic.
Obscured Ownership (Purchase)	Client uses nominees, complex trust arrangements, or corporate structures (especially offshore) to purchase property with no clear business rationale.	Attempt to obscure the true beneficial owner of the property, a key concern for CDD and AML compliance.
Lack of Property Interest	Purchaser shows little or no interest in viewing the property, its condition, or location, particularly for high-value properties (“sight-unseen” purchases).	The property may be primarily a vehicle for laundering money rather than for genuine use or investment.
High-Risk Payment Methods	Transactions involve large cash deposits or significant use of cryptocurrencies for down payments or full settlement.	Cash and certain cryptocurrencies can obscure the source of funds, making them attractive for criminal activity.
High-Risk Fund Origin	Purchase funds originate from high-risk jurisdictions, multiple unrelated offshore accounts, or sources inconsistent with the buyer’s profile.	Funds may be proceeds of crime channelled through jurisdictions with weak AML/CTF controls, warranting EDD.
Last-Minute Changes	Sudden or unexplained last-minute changes to the source of funds, funding arrangements, or the identity of the purchaser.	May indicate an attempt to introduce illicit funds or obscure the true party at the final stage of the transaction.
Third-Party Disbursements	Client requests that deposits, overpayments, or sale proceeds be disbursed to unrelated third parties or multiple accounts without clear justification.	Attempt to layer funds or distribute illicit proceeds, a pattern indicative of money laundering.
Rapid Property Flipping	Property is “flipped” (bought and quickly resold) multiple times in short succession, with unexplained or inflated increases in value.	Can be a method to legitimise illicit funds by creating a false paper trail of appreciating asset value, a high-risk activity.
Inconsistent Funding Profile	The transaction value or funding method is significantly inconsistent with the buyer’s declared income, wealth, or business profile.	Discrepancy suggests undisclosed or illicit sources of funds, requiring investigation by reporting entities.
Client Evasiveness/Anonymity	Client is reluctant to meet in person, provides minimal information, or uses intermediaries to obscure their identity or involvement.	Attempt to avoid scrutiny and maintain anonymity, hindering effective CDD.
High-Risk Prof. Involvement	Use of third-party professionals (e.g., lawyers, accountants) from high-risk jurisdictions without clear necessity.	May facilitate the movement or structuring of illicit funds, increasing the ML/TF risk.
Anomalous Foreign Buyer	Property is purchased by a foreign national or entity with no apparent ties to Australia or logical reason for the investment.	Could be an attempt to move and store illicit wealth offshore, a concern for Australia’s AML/CTF regime.
Due Diligence Avoidance	Client seeks to avoid standard due diligence procedures or expresses disinterest in typical contractual protections.	May indicate an attempt to bypass scrutiny, or that the transaction’s legitimacy is not the primary concern for the PEP.
Criminal Property Association	The property involved is known to be associated with criminal activity or individuals linked to financial crime.	Direct link to potential proceeds of crime, requiring immediate attention under AML/CTF obligations for DNFBPs.
Anomalous Rental Income	Rental income from a property is unusually high or paid in cash, inconsistent with market rates or tenant profiles.	May be a method to legitimise illicit funds by creating a seemingly legitimate income stream.

Sector-Specific Anomalies & Red Flags for Legal Professionals & Conveyancers

Legal professionals and conveyancers are involved in a wide array of client advisory services, litigation, and transactional work, including the creation of legal entities and the facilitation of financial and commercial transactions. This central role can be exploited for ML/TF if not carefully managed.

Identifying sector-specific red flags is crucial for these DNFBPs to meet their AML/CTF compliance obligations and prevent their services from being misused to obscure beneficial ownership or legitimise criminal proceeds:

Legal/Conveyancing Red Flag	Description of Red Flag	Potential Implication
Unusual Service Request	Client seeks legal services in an area outside the firm’s usual expertise or is unusually insistent on using a specific lawyer.	May be an attempt to find a less scrutinising advisor or exploit a perceived vulnerability within the organisation.
Third-Party Instructions	Instructions for a matter appear to be coming from an unidentified or unverified third party, or the client seems to be a mere front.	The true beneficial client or controller may be concealed, a common tactic in financial crime.
Trust Account as Bank	Client wishes to use the law firm’s trust account as a banking facility (i.e., for receiving and paying out funds unrelated to legal services).	Misuse of the trust account to add legitimacy or obscure fund movements, a high-risk activity under AML/CTF laws in Australia.
Trust Pre-Funding Anomaly	Client deposits significant funds into the trust account before any substantive legal work is requested or performed, or without clear purpose.	The trust account may be used for temporary placement of illicit funds, requiring careful transaction monitoring.
Suspicious Settlements	Litigation or a commercial dispute settles quickly, on unusually favourable terms, or with little input required from the legal professional.	The legal process may be a pretext for transferring or legitimising funds, rather than a genuine dispute resolution.
Opaque Structure Creation	Client requests the creation of complex or opaque legal structures (e.g., multiple layers of companies, trusts in various jurisdictions) without a legitimate commercial or personal reason.	Attempt to obscure beneficial ownership, control, or the source/destination of assets, a key ML/TF risk.
Excessive/Disproportionate Fees	Client is willing to pay excessively high fees, or fees disproportionate to the services rendered, especially for creating complex structures.	May be an incentive to overlook irregularities or an attempt to inject more illicit funds into the financial system.
Rapid Asset Resale via Firm	Transactions involve the rapid purchase and resale of assets (e.g., businesses, property) through companies or trusts set up by the firm.	Potential layering or integration of illicit funds through seemingly legitimate transactions, a pattern AUSTRAC monitors.
Suspicious Refund Requests	Client decides not to proceed with a transaction or matter shortly after depositing funds into trust, then requests a refund to a different account or a third party.	Classic money laundering indicator; an attempt to “clean” funds by passing them through a professional’s account, a designated service.
Shell Co./High-Risk Links	Client is involved in setting up or managing shell companies, or facilitating transactions with entities based in high-risk or secrecy jurisdictions without clear legitimate reasons.	These entities are commonly used in money laundering schemes and pose a significant ML/TF risk.
Unclear/Unusual Fund Source	The source of funds for a transaction or retainer is unclear, unusual, or inconsistent with the client’s known profile or business.	Funds may originate from criminal activity, necessitating EDD by the DNFBP.
Unrelated Party Inclusion	Client requests that individuals with no apparent relation to the matter be included in communications or meetings.	May indicate oversight or direction from undisclosed parties, potentially the true beneficial owner.
Unusual AML Policy Interest	Client shows unusual interest in the firm’s AML/CTF policies or reporting thresholds, or asks hypothetical questions about avoiding detection.	Indicates a potential awareness of AML regulations and an intention to circumvent them.
Vague/Contradictory Instruct.	Client provides instructions that are vague, contradictory, or change frequently without logical explanation.	May suggest the client is unsure of their objectives or is attempting to create confusion to facilitate illicit activity.
Bearer Share Requests	Client requests the use of bearer shares or other anonymous instruments in corporate structures.	Bearer shares make it difficult to identify the beneficial owner and are considered high-risk for money laundering.

Sector-Specific Anomalies & Red Flags for Casinos & Bullion Dealers

Casinos and dealers in precious metals and stones (bullion dealers) are distinct DNFBP sectors with unique vulnerabilities to ML/TF. Casinos handle large volumes of cash and involve numerous financial transactions, while bullion dealers trade in high-value, easily transportable assets that can store wealth anonymously.

Recognising sector-specific red flags is essential for these businesses to fulfil their AML/CTF compliance obligations and prevent their services from being exploited for financial crime.

Casinos:

Casino Red Flag	Description of Red Flag	Potential Implication
Threshold Structuring	Patron purchases chips, gaming machine credits, or deposits funds in amounts just below reporting thresholds (e.g., under A$10,000) repeatedly (structuring).	Attempt to avoid TTR obligations and scrutiny associated with large cash transactions, a common AML concern.
Minimal Gameplay Cashout	Patron engages in minimal or no gameplay after purchasing chips or depositing funds, then quickly cashes out or requests a cheque/transfer.	Using the casino as a pass-through mechanism to convert illicit cash into seemingly legitimate winnings or funds, a form of money laundering.
Cash Refining Activity	Frequent exchange of small denomination banknotes for large ones, or vice versa, at the casino cage without commensurate gaming activity.	Refining cash (making it less bulky or easier to use) or attempting to disguise its source, indicating potential criminal activity.
Third-Party Gambling/Trans.	Patron uses third parties (money mules or nominees) to gamble, purchase chips, collect winnings, or conduct transactions on their behalf.	Attempt to obscure the true identity of the individual controlling the funds or activity, a tactic to bypass CDD.
Third-Party Winnings Payout	Patron requests that winnings be paid to a third party, split among multiple individuals, or issued in a name different from their own.	Attempt to distribute laundered funds or obscure the ultimate beneficiary, a high-risk transaction pattern.
Unusual Wire Transfers	Unusual or unexplained wire transfer activity into or out of casino accounts, especially involving high-risk jurisdictions or unrelated parties.	Casino accounts may be used for layering or transferring illicit funds internationally, increasing ML/TF risk.
PEP Transactions/Evasiveness	Patron is identified as a PEP (or linked to one) and conducts large cash transactions or is evasive about their source of funds.	Higher risk of corruption-related proceeds being laundered, requiring EDD by the reporting entity.
Anomalous Chip Redemption	Redeeming chips, tickets, or gaming credits for cash or cheques by an individual who is not the person who originally purchased them or played.	May indicate transfer of value or an attempt by the original purchaser to remain anonymous, a red flag for AML compliance programs.

Bullion Dealers (Dealers in Precious Metals and Stones):

Bullion Dealer Red Flag	Description of Red Flag	Potential Implication
Large Cash Purchases	Client purchases high-value bullion or precious stones with large amounts of cash, especially if structured below reporting thresholds.	Cash is a preferred medium for illicit funds, and such purchases can be an attempt to convert criminal proceeds into easily transportable, high-value assets.
Disinterest in Product	Client shows little interest in the price, quality, or provenance of the bullion or stones, focusing only on the transaction’s completion.	The primary motive may be to launder money rather than make a legitimate investment in precious metals.
Quick Resale/Payment	Client requests to sell bullion or stones shortly after purchase, potentially at a loss, and requests payment to a third party or in a different form.	This could be a method to quickly “clean” funds or transfer value in a disguised manner.
High-Risk Jurisdiction Link	Transactions involve individuals or entities from high-risk jurisdictions with no clear connection to the bullion trade.	May indicate an attempt to move illicit funds internationally using precious metals as a vehicle.
Secrecy on Use/Destination	Client is unusually secretive about the intended use or destination of the purchased bullion or stones.	Could suggest the items are intended for illicit purposes or to be smuggled.
Complex Purchase Structures	Client uses complex corporate structures or intermediaries to purchase bullion, obscuring the true beneficial owner.	An attempt to hide the identity of those controlling the funds used for the purchase, a key AML risk.
Frequent Atypical Trading	Client frequently buys and sells bullion or precious stones without a clear economic rationale or in a manner inconsistent with typical investment strategies.	This pattern may indicate the use of bullion trading for layering or integrating illicit funds.
Unusual Storage/Delivery	Client requests unusual storage or delivery arrangements for purchased bullion, such as to a high-risk location or via an unverified third party.	May be an attempt to move the assets outside regulatory oversight or into the hands of criminal associates.

Transaction Pattern Red Flags Indicating Potential AML Compliance Issues

The way transactions are structured and conducted can reveal attempts to move, disguise, or legitimise illicit funds. DNFBPs across all sectors must be alert to transaction patterns that deviate from normal business activity or appear designed to evade AML/CTF scrutiny.

Identifying these red flags is a critical part of ongoing CDD and helps ensure compliance with anti-money laundering regulations:

Transaction Pattern Red Flag	Description of Red Flag	Potential Implication
Threshold Structuring	Structuring transactions to fall just below reporting thresholds (e.g., multiple cash deposits or withdrawals slightly less than A$10,000).	Deliberate attempt to avoid triggering TTRs or other reporting requirements, a classic money laundering technique.
Inconsistent Volume/Value	Unusually large or frequent transactions that are inconsistent with the client’s known legitimate business activities, income, or past behaviour.	Indicates a potential change in activity that may be linked to illicit funds, requiring a review of the customer risk profile.
Layering Activity	Rapid movement of funds between multiple accounts, individuals, or institutions with no apparent legitimate economic or business purpose (layering).	Attempt to obscure the origin and audit trail of funds, a common stage in ML/TF.
Shell Company Involvement	Transactions involving known or suspected shell companies or entities with no clear business operations or economic substance.	Shell companies are frequently used to disguise beneficial ownership and facilitate illicit fund flows, a high-risk indicator for DNFBPs.
Multiple Account/Party Use	Use of multiple accounts, often across different institutions, or numerous third parties to conduct a series of related transactions.	Attempt to complicate the transaction trail and make it harder to trace the source or destination of funds, hindering financial intelligence efforts.
Overly Complex Transactions	Transactions that are overly complex or involve convoluted steps for no logical or documented commercial reason.	Complexity may be intentionally introduced to confuse investigators or obscure the true nature of the criminal activity.
Sudden Transaction Increase	Sudden and unexplained significant increase in the volume or value of transactions conducted by a client.	May signal the commencement of a money laundering operation or a change in the scale of illicit activity by the customer or beneficial owner.
Unrelated Third-Party Pay.	Payments made to, or received from, unrelated third parties without clear justification or connection to the client’s stated business.	Funds may be directed to associates in a criminal enterprise or used to obscure the flow of illicit proceeds, a breach of AML compliance.
Unusual Cash Use	Significant use of cash in businesses or transactions that are not typically cash-intensive.	Cash is anonymous and difficult to trace, making it a preferred medium for money launderers and those financing terrorism.
Rapid Fund Movement	Immediate transfer or withdrawal of funds shortly after they are deposited, especially if funds are moved to high-risk services or jurisdictions.	May indicate placement and immediate layering of illicit funds, a pattern that should trigger suspicion for reporting entities.
High-Value Portable Goods	Transactions involving the purchase or sale of high-value portable goods (e.g., precious metals, gems, luxury art) that can be easily moved across borders.	These goods can be used to store and transfer value anonymously, posing an ML/TF risk.
Anomalous Loan Arrangements	Loan arrangements with unusual terms, such as no collateral, unusually high/low-interest rates, or rapid repayment from unexplained sources.	Sham loans can be used to disguise illicit payments or inject laundered funds into the legitimate financial system.

High-Risk Jurisdiction Indicators for Your DNFBP

Geographic risk is a fundamental element of any effective AML/CTF risk assessment. Transactions, clients, or beneficial owners connected to certain jurisdictions warrant heightened scrutiny due to factors like weak AML/CTF regimes, high levels of corruption, or designation by international bodies like the FATF.

DNFBPs must stay informed about current advisories from AUSTRAC and FATF concerning high-risk and other monitored jurisdictions to tailor their compliance programs effectively:

Jurisdictional Red Flag	Description of Red Flag	Potential Implication
Client Link to High-Risk Jurisdiction	Client is a citizen or resident of, or their entity is incorporated in, a jurisdiction identified by FATF as high-risk or under increased monitoring, or by AUSTRAC.	Increased likelihood of exposure to ML/TF due to weaker AML/CTF regimes or higher levels of predicate criminal activity in that jurisdiction.
Funds To/From High-Risk Jurisdiction	Transactions involve funds or assets originating from, or being sent to, such high-risk jurisdictions without a clear, legitimate economic or business reason.	Funds may be proceeds of crime or destined for illicit purposes, leveraging weaker regulatory environments and posing a risk to your organisation.
Secrecy Haven Corp. Vehicles	Use of corporate vehicles (e.g., shell companies, International Business Companies) registered in known secrecy havens or jurisdictions with poor beneficial ownership transparency.	These jurisdictions facilitate the concealment of true ownership and control, a common tactic in financial crime and terrorism financing.
Evasion on Jurisdictional Links	Client is reluctant to explain or provides vague or implausible reasons for connections to, or transactions with, high-risk jurisdictions.	Attempt to obscure potentially illicit links or activities, requiring EDD by the DNFBP.
Sudden High-Risk Jurisdiction Involvement	Sudden or unexplained involvement of a high-risk jurisdiction in a previously domestic transaction or business relationship.	May indicate a new avenue for laundering funds or an attempt to introduce opacity into the transaction, a concern for AML compliance.
High-Risk Jurisdiction Assets	Assets used to secure a loan or other financing are located in a high-risk jurisdiction, making verification and recovery difficult.	The assets may be non-existent, overvalued, or proceeds of crime, increasing the risk profile of the transaction.
Offshore Secrecy Jurisdiction Payments	Company client is invoiced by, or makes payments to, organisations based in offshore secrecy jurisdictions with little transparency in ownership or services provided.	Payments may be for fictitious services or part of a trade-based money laundering scheme, a method to move illicit funds.
Family/Associate High-Risk Links	Client has family members or close business associates in high-risk jurisdictions, and transactions involve these connections without clear rationale.	Personal connections may be exploited to facilitate illicit fund flows, bypassing standard AML controls.
Frequent High-Risk Jurisdiction Travel	Client frequently travels to high-risk jurisdictions without a clear business or personal purpose aligned with their profile.	Travel may be related to managing or moving illicit assets, or engaging in activities that pose an ML/TF risk.
Correspondent Banking (High-Risk)	Transaction involves correspondent banking relationships with institutions in high-risk jurisdictions.	Higher risk of nested accounts and opaque downstream activity, making it difficult for reporting entities to conduct effective transaction monitoring.

Document & Verification Gap Red Flags in AML Compliance

Robust CDD relies heavily on obtaining, verifying, and maintaining accurate customer information and documentation. Gaps, inconsistencies, or suspicious elements related to documentation and verification are significant red flags in AML/CTF compliance.

DNFBPs must have stringent procedures to identify these gaps, as they can indicate attempts to use fraudulent identities, obscure beneficial ownership, or evade scrutiny, all of which are critical for an effective risk-based approach:

Document/Verification Red Flag	Description of Red Flag	Potential Implication
Suspicious ID Documents	Client provides identification documents that appear to be forged, altered, expired, inconsistent, or cannot be reliably authenticated.	Attempt to use a fraudulent identity or conceal true identity, a primary concern for AML compliance and CDD.
Inconsistent ID Information	Significant inconsistencies are found across different identification documents provided by the client, or between documents and information supplied verbally.	Indicates unreliable information or potential identity fraud, undermining the integrity of the customer risk assessment.
Reluctance to Provide ID/Info	Client is reluctant, evasive, or refuses to provide required identification, verification, or beneficial ownership information without a valid reason.	Attempt to avoid scrutiny or conceal information that would reveal a higher risk of ML/TF.
False/Unverifiable Info	Information provided by the client (e.g., address, company registration details, source of funds) is found to be false, misleading, or cannot be independently verified.	Indicates deception and an attempt to create a false profile, a serious breach of AML/CTF obligations for DNFBPs.
Intermediary to Avoid Scrutiny	Client attempts to use an intermediary or third party to conduct transactions or provide information, seemingly to avoid direct identification or scrutiny.	The true client or beneficial owner may be attempting to remain anonymous or distance themselves from the transaction, a common tactic in financial crime.
Obscured Beneficial Ownership	The beneficial ownership structure of a corporate client is overly complex, involves bearer shares, or appears designed to obscure the true ultimate beneficial owners.	Deliberate attempt to hide the individuals who ultimately own or control the entity, making it difficult to comply with AML regulations regarding beneficial ownership.
Pressure to Bypass Verification	Client pressures to proceed with a transaction or service before satisfactory completion of identification and verification procedures.	May be an attempt to rush through a transaction before proper scrutiny can be applied, potentially to move illicit funds quickly.
Discrepancies with Public Rec.	Significant discrepancies arise between information provided directly by the client and information obtained from independent public records or due diligence checks.	Client may be misrepresenting facts or attempting to conceal adverse information, a red flag for reporting entities.
Unclear Source of Funds/Wealth	Client is unable or unwilling to provide satisfactory evidence or explanation for their source of funds or source of wealth.	Funds may originate from illicit activities that cannot be legitimately explained, a core concern for AML/CTF efforts.
Nominee Misuse/Lack of Knowledge	Nominee directors or shareholders are used without a clear commercial rationale, or the nominee is unable to explain the entity’s business activities.	Suggests the nominee arrangement is primarily to obscure the true controlling parties of the organisation.
Untranslated/Unverified Docs	Documents are provided in a language that cannot be easily verified by the DNFBP, and the client is unwilling to provide certified translations.	This can hinder the verification process and may be an intentional tactic to obscure information.
Copies Only/No Originals	The client provides only copies of documents and is unwilling or unable to provide originals for verification when requested.	Copies are easier to falsify, and reluctance to provide originals can be a sign of deception.

Internal Control Weakness Indicators for Your DNFBP

The effectiveness of a DNFBP’s AML/CTF compliance program is heavily reliant on its internal controls, governance structures, and overall compliance culture. Weaknesses in these internal areas can undermine any system for identifying external red flags and can expose the organisation to significant risks of non-compliance and exploitation by criminals.

Recognising these internal control weaknesses is crucial for remediation and for building a resilient defence against ML/TF:

Internal Control Weakness	Description of Red Flag	Potential Implication
Lack of Senior Mgmt. Commitment	Lack of demonstrable senior management or board oversight, commitment, or adequate resourcing for AML/CTF compliance.	Compliance may not be taken seriously within the organisation, leading to an ineffective program and increased risk of financial crime.
Ineffective Compliance Officer	The appointed AML/CTF Compliance Officer is too junior, lacks sufficient authority, independence, resources, or expertise to perform their role effectively.	The compliance function will be weak and unable to drive necessary changes or enforce policies, undermining the risk-based approach.
Inadequate Staff Training	Inadequate, infrequent, or no specific AML/CTF training provided to relevant staff, or training is not tailored to their roles and responsibilities.	Staff will be unable to identify red flags, understand their obligations, or follow procedures correctly, compromising CDD.
No Independent Program Review	Failure to conduct or document regular, independent reviews or audits of the AML/CTF program’s effectiveness and compliance with legislation.	Deficiencies in the program may go undetected and unaddressed, perpetuating risks and compliance gaps identified by AUSTRAC.
Poor Record-Keeping	Poor or inconsistent record-keeping practices for CDD information, transaction details, risk assessments, or SMR decision-making.	Inability to demonstrate compliance, reconstruct transactions, or support investigations, a critical failure in AML/CTF obligations for DNFBPs.
Generic/Outdated AML Program	The AML/CTF program is generic, not tailored to the DNFBP’s specific risks, or is not regularly updated to reflect changes in business activities, products, risks, or regulatory guidance.	The program will be ineffective in addressing the actual ML/TF threats faced by the business.
No Clear Escalation Procedures	No clear or consistently followed procedures for escalating suspicious activities or potential red flags to the AML/CTF Compliance Officer or senior management.	Suspicious matters may not be reported appropriately or in a timely manner, hindering the organisation’s ability to combat money laundering.
Compliance Override Culture	A culture where sales or business targets override compliance considerations, or where staff are discouraged from raising AML/CTF concerns.	This can lead to high-risk clients being onboarded or suspicious transactions being overlooked, increasing the risk of criminal activity.
Over-Reliance on Manual Proc.	Over-reliance on manual processes for AML/CTF tasks like screening and transaction monitoring, especially in larger or higher-risk DNFBPs, leading to errors or inefficiencies.	Manual processes may not be scalable or effective enough to manage AML/CTF risks adequately, particularly with PEPs.
Failure to Act on Review Finds.	Failure to act on findings or recommendations from previous independent reviews, audits, or regulatory feedback regarding AML/CTF controls.	Indicates a lack of commitment to improving compliance and addressing known weaknesses within the DNFBP’s compliance program.

How to Meet Your AML Reporting Obligations

Understand & File Suspicious Matter Reports for Your DNFBP

DNFBPs have a critical role in combating financial crime, which includes the obligation to submit SMRs to AUSTRAC.

An SMR must be filed if your organisation forms a suspicion on reasonable grounds that:

• A customer is not who they claim to be
• A transaction, attempted transaction, or any matter is linked to criminal activity such as:
  • Money laundering
  • Terrorism financing
  • Tax evasion
  • Dealing with proceeds of crime
  • Any offence against a Commonwealth, State, or Territory law

The concept of “suspicion on reasonable grounds” is central to this obligation. It signifies a level of certainty that is more than a vague unease, but less than requiring concrete proof. This assessment should be based on an objective evaluation of available facts, including any identified red flags and your organisation’s knowledge of the client and their typical activities.

Given the subjective element in forming a suspicion, it is vital for DNFBPs to establish clear internal processes and escalation procedures, with the AML/CTF Compliance Officer playing a key part in the decision to submit an SMR.

The timelines for submitting SMRs are stringent and depend on the nature of the suspicion:

• If the suspicion relates to terrorism financing, the SMR must be submitted to AUSTRAC within 24 hours of forming the suspicion
• For suspicions related to other matters, such as money laundering or other predicate offences, the SMR must be submitted within 3 business days of forming the suspicion

It is crucial to remember that “tipping off” is a serious criminal offence. This means your DNFBP must not disclose to the customer or any unauthorised third party that an SMR has been submitted, or is due to be submitted, if such a disclosure is likely to prejudice an investigation. AUSTRAC provides guidance and resources to assist reporting entities in understanding their SMR obligations.

Report Large Cash Deals

In addition to SMRs, DNFBPs must submit TTRs to AUSTRAC for certain transactions. This requirement applies when your DNFBP provides a designated service that involves a transfer of physical currency (cash) of A$10,000 or more, or the foreign currency equivalent.

This obligation is designed to help AUSTRAC track large cash movements, which are considered inherently high-risk for ML/TF.

The TTR must be submitted to AUSTRAC within 10 business days after the date of the transaction. It is an objective reporting requirement triggered by a clear monetary threshold. While certain transactions, such as those between Authorised Deposit-taking Institutions (ADIs), may be exempt, most typical DNFBP transactions with clients involving A$10,000 or more in physical currency will be reportable under the new Tranche 2 anti-money laundering regulations.

DNFBPs must be vigilant for attempts by clients to “structure” transactions to avoid this reporting threshold. Structuring involves conducting multiple cash transactions just below the A$10,000 limit to deliberately avoid triggering a TTR.

While structuring itself is a significant red flag that would warrant consideration for an SMR, each individual cash transaction of A$10,000 or more still independently requires a TTR to be filed with AUSTRAC. These reporting obligations are a key part of your DNFBP’s AML compliance program.

Conclusion

Effectively navigating Australia’s AML/CTF landscape is crucial for DNFBPs, especially with the impending Tranche 2 reforms that expand compliance obligations. Understanding your organisation’s vulnerabilities, implementing robust CDD, diligently applying the risk and red flag checklist, and adhering to AUSTRAC’s reporting requirements for SMRs and TTRs are paramount to combating financial crime.

To ensure your DNFBP is fully prepared and can transform these regulatory challenges into strategic opportunities, contact AML House today for specialised legal and consulting services. Our trusted expertise in AML/CTF compliance, including navigating complex Tranche 2 regulations, will help strengthen your defences and provide peace of mind for your Australian organisation.

Frequently Asked Questions (FAQ)