Complete Guide to Setting Up a Successful Australian AML Compliance Program

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Introduction

Establishing a robust anti-money laundering and counter-terrorism financing (AML/CTF) compliance program is crucial for Australian reporting entities that provide designated services. Mandated by the Anti‑Money Laundering and Counter‑Terrorism Financing Act 2006 (Cth) and overseen by the Australian Transaction Reports and Analysis Centre (AUSTRAC), these programs are essential for any organisation to identify, mitigate, and manage the risks of financial crime, thereby protecting the business and the integrity of the financial system. Compliance with AML/CTF laws ensures businesses are not exploited for money laundering (ML) or terrorism financing (TF).

Successfully navigating Australian AML/CTF compliance obligations requires a structured, risk-based approach, particularly emphasising developing an AML/CTF program tailored to each organisation’s risk profile and TF risk. This guide provides a comprehensive overview for reporting entities, including those in financial services and sectors potentially affected by upcoming reforms, detailing the necessary steps to build and maintain an effective AML/CTF compliance program designed to combat ML and TF and ensure compliance with AML/CTF regulations.

Understanding Your Australian AML/CTF Obligations

Key Legislation & AUSTRAC’s Role

The primary legal framework governing AML/CTF compliance in Australia is the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth). This Act establishes the core obligations for regulated businesses and outlines the functions of the main regulator. Its purpose is to deter, detect, and disrupt ML and TF, protecting businesses and the financial system from criminal exploitation.

Supporting the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) are the Anti-Money Laundering and Counter-Terrorism Financing Rules Instrument 2007 (No. 1) (Cth). These rules provide detailed requirements for meeting the obligations in the Act, such as specifics for AML/CTF programs and customer identification.

Other laws, like the Financial Transaction Reports Act 1988 (Cth), may still apply residual obligations to certain entities.

AUSTRAC is the central agency overseeing this regime. AUSTRAC holds a dual role:

• Regulator: It supervises businesses (‘reporting entities’) across various sectors to ensure they comply with the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) and Anti-Money Laundering and Counter-Terrorism Financing Rules Instrument 2007 (No. 1) (Cth). This involves providing guidance, monitoring compliance, and taking enforcement action when necessary.
• Financial Intelligence Unit (FIU): AUSTRAC collects and analyses financial intelligence reported by businesses to detect and disrupt ML/TF and other serious crimes, sharing insights with law enforcement and national security partners.

Who Needs an AML/CTF Program? 

A business becomes a ‘reporting entity’ with AML/CTF obligations if it provides one or more ‘designated services’ as defined in section 6 of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth). These services are activities identified as potentially vulnerable to ML or TF risks.

It is important to note that the specific activity, not the business’s primary industry, triggers these compliance requirements.

Designated services currently cover a range of activities, typically including those within sectors such as:

• Financial services (e.g., banking, lending, remittance, digital currency exchange)
• Gambling services (e.g., casinos, betting agencies, operators of gaming machines)
• Bullion dealing

For the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) obligations to apply, the provision of a designated service must also have a ‘geographical link’ to Australia. This link can be established if the service is provided through a permanent establishment in Australia, or by an Australian resident entity (or its subsidiary) through an overseas permanent establishment.

Furthermore, significant reforms, often referred to as ‘Tranche 2‘, are expanding the scope of the AML/CTF regime. These reforms extend obligations to Designated Non-Financial Businesses and Professions (DNFBPs), including certain services provided by:

• Lawyers
• Accountants
• Conveyancers
• Trust and company service providers
• Real estate professionals (agents, developers, buyers’ agents)
• Dealers in precious metals and stones

These newly regulated sectors are expected to be required to register with AUSTRAC and implement AML/CTF programs, with obligations likely commencing from mid-2026. Any business providing designated services must develop, implement, and maintain an appropriate AML/CTF compliance program to identify, mitigate, and manage its specific ML/TF risks.

Essential Components of a Compliant AML/CTF Program

The Foundational Risk-Based Approach

Your AML/CTF compliance program must be built upon a risk-based approach, as mandated by the Anti‑Money Laundering and Counter‑Terrorism Financing Act 2006 (Cth). This core principle requires that the controls, policies, and procedures you implement are proportionate to your organisation’s specific ML/TF risks.

This approach allows flexibility in meeting your compliance obligations but demands a thorough understanding and active management of your unique risk profile. Identifying and assessing these risks involves considering several key factors inherent to your operations:

• The nature, size, and complexity of your business
• The types of customers you serve, including their risk profiles and beneficial ownership structures
• The specific designated services you provide and their inherent vulnerabilities
• The methods or channels through which you deliver those services (e.g., face-to-face vs. online)
• The foreign jurisdictions you or your customers deal with, particularly those deemed high-risk

Once you have identified the potential ML/TF risks, you must assess:

• The likelihood of each risk occurring
• The potential impact or consequence if it did

This assessment allows you to tailor your AML/CTF compliance program effectively, implementing appropriate measures to mitigate and manage the identified vulnerabilities, without necessarily ceasing engagement with higher-risk clients or activities.

Part A: Your Risk Management Framework

Part A of your AML/CTF program outlines the organisation’s overarching systems, controls, policies, and procedures to identify, mitigate, and manage its ML/TF risks. It serves as the operational core of your compliance efforts.

According to the Anti-Money Laundering and Counter-Terrorism Financing Rules Instrument 2007 (No. 1) (Cth), Part A must encompass several critical elements:

• ML/TF Risk Assessment: A comprehensive, documented assessment identifying the specific ML/TF risks your business faces, based on factors like customers, services, channels, and jurisdictions. This assessment must be regularly reviewed and kept up-to-date.
• Board and Senior Management Approval and Oversight: The program requires formal approval from your board or senior management (or Chief Executive Officer (CEO) if no board exists). Crucially, there must be ongoing oversight from this level, demonstrating commitment and ensuring the program’s effective implementation and resourcing.
• AML/CTF Compliance Officer: You must appoint a designated AML/CTF compliance officer at the management level. This individual needs the appropriate authority, independence, and resources to oversee the program’s implementation, manage day-to-day compliance, and liaise with AUSTRAC.
• Employee Due Diligence (EDD) Program: Procedures must be in place to screen prospective and current employees, particularly those in roles vulnerable to ML/TF activities, to mitigate internal risks.
• AML/CTF Risk Awareness Training Program: An ongoing training program is required for all relevant staff (including management and contractors). This training should cover their obligations, the specific ML/TF risks the business faces, internal procedures, and the consequences of non-compliance.
• Consideration of AUSTRAC Guidance: Your program must include processes for monitoring and incorporating relevant guidance, feedback, and risk assessments published or provided by AUSTRAC.
• Reporting Systems and Controls: You need established systems and controls to ensure compliance with all mandatory reporting obligations to AUSTRAC, such as:
  • Suspicious Matter Reports (SMRs)
  • Threshold Transaction Reports (TTRs)
  • International Funds Transfer Instruction (IFTI) or International Value Transfer Service (IVTS) reports
• Ongoing Customer Due Diligence (OCDD) Systems and Controls: Part A must detail the systems for continuously monitoring customer relationships. This includes a transaction monitoring program to detect unusual activity and an Enhanced Customer Due Diligence (ECDD) program outlining procedures for high-risk situations.
• Independent Review: Procedures must ensure that Part A of the program is subjected to regular independent review to assess its effectiveness and compliance with the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) and Anti-Money Laundering and Counter-Terrorism Financing Rules Instrument 2007 (No. 1) (Cth).

Part B: Your Customer Identification Procedures

While Part A covers the broad risk management framework, Part B of your AML/CTF program focuses on the crucial procedures for identifying and verifying your customers, often called Know Your Customer (KYC) or Customer Due Diligence (CDD).

This part details exactly how your organisation ensures it knows who it is dealing with before providing any designated service. The mandatory elements documented in Part B typically include procedures outlining:

• Customer Information Collection and Verification: How you collect the minimum required KYC information for different customer types (e.g., individuals, companies, trusts) and the methods used to verify this information using reliable and independent documents or electronic data.
• Beneficial Owner Information: How you collect information about the beneficial owners of your customers (individuals who ultimately own or control the entity) and the steps taken to verify their identities.
• Politically Exposed Person (PEP) Determination: The processes used to determine whether a customer or their beneficial owner is a Politically Exposed Person (PEP), requiring enhanced scrutiny.
• Responding to Discrepancies: How your organisation addresses inconsistencies or discrepancies during customer information verification.
• Collecting Additional Information: The risk-based systems and controls used to decide when to collect or verify additional KYC information about a customer beyond the minimum requirements.
• Agent Identification: Procedures for collecting and verifying information about any person acting on your customer’s behalf (e.g., an agent or representative).

Step-by-Step: Building Your AML/CTF Program

Step 1: Conduct Money Laundering, Terrorism Financing and Proliferation Financing Risk Assessment

Conducting a thorough risk assessment is the first step in establishing an effective AML/CTF program. This assessment identifies and evaluates the specific risks of ML, TF, and proliferation financing (PF) that your business may face.

Key factors to consider include:

• Customer Types: Analyse the risk associated with different customer profiles, including individuals, corporations, and PEPs.
• Services Offered: Evaluate the inherent risks of your designated services, such as high-volume cash transactions or international transfers.
• Delivery Channels: Consider the risks associated with delivering face-to-face or online services.
• Jurisdictional Risks: Assess the risks linked to the countries you operate in, particularly those identified as high-risk by organisations like the Financial Action Task Force (FATF).

Step 2: Appoint an AML/CTF Compliance Officer

Each reporting entity must appoint an AML/CTF Compliance Officer (AMLCO) responsible for overseeing the implementation of the AML/CTF program.

The AMLCO must:

• Ensure compliance with AML/CTF obligations
• Oversee risk assessments, policies, training, transaction monitoring, and reporting to AUSTRAC
• Act as the primary liaison with AUSTRAC
• Hold managerial authority and meet AUSTRAC’s “fit and proper” standards

It is essential to notify AUSTRAC within 14 days of the appointment of the AMLCO.

Step 3: Develop & Document Your Program

Your AML/CTF program must be a formally written document that includes two main parts:

Part A focuses on risk management and outlines the policies and procedures to identify, mitigate, and manage ML/TF risks. This part must include:

• A documented risk assessment
• Approval and oversight from senior management or the board
• EDD and training programs
• OCDD systems and controls
• Procedures for reporting to AUSTRAC

Part B concentrates on KYC. This part must detail the following:

• How to collect and verify customer identities
• Procedures for identifying beneficial owners
• Enhanced due diligence for high-risk customers

Both parts require regular updates and must be approved by senior management.

Step 4: Implement Customer Due Diligence Systems

Implementing robust CDD procedures is critical for verifying customer identities before providing designated services.

Key elements include:

• Initial CDD: Verify customer identities using reliable documents and data.
• Ongoing CDD: Continuously monitor customer transactions and relationships to keep information current.
• Enhanced CDD: Apply additional scrutiny for high-risk customers, including PEPs, to assess their risk profiles.

The procedures must be documented and integrated into your AML/CTF program.

Step 5: Establish Transaction Monitoring and Reporting Mechanisms

Setting up effective transaction monitoring systems is essential for detecting unusual or suspicious activities.

This involves:

• Monitoring Transactions: Implement systems to identify transactions inconsistent with customer profiles or raise red flags, such as unusually large or complex transactions.
• Reporting Requirements: Ensure SMRs and TTRs are submitted to AUSTRAC within the required timeframes.

For example, SMRs must be filed within 24 hours for terrorism-related suspicions and within three days for other suspicious activities. Transparent processes for investigating alerts and submitting mandatory reports must also be established.

Step 6: Implement Employee Due Diligence and Training

EDD is crucial for mitigating risks associated with internal personnel.

This includes:

• Screening Employees: Conduct background checks and due diligence on employees accessing sensitive information or customer interactions.
• Training Programs: Develop and implement ongoing training for all relevant staff to ensure they understand AML/CTF obligations, risks, and procedures.

Training should cover:

• Identifying suspicious activities
• Reporting obligations
• CDD procedures

Regular training sessions should be conducted to keep staff updated on any changes in regulations or procedures.

Step 7: Set Up Robust Record-Keeping Practices

Maintaining accurate records is a fundamental requirement of your AML/CTF program.

You must:

• Keep records of customer identification, transaction details, AML/CTF program documentation, training logs, and independent reviews for at least seven years.
• Ensure that records are stored securely and are easily accessible for audits or AUSTRAC requests.
• To protect sensitive information, implement data security measures, such as encryption and access controls.

Regularly review your record-keeping practices to ensure compliance with AUSTRAC regulations.

Maintaining Program Effectiveness & Compliance

Ensuring Ongoing Senior Management & Board Oversight

Effective AML/CTF compliance relies heavily on commitment from the organisation’s top. The board of directors or senior management holds ultimate responsibility for the AML/CTF compliance program and must formally approve Part A of the compliance program.

This oversight involves more than just initial approval. Senior management must:

• Actively monitor the program’s performance
• Ensure it remains aligned with the organisation’s risk profile and compliance obligations
• Allocate adequate resources, including skilled personnel and necessary technology
• Support the AML/CTF framework and the AMLCO

Furthermore, leadership plays a crucial role in fostering a strong culture of compliance throughout the organisation. Receiving regular reports from the AMLCO on the program’s effectiveness, compliance levels, and any identified issues is essential for informed oversight.

Demonstrating a clear commitment to AML/CTF compliance helps mitigate and manage financial crime risks and reinforces the importance of adherence to AML/CTF regulations among all staff.

Conducting Regular Independent Reviews

To ensure ongoing effectiveness and adherence to the Anti‑Money Laundering and Counter‑Terrorism Financing Act 2006 (Cth) and Anti-Money Laundering and Counter-Terrorism Financing Rules Instrument 2007 (No. 1) (Cth), Part A of your AML/CTF program must undergo regular independent review. This review objectively assesses whether the program adequately addresses the identified ML/TF risks and meets all compliance obligations.

The frequency of these reviews should be determined using a risk-based approach, considering your organisation’s nature, size, complexity, and risk profile. While not strictly mandated, AUSTRAC guidance suggests reporting entities with higher ML/TF risk profiles should conduct reviews at least every two to three years. More frequent reviews may be necessary following significant business changes, regulation updates, or identifying major compliance issues.

The reviewer must be independent, meaning they were not involved in developing, implementing, or managing the specific aspects of the compliance program being reviewed. This role can be filled by qualified internal personnel (like internal audit staff separate from the compliance function) or external experts.

The scope of the review should cover key elements of Part A, including:

• The adequacy and currency of the ML/TF risk assessment
• The effectiveness of policies, procedures, and controls in managing identified risks
• Compliance with legal and regulatory requirements
• The effectiveness of the employee training program
• The performance of the transaction monitoring and reporting systems
• The adequacy of senior management oversight and the AMLCO role

Findings and recommendations from the independent review must be formally reported to senior management and the board. The organisation must address any identified deficiencies promptly to maintain program integrity and ensure compliance.

Conclusion

Establishing a successful Australian AML/CTF compliance program requires understanding your obligations under the Anti‑Money Laundering and Counter‑Terrorism Financing Act 2006 (Cth) and AUSTRAC‘s oversight. Key steps involve adopting a risk-based approach, implementing essential components like CDD and appointing an AMLCO, and ensuring ongoing effectiveness through senior management oversight and regular reviews.

To ensure your organisation effectively navigates these compliance obligations and mitigates financial crime risks, contact the experts at AML House today. Our specialised legal and consulting services provide the trusted expertise to build and maintain a robust AML/CTF compliance program tailored to your risk profile, transforming regulatory challenges into strategic opportunities.

Frequently Asked Questions (FAQ)